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Home Building Contractor Allowances
Contractor Allowances are Funds Set Aside by
the Contractor for the Homeowner to Select Certain Building Materials
By Mark J. Donovan
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Question: Mark, I read with
great interest your "Home Building Contractor Checklist" article as my husband
and I are in the process of starting a home building project and about to sign a
contract for same. Thanks to you and your home building checklist article, my
husband and I were able to be more educated with what a home building contract
should include. I am thankful that I am a "saver" because your article became
part of our building file and, therefore, I had your contact info available for
a question that has arisen. Hoping you can offer comments.
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Our building contract includes
"Allotments" for different items in the building process, i.e. kitchen/bath
cabinets and counters, flooring, light fixtures, etc. We understand clearly that
if we go over the allotment amount, we are responsible for payment of any
additional dollars spent. However, my question is, if we do not meet the
allotment amount and spend less, what is supposed to happen to the balance
remaining?
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Our builder informs us that any
unused allotment goes back to him and his working capital and does not get
credited to us or used for any other purchase we may require. This was not
spelled out in the building contract and we assumed that if we did not spend the
entire allotment there would be a credit back to us or the funds could be used
elsewhere in the project. The contract verbiage only discusses our
responsibility should we spend over the allotment amount. What is the standard
procedure in this regard? If you could address this question, we would be most
grateful.
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Answer: N.U., What your
building contractor is doing is very common. Builders I’ve worked with in the
past typically use the word “allowance” in their contracts for describing monies
set aside for the homeowner to select various building materials such as
cabinetry, flooring, and lighting products.
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The word “allotment”, or home
building contractor allowances, effectively means the contractor has allowed in
his budget for you the homeowner to spend up to X amount of dollars on
carpeting, lighting, etc. Usually the contractor specifies a certain amount of
money for each allowance type. If you end up spending more than the home
building contractor allowance, you owe him. If you spend less than the
contractor allowance provided for, then he saved a few dollars. Again, this is a
very common practice with home building contractors.
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This said, from my personal experience, home building contractor allowances are
typically minimal and allow you to only afford the bottom of the line “builder
grade” material. Also, the contractor allowance language in a building contract
often says the homeowner needs to spend the home building contractor allowance
at a specific building materials store, where it just so happens the builder
gets a discount. Consequently almost always the homeowner ends up spending more
than the contractor allowance provided.
For more help on either hiring a general
contractor or acting as your own general contractor see my
home
addition and home remodeling bid sheets. They can save you a
fortune by helping you to properly plan your home construction project and hire
the right general contractor and/or subcontractors.
How to Finance your Home Remodeling Project -
can help provide funds for your new home improvement project if financing is
required.
Related Articles on Home Construction and Hiring the Right Home Building
Contractor
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Building
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