Cost Allowance Problems in New Home Construction

November 16th, 2021 by admin Leave a reply »

There are plenty of problems that a homeowner will face while building a new home and if you can eliminate just one of them, it could make the difference between you sleeping at night or staying up, worrying about the project.

Cost allowance problems can create homeowner nightmares in new home construction. If you’re remodeling your bathroom and you only have six items that have cost allowances attached to them, you’re probably not going to wind up financially ruined.

If you’re building a new home, and you have hundreds of items with cost allowances on them, you could find yourself over budget and in financial overwhelm within a short period of time.

One of the biggest problems I have when handing someone an estimate, that has cost allowances in them, is the fact that I over estimate them and end up losing the job. It’s hard for homeowners to compare apples to apples, when one contractor is giving them a realistic cost so that there aren’t problems later on and another contractor is low balling the cost allowances, simply to get the job.

Let’s pick some major items that often have cost allowances attached to them, flooring, windows, kitchen cabinets and bathroom fixtures. Let’s say that the total cost for all four of these items is $65,000 and at the lowest priced contractor has given you a cost allowance for these items at $25,000.

This contractor is going to look more attractive to the homeowner in the beginning, because he’s $40,000 cheaper than the other ones. These items are still going to end up costing you $65,000 and the trickiest contractor was the one who got the job.

Make sure that you’re comparing apples to apples when looking at cost allowances on building contracts. If you have a carpeting allowance for $6,000, it wouldn’t be hard to take your new home building plans down to a carpet supply warehouse and get a realistic bid.

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