Hypothetically, ask your builder.

You pay what you have agreed to in your signed contract. However, if you're not changing from one window to another, that doesn't consitute a Change Order in my opinion. That's simply a selection of materials that is beyond the allowance.

^ agree that has been our experience

Of course you pay the Cost Plus markup on the cost difference. That is how he is paid to be fussier and more careful and to read the different specs, period. If the budget is for 500K, plus his 25% markup, your contract budget is for 625K. If you add 200K of fancy windows, siding, floors, and cabinets, you are paying 875K in the end. Higher price materials incorporate more risk. Builders get paid to assume risk as part of their duties.

You usually pay a Change Order Administrative Fee, PLUS the additional markup. Everything has to be documented as different than the base product on which the builder based his budget. That change order fee is the Admin Fee, for his Admin’s time. The Markup % to the builder is his additional Earned Compensation as the Builder.

Everything is based off of the initial plans, and allowances. To quote Rush, “If you choose not to decide, you still have made a choice.” Of course you pay a change order fee and the markup.

No, I did not pay a change order fee when I finally selected what went into certain allowances. Our builder looked at our architect designed plans and said the allowance for cabinets was $64K. I didn't choose anything unusual, white painted cabinets, and the total for cabinets was around $130K. Why should I pay a change order fee when his "estimating" was off. I think he did a guess-timate and didn't take a close look at all the built-ins we had in the plan.

None of the tile was picked out when he gave us a bid, but I told him to price everything on the higher end, so the allowances would be higher. When I picked the tile, there was no change order fee and I just paid what the tile cost, plus his percentage. When we chose much more expensive Marvin windows over the typical PGT windows, there was no change order. This was a fully custom build with a cost plus contract ... during covid.

^ this is what we are doing now, overages on allowances just billed directly

otherwise wouldn't there be a financial incentive to underestimate on allowances?

The change order fees probably make sense in Fixed Price contracts, where the GC needs to maintain tight control of the profits he estimated when the contract was signed and any changes to his standard products/suppliers could reduce profits.

My builder hasn't done any fixed price custom builds since 2020. I know he has done some fixed price additions/remodels in my neighborhood the last few years.

Figure it out ahead of time. Ask the builder for examples and/or definitions. Standards are mostly local, regional.

A few types of contracts:

Cost plus %

Cost plus fixed fee

Fixed price + allowances

Fixed price w specifications

I'm more than happy to avoid changes and have tried to incentivized clients to avoid without any luck. Our smallest change order project total was $360 and largest over $300K. Homes sizes have increased dramatically.

Change orders are for changes in scope & with rare exception are more work & fees are involved plus the time re-estimating the task.

We have moved from Fixed w specifications to Fixed with allowances mostly due to lack of decisions at that moment. This allows us to move forward giving the client flexibility and reducing our risk and paperwork. We assume the client can compare the selection estimate from the appliance store to the appliance line item on their contract.

Allowance examples

- picking a different dishwasher

- picking a more expensive tile

Change order examples

- adding a 2nd or 3rd dishwasher

- using mosaic vs 12x12, using 24x48 vs 12x12

- epoxy grout

- tile floors vs hardwood floors

Cost plus % - IMHO is most fair for the high end or experienced client. Two of three clients from our industry (contracting/development) chose this way. Takes a lot more paperwork on my end.

Cost Plus is the ONLY way to go. You get anything you want, if you are willing to pay for it, and willing to pay for the documentation to make it happen. If you don't have things decided and documented by your designer on the front end, but do have a 35K for "Armstrong American Estates 5" plank in hickory" in the builder's pricing estimate, then that is a change to both pricing and documentation. If you decide that you'd rather have Virginia Vintage Pecan for 55K, or Marazzi Vero porcelain plank in the chevron pattern for 95K, then you get them! But, you also pay the actual 95K cost, plus the builder's 25% markup fee. You may also pay a documentation fee for the change, to be sure that everyone involved, from the purchaser to the installer, and the billing bookkeeper, knows your choice. Changes like this cause confusion and miscommunication. Especially if you go from one material to another, that isn't even wood. That is why documenting everything needs to happen!

The markup is going to be based on actual costs of your selections. The initial budget allowances are just placeholders. The more expensive selections take more labor and supervision to correctly install. The builder deserves to get paid for his time.