New Zealand international Reid's future at Upton Park was in douby after talks on a new contract apparently stalled, leading to rumours that the likes of Arsenal, Liverpool and Tottenham were ready to swoop.
Allardyce stated in January that it was "highly unlikely" Reid would be at West Ham next season, but the centre-back finally committed his future to the club earlier this month by penning a bumper six-and-a-half-year deal.
Asked if he was surprised by Reid's new deal, Allardyce said: "I was wrong, so I admit that.
"For me, if somebody's out of contract like that it would have all been done and dusted by the end of the season, even though it might not have been done and dusted from a paperwork point of view.
"His agent would have sorted out a deal somewhere or other in this country. I was probably more concerned about abroad because it could have been a pre-contract.
"'One of the bigger clubs in Europe could have seen what Winston has done here and said 'he's the one for us' and taken him abroad so I was obviously wrong.
"It was the longest negotiation ever. I think that in the end both parties are very, very pleased with the outcome.
"I think the big pull for Winston signing this time around is that we've had a good season up until now that we need to finish off as strong as we can."
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