How Much Contingency to Keep When Building a House

Every house build has costs nobody can see on the day you sign the contract. The question is not whether they will come, but whether you have the money set aside when they do. That money is your contingency. Here is how much to keep, what it is for, and how to stop it disappearing on things it was never meant for.

How much contingency to keep

For a new home, keep 10 to 15% of the construction cost as contingency. Use the lower end when the plans are complete, the site is flat and well investigated, and most of your finishes are already chosen. Use the upper end, or more, when:

• the ground has not been tested, or the lot is sloped, rocky or wet;
• the design is still changing;
• you have many allowances and few final selections;
• you are building on an older lot with unknown services;
• you are acting as your own general contractor.

On a $400,000 build, 10% is $40,000. That sounds like a lot until a rock shelf turns up under the footings or the lumber price moves between your quote and your order.

What contingency is for

Contingency pays for things that are necessary and unforeseen:

• ground conditions: rock, soft soil, water, extra fill;
• items the plans missed or the inspector requires;
• price increases on materials not yet bought;
• repairs to work damaged by weather;
• small gaps between trades that nobody priced.

What contingency is not for

Contingency is not spare money for upgrades. The quartz you liked better than the granite, the bigger windows, the extra outlet in every room: those are changes you chose, and they should be decided against your budget, not quietly paid out of the safety net. Once the contingency has paid for upgrades, it is not there when the real surprise comes.

A simple rule: if you could have decided it at the start, it is not a contingency item.

How to track it every week

1. Write down your base budget (everything except contingency) and your contingency as two separate numbers.
2. For each cost line, keep a forecast final cost: the signed contract plus approved changes where you have a contract, and your budget where you do not.
3. Add up the forecast final cost of every line. The difference between that total and your base budget is how much contingency you have already used.
4. Look at it against progress. If half the contingency is gone and the house is not yet dried in, stop and re-plan before the next big commitment.

Common mistakes

• Counting contingency as part of the budget. If your lender approved $440,000 and your build is $400,000, you do not have a $440,000 house. You have a $400,000 house and a $40,000 cushion.
• Only checking at the end. By the time the final invoices arrive, there is nothing left to decide.
• Not writing down why. Every time contingency is used, write one line: what, how much, and why. It keeps the conversation with your builder honest.
• Forgetting allowances. Allowances for cabinets, flooring and fixtures are estimates. If your choices come in over them, that overrun eats contingency unless you track it separately.

Free download: before each stage of your house gets covered up, walk the site with the Home Building Stage Checklist: 42 checks from foundation pour to final walkthrough (Excel and Google Sheets).

The tool

The Home Construction Planner does this tracking for you: 56 budget lines with a forecast final cost on each, contingency used and left on the dashboard, change orders, allowances against your actual selections, payments and loan draws, and a schedule. Excel and Google Sheets, with a fully worked example of a 2,600 sq ft custom home.

Written by a construction site manager with 15 years on building and public works projects. A planning guide, not legal or financial advice.