The way I interpret what you have written is that you have a directly stated, or fixed, allowance for the stone. Because costs have increased, the allowance was insufficient and the cost is over. It's seems to be no different than getting an allowance for lighting and going over the amount.

With a directly stated allowance amount you are responsible for overages even if it is not related to any choices you made.

Some people, contractors and owners alike, misconstrue the meaning of the term "allowance" in a Lump Sum contract.

An "Allowance" is not a fixed price but a budget amount that both parties think is a good guess at the cost of some materials not yet selected or specified. In essence it is a miniature Cost Plus contract within a Lump Sum contract.

After the materials have been selected and priced the difference between the budget amount and the actual cost is added to or subtracted from the Lump Sum amount by a change order signed by both parties.

An Owner pays what the materials actually cost that the contractor pays regardless of the original Allowance amount unless of course the amount in the contract was not an Allowance but a Unit Cost.

I would need to read the contract to tell you more.

Yes, it is a lump sum contract. The builder agrees to build a house, according to the spec sheet, for X amount.

This is what I'm confused on. If this is the case (opinions have differed here in this thread) but if it's true that I'm responsible for any cost increases on the allowance items (I guess not on other things like lumber) then that makes a mockery out of a fixed price contract.

So, they budget $4k for stone, put it in and then come back and say, "Actually, the stone cost us $10k, so fork over $6k." This is a completely unpredictable process.

Had I known the stone went up that much maybe I wouldn't have done stone at all! Who knows.

But we're presented with the additional invoice 2 weeks after the stone had gone in.

There's no language in the contract that says I'm responsible if cost of materials goes up. Allowance or not.

Rennovator - i get your point but I'm curious why that's obviously the case, the allowance is a cost+ within a lump sum. Not obvious to me at all, to be honest.

bevangel - you are absolutely correct, if the price of stone had gone down, I doubt we'd get a refund. And I wouldn't expect a refund either. How would I know, even??

to answer your earlier question, there's nothing in the contract that says I'm responsible for any increases in the cost of materials.

the contract language:

Look also for any mention of "allowances." It had not occurred to me that stone would be an "allowance item" but what Renovator says is correct. It is generally understood that "allowance" is a term of art in the building industry that means the builder and owner have agreed on a mini-cost plus contract in the middle of the fixed price contract.

Before signing the agreement, you probably should have asked what the term "allowance" meant. Even better would have been to pay an attorney a couple of hundred bucks to review the contract and explain it to you before you signed.

Typically allowances are made for things like lighting and plumbing fixtures or countertops where prices can vary by several hundred percent depending on what the homeowner likes/wants which makes it impossible for a builder to reasonably estimate the costs ahead of time. For example, if the contract and build documents show a chandelier in the dining room, one client might be perfectly happy with a $150 chandy while another will refuse to settle for anything less than a custom made full lead-crystal chandelier costing $8000. No way a builder can foresee this...hence allowances.

BUT, when there is an allowance amount and the owner picks something more expensive than can be purchased under the allowance, a good builder will usually warn the homeowner that his/her selection is going to cost more than the allowed amount so that the homeowner at least has a chance to rethink the decision.

I would not have thought that there could be so much variation in stone costs that stone would wind up being listed as an allowance item...but then I didn't use any stone or brick on my house so I don't know anything about how it is priced.

You need to see if your contract specifies an allowance amount for stone and exactly what amount was specified. Then ask your builder for an invoice directly from the stone supplier showing the amount actually billed to the builder.

Also be aware that a similar situation can arise for all other allowance items so do be careful when making selections that fall under allowance language. I'm sorry you got hit with this but, even if you do wind up having to pay this $1000 due to the stone being an "allowance" item, that is a relatively cheap lesson and you will have learned to stay within allowances on all future decisions.

A point of clarification. We didn't go over the stone allowance because we used more stone. Or more expensive stone.

We are going over the original $4k stone allowance PURELY because the price of stone had gone up.

So, I'm not sure what lessons I'm supposed to learn here?

We put in less stone than the plan called for and got hit with a $1300 bill two weeks after the fact ONLY because the stone got more expensive since the building industry picked up.

You use the term "fixed allowance". I've never hear than term. What does your contract say specifically about allowances?

