How do allowances in custom home budgets work?

Q:
How do allowances work?

A:

Allowances allocate funds to parts of the job that haven't been fully specified at the time of the contract signing.

When pricing a custom home or renovation the budget or even the fixed price is based on the plans supplied by the homeowner. These plans can be drawn by a draftsmen or by an architect, depending on the level of detail that you purchased from these professionals will depend on the overall accuracy of the quote.

For example when you have house plans drawn they will give you detailed overheads of things like the kitchen and bathrooms. An overhead shows what is in the room like a toilet, sink, shower but it doesn’t show what they look like or of what the make and model would be. Because of this we have to make an educated guess on what you want your bathroom fixtures to be, the simple American standard toilet can be 200 dollars, but if it was a Kolher toilet it would cost 500 dollars. So when we budget we make a decision on the overall feel of the house, if the home looks like they want a high standard of finishing then our budget will reflect this with a higher number for the bathroom fixtures. If we think the house is on a tight budget we will budget for a lower amount for the bathroom fixtures.

Just because we have budgeted a certain figure or “allowance” doesn’t mean that you are required to stick to that number. As the homeowner you can upgrade above that amount or downgrade to save yourself money. All an allowance does is give the client or homeowner an idea of what it will cost and a goal to work with so that you have some semblance of the amount you are spending.

Usually when we budget for a house we end up with at least 1 dozen allowances for different things in the home. At the end when the project is completed and you add up all the bills we are you usually within 10% above or below the total amount of allowances. Because every allowance is priced individually you are able to see where you have been able to save money and where you have exceeded your budget. Building a custom home can take up to a year and it doesn't take long to forget if you have already gone over the allowance on certain areas. Pricing individual allowances allows you then to adjust your spending on the remaining allowances to come in budget or under budget to help balance out your spending.

This is one reason why you should always choose a quality contractor that is able to price and build your home; they need to have the experience to make a proper educated allowance in the budget when they price it for you. These allowances could be the reason you stay on budget or end up over.

Rob Abbott
Operations Manager
Village Builders Inc.