When Should You Use Allowances In A Renovation Project?

Setting budget expectations and discussing costs are the first two steps you’ll want to complete when planning your renovation. Even with the best planning, unexpected expenses can pop up at any point in the project. A common mistake made when setting up a renovation plan is relying on allowances to cover all of the unexpected expenses that crop up. A lot of renovators put allowances for fixtures and finishes in their agreements, and give a set quoted price for labour. This might sound like the ideal way to add flexibility to your contract and keep things moving smoothly.

Unfortunately, these arrangements can lead to problems, including underestimated costs, low-quality products, delays, and conflicts. After years of working closely with Toronto homeowners to handle hundreds of high-end renovations, we’ve learned that allowances are not the best way to stay flexible during a project. It adds a guessing game to the process for the homeowner, leaving them paying more than they expect while getting lower quality work. That’s why we do things differently here at Sosna.

What is an Allowance?

An allowance in a renovation budget is a set amount of money set aside for a specific item or task that hasn’t been fully priced yet. For example, you might sign a renovation contract that lists new kitchen cabinets as a line item. Maybe you haven’t picked a specific brand or style yet, or the contractor is still waiting for a quote from their supplier. The cabinets go in under an allowance of a maximum spending amount rather than a specific price.

Allowances aren’t fixed costs. They’re simply placeholders, suggestions of what to expect when the final price does come in. That means that the materials you end up with could easily cost far more than you expect. If the items are less expensive, the extra money from allowances usually goes to other parts of the project. It’s rare that having a contract with allowances will lead to you spending less on the renovation as a whole.

What’s Wrong with Using Allowances?

If you‘re not a contractor or a renovation expert, you might think allowances sound like a fine way to build flexibility into your contract. They may sound like a good idea in theory, but in practice, they end up working a little differently than you might expect.

Allowances are often underestimated

In most cases, contractors simply don’t leave a high enough value attached to the allowance. This means that the client is disappointed and may want to change the plans made months ago.

For example, let’s start with a contract for a bathroom remodel. The contractor puts in an estimate for $2,000 for the vanity. When the client finds the perfect vanity that fits all of their needs, they discover it actually costs $3,500 instead. This automatically boosts the project’s total budget by $1,500 over the original quote. The client may become upset at the rising costs even though they selected the item that came with a higher price tag. Then once the vanity is in place for installation, the contractors discover plumbing modifications must be made. The price goes up further, getting farther and farther away from the original allowance.

Allowances can make you feel rushed

Contractors often make rough plans for renovations rather than highly detailed ones. They simply don’t have the interior design expertise to chart out every possible improvement and upgrade. This means that the contract may be full of undefined details which allowances help them cover up. You may feel rushed to sign a contract you don’t feel comfortable with, leading to confusion and issues as the work continues. A clearly written contract with as few ambiguities as possible is recommended over an agreement based on the vaguest possible terms. It requires an investment of time in selecting the right materials and getting accurate quotes for them, but that’s one of the many things that makes SOSNA different from the rest.

Allowances can make a project seem cheaper when it’s not

An unscrupulous contractor can manipulate these allowances easily to offer you a very attractive quote. However, they know that the wording of the contract allows them to charge you far more later simply by adjusting for the real labour and material costs. You think you’re going to spend $500 on a particular part of the project and end up paying $5,000 instead. Don’t be fooled by a quote that doesn’t tell you what kind of flooring, cabinetry, and other materials you’re getting. You could end up with cut-rate results or a surprisingly high bill.

Allowances can lead to low-quality installations

Once you’re committed to the renovation and trying to stay under budget, you don’t want to be surprised by materials that cost twice as much or more than was quoted. Yet allowances open you up to exactly this situation. You may shy away from raising the budget and go with cheaper materials or options to save money. This leads to compromises in quality and may leave you with a finished renovation you’re not happy with. We’d rather help narrow down the choices before making the design plan, ensuring an accurate contract and a complete understanding of what to expect when changes are needed. Working with a designer can avoid this step. Our team members are highly experienced with choosing materials and making sure they fit your specific needs. There‘s far less of a chance we’ll have to swap fixtures or features because they don’t work with your home’s limitations.

Allowances can cause delays

Finishing a project on time or ahead of time is simply almost impossible in the renovation industry. We all do our best, but there’s simply no way to entirely predict what we’ll end up doing to accomplish your goals. You don’t want a team that rushes or cuts corners to try and get everything done. But at the same time, you need to avoid unnecessary delays so you can get back in your home and start enjoying it as soon as possible. We complete the majority of our projects on time, and our clients tell us their friends and family members can’t even believe it.

Not making decisions before construction begins will likely create delays during construction. Alternatively, a client may feel rushed to make a decision to keep the project going, leading to a decision that may not be as well thought out as possible. This will not only make the renovation frustrating and stressful, it can end up adding to the overall cost of the project.

Allowances can create conflicts

Speaking of frustrating, allowances tend to cause miscommunications and conflict between the homeowner and the contractor. They can also cause conflict between family members or partners as well when one side wants the cheaper option and the other side wants a specific material or feature. Settling all the little details during the pre­ planning stage keeps heads cool and prevents emotional conversations and outbursts that increase the stress involved in the renovation.

What Should We Use Instead of Allowances in Renovation Contracts?

Instead of working within allowances, we recommend starting with a general budget. Then work with a designer to plan out every aspect of the renovation, attaching an accurate cost quote to every part. You should be able to check what the expected price is for each fixture, feature, and material before committing to the work. This greatly reduces the amount of decision making you have to do in the midst of the process when time is of the essence. We‘ll go through the entire pre-planning and planning stages with you to create a map that leads directly to the renovation results you need. We prefer to figure out and include the specific costs upfront before construction begins. This way, the client knows the exact investment amount they will be making. There is no guessing involved, and more importantly, no disappointment in the end result.

When are Allowances a good idea?

The only reason an allowance should be used is when there is a timeline so tight that there is not enough time allotted to design the project before construction begins. If you’re dealing with the aftermath of a fire or flood and need immediate help after the structure is stabilized, planning a project with allowances can help us get in there as quickly as possible.

Our Design and Build Process ensures your project is completed on time, on budget, and creates a space that is uniquely yours. It’s what makes us the Renovator You Can Count On. Learn a little more about our process or check out what happy clients are saying about our work.