Typically, allowances are "loop holes" to whatever else the contract says about costs, since typical allowances are...allowances in lieu of other costs. Thus, if "X" has an allowance, but the installed cost of "X" is greater than the allowance, the owner owes the greater than X cost.

This is why it's always important to minimize allowances in a construction contract and to have clear definitions for allowances.

So, what does your contract say about allowances?

I understand that. Unfortunately, it doesn't matter. If the contract said that there is an allowance of $XX for stone and what you used cost more than $XX, REGARDLESS OF THE REASON for the difference, you have to pay. That is the way allowances work. Allowances shift the risk of rising costs (or more expensive tastes) onto the home-buyer.

On the other hand, if the contract said, the house will be sheathed with stone of particular type X (with no mention of an allowance amount) then builder would have had to sheathe the house with stone of particular type X without charging you any more money...regardless of how expensive "stone of particular type X" had become in the meantime. You could hold him to completing the contract at the agreed upon price even if science had suddenly discovered that "stone of particular type X" was the only known source of an ingredient that could cure cancer and double human life spans so that the price of the stone had quadrupled overnight. Risk of rising prices in a pure fixed-price contract is on the builder.

One of the major purposes of a contract is to allocate risks and, if you accepted a contract with allowances in it, you accepted the risk of rising prices. I am sorry. If you had an attorney look over the contract for you, he/she should have explained this to you.

Allowances are NOT a good thing for novice home-buyers to agree to in a building contract. Most of us simply don't have enough knowledge of materials' costs to even guess at whether the allowance amounts presented to us are even logical. Unscrupulous builders often take advantage of this lack of knowledge to lowball allowances in order to present potential buyers with a more attractive contract price.

If your builder's bid was the lowest you received, especially if it was the lowest by thousands of dollars, then you probably got lowballed. If you find yourself unable to find ANYTHING on the market that can be purchased for the amounts of the allowances on your contract, then you got definitely got low-balled.

Not much you can do about it at this point except bite the bullet and either pony up extra cash or do your dead level best to stay within the allowance budgets...even if doing so means going absolutely "builder basic "on most items.

My heart goes out to you because, if you are in this mess, building your dream home is likely to rapidly become a nightmare.

How many items are mentioned in your contract? How much $$ is allowed for each item? And, what all must be purchased under that allowance amount. I can promise you that the folks here on GW will be generous in helping you to find ways to help you get as much of your dream as you possibly can built within the amounts allowed. Too many of us have either been in the same boat or know a friend who has been. We want to help if we can.

Bevangel, this is not my understanding of how allowances work.

My understanding is that allowances are estimates of the actual cost that will later be concretely agreed upon in writing. In other words, the homeowner must approve of (sign the order) for each item in the allowance.

I don't see many allowances give the builder unbridled discretion on how to spend money.

The allowance carves out the cost associated with those items from the agreement until they are agreed upon at a later date.

If it truly were an allowance, the builder should have had you sign an order on the new stone price prior to beginning work.

Of course, it all depends on what the contract says and how you have been performing the contract.

In the homes that we have built almost all the builders had change orders for any changes in the original contract. If an item cost more than our allowance then we would have to approve and sign a CO before the item or service was done.

It was also done this way with all the builders I have worked for.

Also want to add our last builder we had a few issues with and he did not follow the proper procedures of Change orders. When we went to move-in to our home we had a few differences on charges. Our lawyer said any charges we did not agree to in writing we would not be responsible to pay.

In the end it all worked out for both us and the builder. Although he did charge us for some things we did not agree to, he also charged us much less for other things. And overall his pricing was fair. So we paid and all involved were happy.

All of these individual personal experiences are interesting and useful references, but the only thing that matters in the case of the OP situation for additional costs for stone is what the OP's contract says about allowances. Since we haven't heard from the OP about the allowance language in her/his contract all we can do is speculate.

An owner-approved change order to change the contract sum is an excellent standard practice, but if the OP's contract didn't call for such a procedure, then it's not relevant.

