How to Manage Upgrades

     The number one complaint about builders is not that they don’t finish on time, not that they don’t return calls or do warranty work; it is that their allowances for light fixtures, cabinets, flooring, even faucets is not adequate and that most buyers of new homes end up spending anywhere from $2000 to $50,000 in upgrades to get the look they want. In part blame HGTV and all those remodeling shows which create instantaneous new looks in minutes and for low cost. Anchorage is a different state. We don’t have low wage labor and we manufacture absolutely nothing for a home which creates a string of wholesalers and retailers, who all along the way, want to sell the new home buyer upgrades.

     Builders receive discounts when they make a commitment to buy 20 stoves. However, when a buyer goes into the appliance store and makes another selection, they are most likely going to pay full retail price. And why wouldn’t they? After all, the suppliers/retailers are entitled to a reasonable profit just like any business person. But here’s the potential problem. The supplier would rather sell retail than what was negotiated for as a bulk sale discount. Unprofessional customer service reps may even go so far as to criticize the builders’ allowances as being inadequate which may or may not be the case.

     There’s no single entity to blame and no simple solution. Builders try to keep their prices reasonable and competitive in this high cost Alaska construction environment and one way to do it is by keeping allowances low. Unfortunately that doesn’t always satisfy the buyer’s vision of their new home. Unfortunately, some builders do give the same lighting allowance for a $300,000 home as they do a $500,000 home. Builders need to recognize the different expectations buyers have for higher valued homes and adjust their allowances accordingly.

     It is pretty disheartening for a buyer spending half a million dollars for a home to be told by the retailer’s sales clerk that the builder’s allowance isn’t adequate (in their opinion). Builders need to make sure that regardless of the allowance, their suppliers are providing the best and most encouraging service possible and not try to upgrade every allowance and item in the home. Usually, customer service reps earn a significant portion of their income from one or two builder accounts and they should be respectful of that opportunity. On the other hand, builders need to raise their allowances and make them proportionate and appropriate to the value of the home. Most buyers aren’t looking for a bargain when it comes to a new home, but rather a good value with an amenities package to suit their vision and lifestyle.

     Buyers also have some responsibility. Before making a commitment to purchase a new home, they should get as much information ahead of time regarding the builder’s allowances and what specifically is included in their potential new home. A reputable builder will provide a spec sheet, allowances and an option list for upgrades. Buyers need to carefully review the approved set of building plans and the plot plan which shows the relationship of the lot to the home. They should be encouraged to do some pre-shopping if the builder does not have samples readily available.

     If the buyer finds the allowances are inadequate, they should ask the builder to increase them and make those increases part of the original purchase price. When the upgrade increases are included in the initial purchase price, they have a better chance of being included in the appraised value. And appraisers need to re-think how they value property. Value should not be by square footage alone, regardless of the fact that the MLS form has a field where homes are priced by square foot regardless of their age or amenities. That $1500 chandelier may not be worth its purchase price but it has more value than the five-bulb tulip version found in many spec homes today.