I agree that the builder should not ask what your budget is before he bids your plan. But many do because they're trying to get an idea of how upscale you'll want your appliances, fixtures, countertops, etc. to be. The problem is that, even if a builder gives you a bid within your budget, you still won't know what quality of materials the allowances he gives will really cover. One builder will bid the plan based on the cheapest "builder grade" carpet, tile, appliances, countertops, fixtures, etc while another will bid it based on an unspecified level of upgrades. To the extent that there are any "allowances" within the bids you receive, you are not comparing apples to apples. And, unfortunately, builder "allowances" are almost never set high enough to purchase the quality of finishes you really want. Sometimes they're set so artificially low you can't possibly purchase anything for the amount set - much less anything you would want to have in your home. Rather than paying attention to my specs, one of the builders I asked to bid tried to put in an allowance for plumbing fixtures of just $5000. My home has three full baths (one with a claw-foot tub, one with an extra-long garden tub, and one with a particular neo-round shower available only from one manufacturer) plus two powderrooms. Since I had already priced claw-foot tubs ($3000 for the least expensive one I could find), garden tubs ($1800 for the one specified), the neo-round shower unit ($1600), the toilets I'd specified ($300 each X 5) plus the sinks and faucets for all of the above and kitchen and laundry sinks, I knew his allowance was ridiculously low! His lighting fixture "allowance" was equally low-balled. I handed his bid back to him and told him I had specified exactly the fixtures I wanted and that if he was willing to contract that he would supply the specified items for the allowance amounts, we would talk but that he might want to do a bit more research. He revised his bid upward by nearly $25,000. The best way around this issue is to specify as many of the details as you possibly can BEFORE you send your plan out for bids and then only accept bids that do not include "allowance" amounts. I.e., the builder agrees to include everything specified for the bid amount. Some of the items you should specify in detail - by manufacturer, design/style, color, item number, size, and so forth - include: 1) Roofing material (Do you want asphalt shingles? 30 year architectural shingles? wood shakes? clay tiles? metal?) 2) Siding materials (brick? stone? hardi? aluminum or vinyl siding?) 3) Windows and window hardward 4) Doors and door hardware(don't forget the garage doors and door openers) 5) Flooring (carpet/carpetpads? tile? hardwoods? stained cement?) 6) Wallboard and ceiling finish level (Level 5 smooth? knockdown? orange peel?) 7) Paint, primers and stains for each part of the house(manufacturer, quality, number of coats to be applied, and method of application. You should probably also figure out how many different colors of paint you're going to want to use and specify that. The exact colors can wait till later.) 8) Millwork (crown molding, baseboards, chair moulding, etc.) 9) Stair parts (newels, balusters, treads, risers, handrails.) 10) Plumbing fixtures (tubs, shower units, toilets, faucets, kitchen sinks, laundry sinks, bath sinks) 11) Lighting fixtures (don't forget ceiling fans) 12) Built-in cabinetry (kitchens, bathrooms, laundry, mudroom, plus bookcases throughout the house) 13) Kitchen appliances 13) Fireplace and mantle 14) HVAC system 15) Hot water heaters 16) Prewired audio/video systems 17) Rain gutters 18) Decking materials 19) Mirrors, towel bars, toilet paper holders... all the little "finish" stuff. 20) Landscaping (watering systems, how many plants and what types, etc.) I'm sure others can and will add to this list but don't despair. You'll have to make all these decisions eventually, you might as well do it up front. Plus doing research to decide on all these details ahead of time will also give you a chance to get a feel for what items really cost and help you determine whether or how much you need to cut back on your desires. Ultimately, unless you have an unlimited budget (HAH!) there will come a point when you will have to compromise and purchase something less costly than the item you'ld prefer to have. Better to shave costs as you go along on items you don't really care all that much about than to get to the end of the build and discover that your budget just won't stretch to cover those gorgeous granite countertops that you really really really want and have been dreaming about since you first started talking "new home". Besides, "allowances" are bugbears in residential construction contracts. They are the basis of more disagreements between builders and owners than anything else I can think of. See the link below for some examples of issues. Trust me, the more you specify details ahead of time, the happier you will be with your new home and the less problems you'll have with your builder. Here is a link that might be useful: Avoid Contractor Allowances