If the stone was listed as part of the contract, such as "500 s.f. XYZ Stone, Level 2, labor included", and not as an allowance of "$4000 of XYZ Stone, Level 2 or equivalent, labor priced separately" then the builder pays. If it was the second, then the owner pays. It's all in how the specs are worded in the contract. Generally, when dollar figures are mentioned, it's an allowance, and always subject to change. If it's mentioned only as a product, without a dollar figure attached, it's part of the basic cost of the build and isn't an allowance. It would only be subject to a price increase if you decided you didn't want that basic building product and wanted to change your mind.

Call the company that sold the actual stone and ask them pricing history for the last 6 or so months.

So, waiting on a followup, what is the actual language in the contract that covers allowances?

I am waiting with baited breath as well. We did specs in our contract but a few items we hadn't narrowed down may fall into the grey area of allowances.

Hi, all. Thanks for chiming in.

The stone allowance simply reads:

A. Stone: Stone Veneer on Front Elevation per plan
B. Stone Allowance - $4,000

That's it.

also, it appears that a few folks here are of the opinion that, "price escalations within an allowance are the buyer's responsibility" and somehow that's a standard industry practice and "common knowledge."

Well. That may be the case, however, NOWHERE in the contract does it say that material price escalations are the buyer's responsibility.

Like I was saying earlier, this makes a mockery out of a "fixed cost contract." We have a contract to build a house for $500k, with a few allowances tossed in for stone, plumbing, etc. If all these things quadruple in price, then I suppose we're looking at a million dollar home then. While changing nothing!!

All this talk about change orders and "do it all in writing" misses the point. We have CHANGED NOTHING on the stone. The sole and only reason for the price increase is MATERIAL price increase.

We're a few weeks away from closing so I don't mean to paint our builder in a bad light. Thus far he's been very responsive and in general a very nice guy but this completely and totally caught me by surprise.

We've exceeded our allowances on some other things also but ALWAYS because we wanted fancy stuff that we couldn't get for the allowance price. THIS HERE, however, is totally due to the cost of stone going up. No change orders.

This is exactly why our contract is fully spec'd out. Our contractor didn't really like it, but it was very clear. We put x sq ft. of SuperStone, gray color. For example. There is some language about comparable products that may bite me in the ass but we shall see. I would say that with that wording in your contract as you have typed out, you pay because it exceeded the allowance. Is there any verbiage in there about the procedure for approving cost overages at all, even without change orders? It isn't really a change order but just a plain old overage.

Well, yea. I think it's a super nice idea to have everything fully spec'd out but honestly, I was in no position to do that a year ago. It would have taken me MONTHS of research to know exactly what I want for every aspect of the house.

Moreover, this is not a feasible strategy when the builder owns the land. He's not going to sit there and wait for months while we are figuring out kitchen cabinet door styles.

For the first time home builders like we are, the allowances are a necessary evil. We would never have gotten started if we had to research every cabinet, every faucet, every light fixture and door knob. We know that NOW but back then - forget about it. :)

"...For the first time home builders like we are, the allowances are a necessary evil. We would never have gotten started if we had to research every cabinet, every faucet, every light fixture and door knob. We know that NOW but back then - forget about it. :)..."

To the extent that this is true in your situation, it is exactly why you are responsible for the cost above the allowance for the stone. It's unfortunate and we understand you don't like it, but there it is. The contractor apparently furnished the stone, but the cost exceeded the allowance.

You apparently have a fixed cost contract. That is, per your own description, it's a fixed cost EXCEPT for the items for which there is an allowance. When an owner exceeds an allowance, the extra cost goes to the owner for those allowances.

This is another example of the importance of fully understanding allowances before accepting them prior to construction. To not do so, for whatever reason, means situations such as yours.

I'm sorry you're in this situation, but your best course of action is to understand and accept the situation for how it came to be, and move on. If this is the only surprise in your construction you are fortunate indeed.

Good luck on your project.

The contract doesn't even state what brand or kind of stone. You weren't committed to using the suggested stone, as it's not named in the contract at all. You could have shopped for a cheaper stone and come in on budget, and it would have fulfilled the contract. So, hey, why didn't you, if staying completely on budget was so important to you? Convenience? Yeah, I get that. Convenience costs though. You kept the suggested stone, and it was over the 4K allowance. So, you pay for whatever the costs are above 4K.

