Tuesday, November 12, 2013

How do allowances work when budgeting for renovations?

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. For example if the homeowner has yet to find the right grade of kitchen cabinets, the allowance lets the project begin by specifying how much can be spent on them. It also sets a date when the decision must be made for the project to stay on schedule.

Most contractors that are experienced at estimating will give their clients an accurate as possible number on the allowances pertaining to a budget eliminating a lot of the shock or surprise at future pricing. There are contractors when pricing allowances will set the number too low on purpose allowing them to be cheaper at the beginning almost guaranteeing them the job.

Since there are contractors that will do anything to land a job, you need to study the quote that you are given. Keep a close eye on the amount of money that is allocated to certain parts of your quote, does the amount allocated appear to low? If it seems to low then it probably is and should be discussed before anything is signed. Remember just because in your budget you were allotted a certain amount of money doesn’t mean that will get you what you want. For example if the contractor allocates 5,000 dollars for your entire new kitchen that doesn’t mean you will get a 20,000 dollar kitchen for the allotted 5,000. You will be given a change order and have to pay the 20,000. The worst thing about contractors that proceed in this fashion is that the cost over runs end up sometimes stopping the finishing of the job when the client runs out of money before the job can be completed. This doesn’t help anyone.

Sometimes the homeowner can end up being their own worst enemy. For example we have given people quotes with what we thought was the most appropriate allowance for the different sections of the renovation only to have the homeowner tell us to lower them. When this happens we do two things;

1. We explain to them why we have set those allowances at that price, what we believe the level of fit and finish that will suite the person, the house and the overall work that is being proposed.

2. We do what they ask and insert the amount that they have requested us to set it at.

What usually ends up happening is that once the job is completed and we look back at the final cost of the job compared to the budgeted cost of the job, we find that those allowances that we lowered ended up at what we originally set them at before the homeowner requested the change.

In the long run when working with allowances on budgets if it doesn’t make sense, if it seems either too high or too low then you should be asking questions and listening to your contractor’s answers.

Allowances are there to help you know the cost and they should also help the contractor when designing and finishing the job.

Rob Abbott
Operations Manager
Village Builders Inc.

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