Sue: I don't know enough about construction to know why the foundation might run over either; I'm just trying to anticipate possibilities. Perhaps if soil conditions in that area required a more extensive foundation? One thing our G.C. said is that if anything really bizarre turned up and they needed to bring in a soils engineer, we would have to pay the engineer's fee. And, I presume, any additional cost for construction related to his findings. No septic; county sewer and water. I rate-shop loans every few months. Consistently for us, our best deal is with Wachovia to do a C-P loan. We can lock in a permanent rate for 12 months, or pay an ace to get an 18-month rate lock. I have no idea whether to do that or not. We pay interest only during construction on the cumulative amount of the draws. We own our current house free and clear and won't try to sell it till after we move into the new one. We paid cash for the property the new house will be built on. So, there won't be any unexpected expenses with our living situation. Of course, prorated property taxes and insurance for a longer build, but I've budgeted for a 15 month build on that and it's a small house that's expected to take 5 to 7 mos. Two related issues on that, though. One, is I don't know what the homeowner's insurance company will do once we do the demo and start building. At first they'll have nothing to insure and gradually they'll have more and more of a house they're insuring. Secondly, I don't know how the city and county will handle our property taxes. In Ga, for the county at least, the assessments are based on what you own on Jan.1, with taxes due in Sept. I don't know what I'll own on Jan. 1 and I don't know if they'll re-value it if it's a vacant lot (should and will also being 2 different things) or periodically during the build. Many mysteries here. BTW, do you remember me? I'm the one who said "I don't buy a lawnmower without my attorney looking at the contract. We love our atty. and he loves us"? That's me. But I do all I can do first, to save attorney's fees. I spent a few years reviewing contracts in the legal dept. of a huge finance company, so I'm comfortable with the initial reading. And I know when I need help. My atty. usually gets contacted by me during the negotiation stage for some help. Then he gets the preliminary contract with a list of questions clause by clause. We work well together hammering things out that way. dixiedoodle: we should all be so lucky as to have your deal! If we go more than 2.5% over the fixed price, for the unexpected, we have no choice but to dip into the IRAs. But it won't be the end of the world. We've been hacking down the size, etc. of this house till we can go no further. It's a stretch. And we are nervous. I do love your wording about the substitutions. I have printed it out for my contract file. Thanks to both of you. I'm always informed by what you...

Allowances are in effect miniature Cost Plus contracts inside of a Fixed Price contract. They are of no benefit to the homeowner and can be a major benefit to the contractor. Allowance are found primarily in home construction because larger projects must be designed by architects and therefore it is possible to get everything into the bid documents; this is more difficult when the designer is the builder or the owner's draftsman. There are 3 issues associated with Allowances. 1) An allowance should not include labor or installation costs. For instance specify the quantity of the light fixtures so the installation can be in the base bid and only the unit cost of the fixtures is in the allowance. Or also specify the fixtures and revise them later. If labor is unavoidable ask for a unit cost in the base price. Get as much as you can into the base bid price! 2) Homebuilders are notorious for under estimating allowances and then marking up the higher final cost with their normal OH&P %. Their project OH should have been adequately taken care of in the Fixed Price so ask them to only mark up the overage by their Profit % or ask them to lower that % or even eliminate it. 3) Often homebuilders have a favorite material supplier and will require you to select the allowance items from that source. This can lead to "sweetheart" deals. I'm not saying that every builder gets a yearly kick back from their favorite suppliers but it happens more than you might suspect. I like to add to the Allowances contact clause the right of the owner to choose the material supplier or even supply the material themselves and have the allowance removed from the contract price. This can lead to the loss of a warranty from the installer but it is important to have that power. It is usually more important to save money up front than down the road.

I agree with homechef, the liability insurance is a flow through cost. In terms of whether these are reasonable amounts, it depends on the scope of your project. For instance, is the overhead fee applicable to your bottom line? Or is it only applying to certain line items? If so, the overhead fee + the builder fee totaling 19% seems to be on the higher side for my area, which is usually about 17% for most cost-plus contracts. Also, if you are being charged a builder fee + a Project Superintendent fee + a Project Manager fee, you may want to get specificity on exactly what role each of those parties will play in the build. My builder charged a flat monthly fee which encompassed the salary for our Project Sup, his office overhead and his builder fee. Home chef gives you some really good advice that I have to echo: the project should have lots of supervision and activity on an almost daily basis. One other thing I would add for anyone building is that you WILL go over budget. I thought I would be the *special* person who could manage the project from our end and stay completely on budget, but the scope was so huge that at some point you begin to think in terms of what is efficient. For example, we added a few things now that we originally thought we would go back and do later. We realized over time that it would cost more and be too much hassle to do later. At a minimum, triple whatever your builder has set for a contingency. There will be some things that you just cannot plan for that will crop up as the project progresses. And while I'm doling out unsolicited advice ;) I'll add this: building a custom home, or doing an extensive remodel as you've planned, is a labor of love. While you will undoubtedly have to compromise on some things, choose a few key details that you have in your vision and don't let anyone talk you out of them. These projects are custom for a reason. And above all, even on the frustrating days, remember what a blessing the space will be for your family and enjoy the process! :)