Allowances are merely guesses. Not hard numbers. Sometimes, not even informed guesses. They aren't fixed amounts in the budget. It's the credit you get towards whatever choice you end up making. Some builders put really low numbers in their allowances and use a lot of them in order to make their bids lower. So your scenario of the 500K house that costs 1M isn't really far off the mark at all. If you had chosen some semi-precious stone to clad the home with, you would get a bill for 500K for it. Minus the 4K allowance. LOL!

I do hope you have the standard suggested 10-20% contingency fund set aside. Most builds DO end up costing more than the fixed fee. Many, by quite a bit.

I'm glad to hear that this is the only thing you've been hit with that was an unpleasant surprise. I know it is cold comfort to hear but it could have been so much worse.

I'm sorry but the concept that "material price escalations are the buyer's responsibility" is included within the meaning of the word "allowance." Allowance - as a term of art - MEANS that if the cost of the item exceeds the allowed amount for any reason, buyer pays the excess.

Could you perhaps explain what you THOUGHT the stone allowance language in the contract meant? How did you view it differently from, say, language in the contract about allowances for light fixtures, or for countertops, or some other item that you either did or did not go over the allowance amount on?

Since the contract does not mention any particular stone, who first chose the stone that was used? Were you given a choice in the same way that you were given choices about what light fixtures and countertop materials? Or did the builder make the decision in the same way that he would have made the decision about what lumber to purchase to frame the house with and what piping to use for the plumbing?

I understand that you did not "change" the stone but it seems that the choice of type stone to use must have been made AFTER the contract was signed. Otherwise, if the decision on what type of stone to use had already been made when the contract was signed, wouldn't the contract have listed the selected stone?

Did the contractor make a recommendation that you then accepted under the assumption that if you took his recommendation, that meant the stone would cost no more than the allowance amount? Or, did the contractor TELL you, this is the kind of stone we're going to use without giving you any choice in the matter? Did he perhaps say "we can get this particular kind of stone for less than the allowance amount - are you okay with using it?" And then, only after the stone was purchased and installed tell you that the price was more than expected?

I'm trying to understand why you see the handling of this particular allowance so differently than you do the handling of allowances for counter-tops or hardwood flooring or light fixtures. Does it have anything to do with the way the choice of stone to use was made? And again, I UNDERSTAND that you did not change stones but at some point someone made an initial choice about what kind of stone to use. Was that you? And, if so, do you understand that there are many kinds of stone - some more expensive than others - just as there are many kinds of countertops with some being more expensive than others?

I assume that if you chose a countertop material that was more expensive than the allowance amount, you would not have had a problem with paying the extra for that. I'm trying to understand why, if you were given a similar chance to choose your stone, you are reacting so differently to paying the extra amount for the stone?

Again, I'm sorry you had this negative experience but glad that this is the only "allowance disagreement" you have had and that your builder appears to have, in general, been a stand up guy. So many first time home-owners get burned SO MUCH WORSE.

The GC 'should' have called you the min he found out the price of the stone had gone up and let you make that decision. It sounds like the GC didn't even ask the price when he ordered it and only found out when he rec the invoice after the work had already started.

How do you make words 'bold' on here??

NOWHERE in the contract does it say that material price escalations are the buyer's responsibility.

What does it say are the buyer's responsibility? And does the contract define Allowance

@robin - you are absolutely correct. That's what got me so miffed. On every single allowance when we were about to exceed it, the GC came back and said, "Listen. You have $10k for granite but the c.stone you want will cost you $12k. How do you wanna proceed?" Then we can plan.

In this case, however, we signed the contract for a stone "TBD", $4k allowance. Then we pick the stone 6 months ago (well within the allowance *at the time*.) Then the time comes to install the stone. Stone is installed. I get an invoice for $1300.

This is the sequence of events.

So, bevangel - that's why this is different from exceeding the granite allowance. At the time the selection was made, we within the allotted amount. Then time passes and the stone is installed and it's a lot more expensive. I find out it's a lot more expensive AFTER IT WAS ALREADY installed.

Do you honestly see nothing wrong with this situation?

