A fixed price item is priced. An allowance is a placeholder, and when the real cost arrives you pay the difference. A contract can be described as fixed price and still be half allowances, which is why two builders can quote the same house at very different numbers. Ask for the allowance schedule before you compare any two quotes.
How allowances work
Say the contract carries a $12,000 allowance for tiles because you had not chosen them when it was signed. You then choose tiles that cost $19,000 supplied and laid. You pay the $7,000 difference, and depending on the contract you may also pay a builder margin on top of it.
None of that is dishonest. Allowances exist because building contracts get signed before every decision has been made. The problem is when there are so many of them that the contract price was never really a price.
The six things to read before you sign
The allowance schedule, and what percentage of the total it represents. A contract that is largely allowances is an estimate you have signed.
What triggers an extension of time. If the list is broad enough to cover anything, the completion date is not a commitment.
What happens if the soil comes back worse than assumed. Footings are one of the biggest single variables and this clause decides who wears it.
The progress payment schedule. Check the amounts roughly match the work completed at each stage rather than front loading the builder.
What is expressly excluded. Driveways, landscaping, fencing, letterboxes, clotheslines and final site clean are the usual ones, and they add up.
The defects liability period, and what happens once it ends.
The three questions that matter most
How many items in this contract are allowances. What happens when one is exceeded. And do I approve the extra before the work happens, or find out at the next progress claim.
That third one is the one people forget, and it is the difference between a budget you control and a budget that arrives in instalments.
How to compare two quotes properly
Do not compare headline numbers. Put the two allowance schedules side by side and price the same selections against both. A builder who has priced your actual selections will often look more expensive on paper and land closer to it in reality.
How we do it
We price on your selections rather than carrying them as allowances, which is why our estimate takes longer to produce and why the final number resembles it. You get that estimate at concept stage, itemised, before you are committed to anything.
Frequently Asked Questions
What is the difference between a fixed price and an allowance in a building contract?
A fixed price item is priced. An allowance is a placeholder, and when the real cost arrives you pay the difference. A contract can be described as fixed price and still be half allowances, which is why two builders can quote the same house at very different numbers.
What should I check before signing a building contract?
Six things: the allowance schedule and what percentage of the total it represents, what triggers an extension of time, what happens if the soil comes back worse than assumed, whether the progress payments match the work completed, what is expressly excluded (driveways, landscaping, fencing, letterboxes, clotheslines and the final site clean are the usual ones), and the defects liability period and what happens once it ends. The soil question is answered by a site assessment before you sign.
How do I compare two builders’ quotes properly?
Do not compare headline numbers. Put the two allowance schedules side by side and price the same selections against both. A builder who has priced your actual selections will often look more expensive on paper and land closer to it in reality. It also helps to know which type of builder you are dealing with.
Do you price on selections or on allowances?
We price on your selections rather than carrying them as allowances, which is why our estimate takes longer to produce and why the final number resembles it. You get that estimate at concept stage, itemised, before you are committed to anything. Selections are stage three of the stages of building a home.
We build in North Lakes, Narangba, Newport, Samford Valley and Banksia Beach, and we are happy to read another builder’s contract with you before you sign it. Call 0483 949 127.
For the full picture on costs, timeframes, contracts and how to check a builder, read Building a Custom Home in Brisbane, The Complete Guide.
