How to Stay on Budget While Building Your New Home

Whether building a new home or remodeling an old home, eventually you will hear the phrase “building allowance.” A building allowance is the amount of money the building contractor has allotted for certain items in the house.

Building allowances can cover wide range of features. These may include such things as appliances, faucets & sinks, counter tops, tile, flooring material, hardware, lighting fixtures, and fireplaces.

Staying within the allowance

Many first time home buyers quickly discover that it’s very difficult to stay within the building allowance. This shouldn’t come as a surprise ~ in order to keep bids competitive, many entry level builders will factor in an allowance that’s on the low side of the mid range.

And what about that fancy tile work you saw in the model home? Model homes are often filled with bonus features that aren’t typically included in a standard bid, which may include landscaping, custom paint and tile jobs, and upgraded hardware.

To prevent any misunderstanding, both the builder and the new home owner should discuss exactly what is going in the home, before any construction begins. It is also wise for the purchaser to visit the wholesale distributors to learn if the allowance matches their expectations. Towards the end of the project is not the time to discover the certain features aren’t possible within the budget allowance.

How do you choose within the allowance?

A building allowance is a very necessary part of any building project. It helps the builder keeps costs in line for both himself and the purchaser. If the buyer is approved for a $180,000 mortgage, it is the job of the builder to keep the construction below that price point.

When I was still in the real estate industry, a typical mistake most young couples made was to buy the biggest possible house they could afford while skimping on the contents. Stretching themselves in this way meant there was no negotiating from the set building allowance.

A better alternative would have been to slightly scale back on the size of the house and other amenities, and include higher quality upgrades. While is perfectly fine to use low end products in certain parts of the house, it never makes economic sense to cheap out on things that will be costly to replace.

The difference between a costly and an inexpensive replacement

Tile is an excellent example of a feature that will be expensive to replace at a later date. Not only can the product not be reused, there’s a fair amount of cost involved in ripping out the old product, disposing of the rubble, prepping the wall or floor, and having new tile installed. If you are not happy with what the allowance covers, spend the extra money and have the project done the way you want at the beginning. Hardwood floors, fireplace surrounds, kitchen and bathroom cabinets, custom counters, floor coverings, built-ins and windows are a few examples of other products that are expensive to install and or replace at a future date.

If upgrading the product means demolition on down the road, you are better off doing it right the first time. For these items, let the builder know at the beginning of the project the degree of quality you expect so it can be factored into the bid.

Features that are not expensive to replace in terms of installation costs are those items that can easily be removed. This might include appliances, lighting fixtures, door handles & drawer pulls, faucets, towel bars, rain gutters, and toilets. These things are removable with no damage to the home or the item, and can often be resold to help offset of the cost of the upgrade. Best of all, these projects usually fall in the do it yourself categories and can often be done by the homeowner or at a minimal cost.

Other ways of working around an allowance is to forgo an expensive pergola or back patio addition, or leaving the interior of a garage unfinished. These are areas that can save significant amount of money to be routed towards upgrades. Pergolas and finishing the garage is something that can be done at a later date.

Building a house is both stressful and exciting. By communicating your wants to the builder and spending your money where it will do the most good, ensures a quality project that will make you happy while staying within your budget.

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