Honestly, you're at the end of a $500k build, you're over $1300 and you're upset about it? Seriously?
You chose the stone and spec'd it, It would have been nice if your builder had realized the price went up and let you know before ordering it, but he didn't. Chances are he didn't check the price the day of ordering. I think that you need to pay the $1300 since it was clearly your obligation per the contract, and move on.

No, I don't think he should pay the full amount. The GC sr@wed up by not getting the price first when he ordered it and found out the price had gone up considerably. He should have done the exact same thing as he did with the granite and let the owner 'know' up front the prices have gone up. The GC IMO, should at 'least' pay 50% for his sr@w up, this might teach him a lesson and not take 'everything' for granted in the future. I don't care how much the house cost to build, he's messing with someone else money and not his own and should 'never' forget this as a professional. The GC got slack... period.

This post was edited by robin0919 on Fri, Nov 1, 13 at 22:48

okay, I get it. The issue isn't that this is an allowance item. The real issue is that you told your builder what you wanted when it was one price but by the time he actually ordered it, the price had gone up and he didn't tell you so that you could decide whether you still wanted the same stone at the higher price or preferred to go with something less expensive.

I get it and I agree that your builder made a mistake not to tell you so that you could make the decision.

Given that this is the ONLY time in your entire build that something like this has happened, I suspect that what happened was that the builder didn't think to re-verify the price when he ordered it. More than likely, unless he is a very small builder, he told some minimum wage clerk to go ahead and order the stone for you and never gave a thought to the possibility that the price may have gone up so much that it would now be over your allowance. Or, he may have verified the price one day and called back the next to go ahead and order and the price went up in the meantime.

Seems to me like there is a good chance that your builder was also surprised by the higher bill from the supplier.

It certainly sounds as if he has been good builder and has treated you fairly throughout. Do you have any idea how rare that is???? The stories I could tell you about the guy that built my house! Without going into details, one thing my guy did was have about $40,000 worth of various materials delivered to my build-site and then trucked them off and used them in a spec house he was building at the same time. THEN, he failed to pay for those materials so that I wound up with liens being filed against my house for materials that were delivered to my build site but were NOT used in my house! That's true fraud but even with proof that it had happened, I could not get the local Attorney General to file criminal charges against him. I had to try and deal with him via the civil court system and he filed a bankruptcy making even that nearly impossible.

Seriously, it does not sound like your builder was trying to cheat you in any way. At least you actually got the stone that he is charging you for!

Should your builder offer to eat the extra cost just because he (or someone in his office) maybe forgot to verify the price before ordering? Or maybe he verified the price but simply forgot to discuss it with you? Or maybe your builder just wrongly assumed that he knew what you would want to do. Definitely a mistake but should it cost him $1300?

I know, you're asking why it should cost you $1300. Basically, you DID get the benefit of the stone. Would you seriously have chosen NOT to use that stone if you'd known it was going to cost $5300 instead of $4000? How much time did you spend looking at various stone and dithering over whether to go with A or B and which paint colors will work if we go with A, etc. etc. etc. How much time/effort would you have been willing to spend looking for some other stone that you liked as much as the first choice just to save that $1300??? And how many other things would you have needed to change in order to make everything coordinate with the new stone?

Bottom line, it sounds like your builder made a simple human error. It certainly does not sound like he's trying to shaft you or commit fraud or anything like that. if this is the only time something like this happened on your entire build, chalk it up to the fact that "nobody is perfect," recognize that you got the stone you wanted albeit for a slightly higher price, pay the bill and MOVE ON.

Have you talked to your builder since receiving your bill? Did he explain anything or just refer to the contract and tell you to pay? Perhaps he would like to know that you are unhappy and then proceed from there.

I don't get the sense that logastellus is suggesting any negative intentions by the builder. And just because she is lucky she didn't have a worse situation and folks feel like she should move on doesn't mean that everyone couldn't learn something here. I agree with MFatt that this is something that should be discussed with the builder so they can BOTH understand the situation and learn from it. Perhaps if the builder did not check the stone price for any increases, this situation will be an opportunity to learn from this experience and adjust practice in the future. Simply passing the cost of that mistake on to the buyer doesn't provide much of an opportunity to improve the process for everyone.

Costs of construction change over time. We all know that. Unless the construction contract is a fixed sum, with no exceptions--no allowances--the owner gets tagged for the cost increases, whether it's materials, equipment and/or labor.

