Making Senses of Allowances

May 2018 Newsletter - to view or download entire newsletter click here.

For best results, narrow down the options up front

Allowances--that is, budgeting general costs for items before the specific items are chosen--are a fact of life on many projects. Some homeowners have trouble making decisions before work begins, most commonly for appliances, cabinets, floor coverings, and plumbing and electrical fixtures. In those cases, the builder can allocate a dollar amount to each category and let the homeowners choose specific products later.

That doesn't mean homeowners can postpone thinking about these products altogether. For an allowance to serve the homeowners' interest, it must be based on accurate numbers. For example, the homeowners should at least decide what grade of products they want. That decision can require legwork as well as self-awareness.

The builder can provide average dollar numbers based on past experience with similar projects, but this is only the first step--the homeowners need to ask follow-up questions. For instance, the builder may suggest a $6000 allowance for light fixtures. How many of what kind of fixtures does that represent? Does it include bulbs? Recessed cans, sconces and chandeliers come in a range of prices, so it's important to be realistic about like-to-haves versus must-haves.

Or take the example of tile. That $5,000 shower allowance might cover a large-format ceramic or porcelain, but what if the homeowner really wants travertine? It's best to decide up front and budget for it, including finding out whether the price includes labor.

Some people go online to compare products and prices, but the results can be misleading. Although internet pricing may show the relative costs of different grade levels, the quality and warranty coverage may not match that of products sold by a professional supply house.

In most cases, the best way to create an allowance budget is to visit the builder's recommended supplier or showroom. The builder can work with the showroom after the initial visit to generate a realistic number for the grade of products the homeowners want. The time invested in this work will yield allowances based on real-world numbers, not on guesswork or wishful thinking.

The homeowners should also consider allowances when choosing a builder. Ask the builder's references if its allowances were realistic. Professional builders make sure customers understand what their budget will and won't cover because they know the customers will be happier in the end.

When soliciting bids from more than one builder, make sure that each uses the same assumptions for each allowance item. If one bases its cabinet allowance on particleboard boxes while another assumes plywood, it's hard to make a meaningful comparison. (Comparing bids is notoriously difficult, which is why it's better to find a trustworthy builder and then work with them to create a reasonable budget.)

Note that the builder will set a deadline for every allowance choice. Meeting this deadline is crucial to getting products delivered in time for installation. If the homeowners miss the deadline, the allowance money will still be there, but the delay will throw off the job schedule and raise the final cost.

It's best to make as many product choices as possible before work begins. But since most projects will have allowances, homeowners can help keep the job running smoothly by thinking through their needs and doing their homework on schedule.

Warm Regards,

Tim Alexander