Construction contracts for new homes incorporate allowances for specific materials and finishes. Each agreement will dictate an amount, which is included in the contract price, to cover the cost of prescribed items.
Allowances for flooring, lighting, and cabinets are the most common in the industry.
Misunderstanding the use of allowances can be frustrating and costly. Purchasers should be very cautious of allowances when considering a new construction home.
Firstly, the standard features and specifications should be clearly defined in the construction contract.
Purchasers should not assume that the materials and styles used in the model home are reflective of the standard features. Model homes are usually finished with upgraded materials that exceed the allowances.
In addition, the applicable allowances will likely be inclusive of HST. However, retailers advertise prices that exclude HST. This disparity in pricing will regularly cause purchasers to exceed their allowance.
For example, a $1,500 lighting allowance in a sales contract is actually worth just over $1,300 before tax.
Another common mistake relates to cabinet allowances. While many purchasers will carefully select a kitchen that fits their budget, they overlook the fact that the reference to “cabinets” in the contract includes bathroom vanities.
Many purchasers are surprised there is no allowance for certain basic items. For example, bathroom fixtures, such as mirrors, towel racks and toilet paper holders, are often excluded from sales contracts.
Purchasers may also be restricted to working with the seller’s preferred suppliers.
As a result, purchasers can’t benefit from sale prices that may fit their allowances if the preferred supplier is not making the same offer. This limits the ability to shop for deals.
Ultimately, any variation between an allowance and the final cost will be reflected through an increase in the contract price.
