Allowance
Definition and meaning of Allowance in real estate.
An allowance is a specific amount of money budgeted by a home builder for a buyer to select custom items like fixtures, flooring, or appliances.
In more detail
Builders include these budgets in new construction contracts when specific materials or finishes have not yet been chosen at the time of signing. The allowance gives the buyer flexibility to choose items that fit their taste while keeping the base price of the home predictable.
If a buyer selects items that exceed the budgeted amount, they must pay the difference, which is typically billed as an upgrade or change order. Conversely, if the choices cost less than the allowance, the buyer may receive a credit, depending on the builder agreement. This system helps keep both parties aligned on construction costs.
Key facts
| Category | Buying & Selling |
|---|---|
| Commonly applies to | Flooring, light fixtures, countertops, landscaping, and kitchen appliances |
| Who pays excess | The home buyer if their selections exceed the builder-allocated budget |
| Key document | New construction purchase contract or builder specifications sheet |
A buyer signing a contract for a new home receives a flooring allowance, which they use to choose premium hardwood instead of standard carpet, paying the difference out of pocket.
Frequently asked questions
What happens if I go over my builder allowance?
You will receive a bill for the difference, typically processed as a change order, which must be paid before installation or at closing depending on the contract.
Can I get a refund if I spend less than the builder allowance?
It depends on the builder contract; some builders offer a credit toward other upgrades, while others do not refund unused allowance funds to the buyer.
Is the builder allowance included in my mortgage?
Yes, the initial allowance is built into the base price of the home contract and is covered by the mortgage, but overages are often paid out of pocket.