It depends in how your contract is written. It could have been written out at the beginning, and a higher compensation price arranged on the front end. But yes, that is absolutely a normal method for charging for change orders. Plus an administrative fee. Yes, 20% is below currently industry average markup of 25%. A cost plus arrangement would have be the builders markup on everything, and allowances are a mini cost plus contract within a fixed price contract.

I guess we are struggling with how it’s a change order. We are not changing a product that was already purchased. Nor are we creating anymore work for the builder that would require additional overhead costs. Our builders language surrounding change orders is very vague.

Did you have a construction lawyer review your contract, to protect your interests, before you signed? The builder certainly did.

Not saying this to beat you up, but to remind others who might be reading and not yet signed a contract.

it sounds like he has incentive to be above the allowances always, and you have incentive to make sure he is below the allowances.

Yep - And we will make sure we get our 20% back when below allowances.

Extra charges are usually not part of a contract language or any agreement. The additional cost is calculated and included in a change order and the customer agrees/signs-off on it or doesn't agree to it and sticks with the choices that the builder is offering.

Doing online research is useless everyone charges different rates so there is nothing to compare against.

My builder did the exact same thing and we were aware of it before signing our contract which is why we made sure our allowances were high enough

My contract doesn't say anything about that. Does allowance still mean anything if we are on cost plus?

The very old “standard allowance” game is done to make the house appear to be more affordable than it really is. People wouldn’t sign contracts if they knew that the model home has 150K of “upgrades” in it, and everything they liked in it is an upgrade. Builders that give a 400K price to build a 400K house get people going to the “300K builder” and then they spend an extra 50K on the fees to buy 100K worth of upgrades that were in the honest guy’s specifications to start.

No one ever comes under an allowance unless it was generous to begin with. Builders don’t do generous allowances. See point 1.

Allowances are irrelevant. What matters is the cost of the items you choose. That's what you pay for. The builder's allowance is generally for basic, common mass market products. Since no one considers themselves basic and common, many people pick furnishings and finishes that exceed the allowance. No harm done, you pay for your selection. I don't think I even knew what the allowances were for my home. I selected fixtures and flooring that I liked. Everything was higher than the allowances. But that was MY choice.

It’s perhaps better to go with builder’s allowances and change up after moving in. I have seen folk rip out brand new carpets after move in. Though this cannot easily be done with tubs, sinks and windows.

I am picking out major items now, so that they can get included in a bid as an exact cost and not as an allowance. Already have a list of appliances, which are in a similar class to what the builders are listing, but I added a few extra appliances, so I want those included in the actual bid/quote. I am also shopping for flooring because there could be 4000 sq. ft of it, and an allowance might not even cover half of that, if a builder assumes a lower quality than I would want to use.

We made sure that our contract specifically stated that any overage on allowances (we chose the original amount) would Not be charged any extra fees, unless it required some back-end work (different electrical, framing, etc). We have a great builder and designer, and we all agreed that “what we choose to spend in allowance categories was our choice, and not subject to a change fee”

That’s smart, Gabe. We would have done the same at contract negotiations if we were more knowledgeable about the term “change order”. This is our first time building so we assumed a change order was initiated after all selections were made. We won’t make that mistake again!

No one ever comes under an allowance unless it was generous to begin with. Builders don’t do generous allowances. See point 1.

We did.

also, be careful about suggestions for change orders. that's how they make money so they'll make suggestions that will result in a change order and cost you money!

"And we will make sure we get our 20% back when below allowances."

I am sure there was language in the contract that states this won't happen. Remember his contracts are if not written by at the very least vetted by a lawyer and will be written to protect the builder.

A result of shopping "price per foot" driven by consumers. My inbox has plenty of "give me your best price with minimal allowances" requests.

Another bid process is OSCI... "owner supplied contractor installed" which always costs me more to do.

Clients who want to supply their own stuff need plenty of cash outside of a construction loan, and more time to coordinate.

Should I charge more for an over allowance expenditure? Sometimes.

Is there a cost increase when working with more expensive products? Usually.

Not home builder - but in my business we add margin to everything, except travel costs when it’s billed as a direct pass through to the customer. But every supply and material no matter what - add margin. It’s how you make money :)

As long as you are only paying the additional charges based on actual additional costs, I can understand the charges. I would have a problem if the builder is getting a trade discount but charging you full price, then adding his fee on top. It doesn't sound like that is happening here, but there are lots of different games played with allowances. One example is when manufacturers offer rebates but rebate amount doesn't get applied to end user's bill.