And if the owner negotiates a true fixed sum contract, every experienced builder will include a sizable contingency (that the owner never sees) to cover potential cost changes prior to substantial completion.

So owners get tagged with applicable construction cost increases one way or another. Could any reputable builder stay in business in any other way?

An allowance is, by definition, for an item the owner has previously approved as part of the contract. If the item can be purchased and installed for less than the allowance, the owner is not charged the full allowance. If the items exceeds the allowance, the owner is charged the allowance plus the additional sum.

It seems the owner had no difficulty exceeding some of the other allowances for items s/he "wanted". But the stone seems to be another matter for some reason.

And all of this speculation about what the builder knew or didn't know, did or didn't do about the stone is simply speculation. It's meaningless and not relevant to the contract (although such comments are certainly empathetic and may help the owner to feel better and more justified in the position s/he has taken).

Time to move along.

Alright. I paid the cost but I did tell the GC I wasn't very happy with it.. whatever.

robin - I'm with you. People are always eager to suggest "shut up and pay it" since it's not their money. And the cost of the house shouldn't matter to be honest.

bevangel - yes, the fact that good GCs are rare and we got one of them is a huge, huge factor in simply eating the cost with minimum fuss. I did talk to him btw.. he said he sees my side of the story but that I "just didn't understand how allowances work." Well. Like I was saying earlier, the fact that people can exceed their allowance simply by doing nothing was certainly a surprise to me.

I agree that homeowners should not find out "after the fact" that they've exceeded their allowance amount.

It isn't fair to be surprised by an additional bill that you could not actually control because the information necessary to exert control was in someone else's hands and they did not pass it on to you.

Perhaps the lesson to be learned here is that, where contracts include allowances, there needs to be additional language in the contract requiring builder to notify homeowner in writing about any selection that exceeds the allowed amount and get approval from homeowner - also in writing - to go over the allowance. And that if this is not done, the builder covers the additional costs out of his pocket.

Certainly since allowances act as mini-cost-plus carve-out contracts inserted into fixed-price contracts, their final details (including final costs) should be negotiated and agreed upon by both parties before proceeding. You lost the opportunity to make that final decision so I can understand your ire. It should NOT have happened. But it did and fortunately, the costs, while not a pittance, were not totally outrageous.

bevangel, you state that, "Certainly since allowances act as mini-cost-plus carve-out contracts inserted into fixed-price contracts.." like it's the most obvious thing in the world but I wonder why you think that?

That kind of a revelation is nowhere to be found in any contract we signed. Apparently, it's common knowledge but again, this certainly wasn't (still isn't) obvious to me.

I mean, c'est la vie and all that. And yes, had I known this little tidbit I would probably ask that advanced notice be included in the contract. However, this is like including, "before you whack me with a hammer, please provide written notice." It's not something one thinks about, especially since it clearly states that cost of materials is builder's responsibility.

I don't know.. I guess we're beating a dead horse now.. we paid - what else is there to do?

It's a common theme and a note of caution also. Once the contract is signed, all remaining seller's leverage goes BUH BYE and then you are the mercy of the GC. He nice - cool, he no nice - suck it up and take it.

This is a good thread for people just starting out. Even f you got nothin out of this conversation that helped with the situation at hand, its a good learning experience for everyone.

ditto

Totally agree MFatt...thanks.

I do agree that the builder should have notified you before the materials where purchased that they where exceeding your allowance. -Otherwise you could have switched to a less expensive material.

Therefor I think it is the builders fault in this case.

Normally builders do give you credit when you go under your allowance. (that is just how allowances work)

On the other hand 1000 dollars is a fairly minor mistake and the builder does not seem to be deliberately trying to rip you off -you got the finish you actually wanted and it cost just a bit more -you might offer a 50/50 compromise.

(assuming you really would have changed to something less expensive)

This post was edited by ChrisStewart on Sun, Nov 3, 13 at 9:14

Much appreciated for all sharing !

I have learned a lot !

