I did a site statistics search today, and found out that quite a few people that hit our web site are looking for information regarding “allowances”. Given this new information I figured I better write something about allowances. Even though the focus of our web site has changed to green building and energy efficiency, the “allowance” topic is still very important. In this context allowance is a budget item, not to be confused with tolerances which are a contruction quality issue.
I wrote a short article previously about “change orders”, which are changes to a construction contract after the contract is written. Change orders can happen before construction begins or anytime during construction. The bottom line is that change orders happen and are difficult to eliminate. The primary point of my article was to encourage people who are building to minimize change orders. Change orders can slow or stop a project in its tracks and they are a great way to bust your budget.
Allowances are the “mother of all change orders”. An “allowance” is simply a budget placeholder. If your contractor doesn’t know what you want in a particular phase of construction, they include an “allowance” placeholder in the contract. Typical allowance areas are cabinets, flooring, light fixtures, mirrors, door hardware, bath fixtures (towel bars, etc.), plumbing fixtures, landscaping, etc. Allowances are great for contractors because it allows them to keep the process moving quickly when they are putting together the contract that binds you to the contractor. The buyer assumes the advantage to them is similar, it allows them to get started sooner and make selections later. This is a good strategy if you enjoy stress and disappointments. As you can tell, I’m not a fan of change orders or allowances (and I’m a contractor).
I’m assuming that most of the people searching for information regarding allowances are trying to find out if their allowance budgets are adequate. That would be a difficult task to try and answer that question here without a complete understanding of the project. The question is really, “can I build what I want with those allowances?” The contractors answer is always, “yes you can build this house with those allowances.” But there is a pretty good chance you won’t like any of the standard selections in the budget. Personally, I would never start a project without knowing the entire scope of the project. I would do all my shopping and selections up front, even if I know there will be some changes. At least you then have a very clear baseline from which you have started, and it forces the contractors and vendors to at least carefully calculate areas accurately.
Part of the problem with allowances you will notice when you start shopping at your contractor’s preferred vendors. The first thing they ask is “who is your contractor?” It seems like an innocent enough question, but the reason they are asking is because they need to know which budget they are showing you. Because contractors operate differently, their vendors need to know which builder they are quoting prices for. Needless to say this can cause some confusion. The reason this little game is being played is all about how each contractor wants to handle their mark-up for allowance items and the discounts the contractors get. If you have a $10,000 allowance for cabinetry does it include the contractor’s markup or not? Is it based on the list price for those cabinets or the contractor’s price? What happens if you can’t find anything you like with the contractor’s preferred vendor? While you are stressing over the selection, there are people on the job waiting for your answer and the pressure is on.
The other serious issue with allowance items is how they can affect the construction process timeline and the quality of the final product. Using my example above, I’m amazed at how many clients will start a project without cabinet selections or even a final cabinet layout made. Many products like cabinets affect all the other contractors in the process – framing contractors, electricians, heating system installers, appliance vendors, flooring contractor, etc. Nobody can do a good job with their phase of construction if the cabinet plan is “fuzzy”. Believe it or not, even flooring selections can cause delays for your framing contractor. They might have to adjust how they frame the stairs based upon the flooring selections at either the top or bottom of the stairway!
I know everyone is extremely busy these days, and they are anxious and excited to get their project started, but I would encourage you to minimize change orders and allowance items. If you are building a standard “tract” type home the selections you get to make are fairly restricted anyhow – just get them made. On the other hand, if you are building a truly custom home, then do your homework and make all the selections during the design process and you will ultimately get a much better product in the end. I would rather make my budget changes during the bid process than at the closing table when you find out you are tremendously over budget.