I've got a different problem regarding "allowances" I signed my contract in April of 2017. At that time the allowance for 1386 feet of floor tile was $6,500. I was directed to a particular tile company that the builder works with to choose tile. FOUR times I chose tile only to be told I was over budget. The last time I chose the cheapest tile the store had available- not what I really wanted, 1.79 a sq foot. I was still over budget by $2,800 when I spoke with the contractor and told him I could get no cheaper, he said the problem was labor kept going up to the point labor was now the cost of the tile allowance. (6,500) leaving nothing left to purchase tile. On my allowance sheet, it only states: Tile Flooring-$6,500. It says nothing about labor being included. Had I known labor was included in the allowance, I would have budgeted more for tile in the loan. This is not this first thing in the allowance statement that has gone over simply because it never specified that these prices included labor. So far, I have downgraded everything from what I originally planned to have and still have had to pay an extra $8,000 just to get SOMETHING in there. This home was scrimped and saved for 40 years- a dream home. It is not our dream home at all, and we will turn around a sell it after it is completed, wiser and poorer. I don't think this practice should be legal. It is legal theft if a contractor can charge increased prices at will and you are responsible for the outcome.

What does your contract say about allowances? Price increases? Did you already go through your contingency?

" It is legal theft if a contractor can charge increased prices at will and you are responsible for the outcome."

All depends on the wording in your contract. It should be clearly spelled out what is included and not included (including materials and or labor). Also the contract should be the contract, he should not be able to raise his labor rates in the middle of the job but again it all comes down to what you agreed upon in the contract.

Allowances are simply that: an "allowance" for the materials, labor, OH and profit for something or other which is part of the construction project.

Allowances are often notoriously under budgeted as one way to get the initial contract sum to appear to be favorable from a consumer's perspective. Once construction is under way, however, the builder can increase the contract sum and his OH and profit, based on the additional required expense of actually doing the work in a manner satisfactory to the consumer.

And when the consumer questions the allowance sum, there's always a good explanation--cost of labor has increased, or some such. Never the builder's responsibility.

The best way to avoid "allowance surprises" is to have no--zero--allowances. Specify everything!

In your situation, as others have rightly said, the situation depends on the specific wording of your contract for construction.

^"Allowances are often notoriously under budgeted as one way to get the initial contract sum to appear to be favorable from a consumer's perspective."

^^^THIS. I have never seen an allowance used in a builders' contract that exceeds the ultimate cost of the item. The cost always exceeds the allowance (here). In fact, in most instances, the allowances are no where near the cost and the builder knows it right up front, before the contract is signed by the buyer. It is a notorious method builders use frequently in my area to look good initially (price wise) and then recoup thousands of dollars during the construction process. I have seen allowances in builders contracts for lot prep, utility connections, electrical expenses as well as a myriad of cosmetic items including appliance allowances. It is truly the definition, IMO, of buyer beware.

I have never seen an allowance used in a builders' contract that exceeds the ultimate cost of the item.

Despite the problems I'm having with my builder on lots of other issues (mostly timing), I must admit he has been very good about his allowances. Before our contract was written up, his designer and I went "shopping" so that she could get an idea of what my allowances should be. Apparently I have very expensive tastes and my allowances reflected that.

However once it came time to actually choose, I scaled back on things like some of the plumbing so I'm actually about $8500 UNDER my allowance. I'm just under by about $1000 on my tile and flooring allowance.

I'm also under on my fireplace allowance.

Yes there are some things I'm over on. I'm about $2000 over on my appliance allowance.

And my builder definitely under budgeted on the allowances for my driveway pavers, and a few other things. But none are grossly under. I'm thinking some are due to increasing prices and a few are due to details that needed more labor than originally thought.

There are allowances...and then...there are allowances. As CPA well described there are builders who are well organized, well experienced and will work to make allowances in the range of what the consumer truly wants.

On the other hand...

The best advice is still the best advice: do not have ANY allowances. Period.

Bob agrees!

Virgil, I agree with Bob. I should have specified every single thing.

We are in similar situation. We have contract for house price including a detailed cost spreadsheet with some items identified as allowances. At final invoice builder wants us to pay for $16,000 mistake on framing which was not an allowance and we changed nothing in design to cause framing increase. House is only 1600 sq ft. Contract says allowance overages are responsibility of owner but contract also states all price increases need to be approved in writing by both parties. This certainly does not seem kosher to me. Thoughts?