When Should You Use Allowances In A Renovation Project?
When planning a renovation project, budget and cost are an important first step.
Even with the best planning, unexpected expenses can arise. A common mistake that homeowners make when planning a renovation is relying on allowances to cover these unexpected expenses. A lot of renovators put allowances for fixtures and finishes in their agreements, and give a price for labour.
Allowances may seem like a good idea to provide flexibility and to budget for unexpected expenses in your renovation project, but they can lead to problems, including underestimated costs, low-quality products, delays, and conflicts.
In our experience, we have found that working with allowances is a guessing game, where the homeowner ends up losing and paying more than expected.
What is an Allowance?
An allowance is an amount of money set aside in a construction contract for a specific item or task that hasn’t been selected or fully priced yet.
For example, a renovation contract may include an allowance for kitchen cabinets, which means that a specific amount of money has been set aside for the purchase of the cabinets, but the exact style, brand, and details of the cabinets have not been selected yet.
An allowance is not a fixed cost, and the final price of the item selected can end up costing more than the allocated amount. If the selected item costs more than the allowance, the homeowner would be responsible for paying the difference. If it does end up costing less, the difference would usually be allocated to another part of the project.
What’s wrong with using an Allowance?
While allowances may seem like a good idea in theory, they can cause a lot of problems in practice.
Allowances are often underestimated
Most of the time, allowances that contractors provide end up not being enough.
Ex: In a contract, a contractor has estimated that a vanity will cost $2,000.00. When the client starts the process of selecting a vanity, they discover that what they want starts closer to $3,000 or more. It’s also discovered once the vanity is purchased that in order to fit the chosen vanity, a plumbing change is needed, adding even further to the cost.
Some contractors may choose to use allowances to encourage the client to sign the agreement quickly, instead of investing much time in selecting the materials. It is much easier for the contractor to assign an allowance to a toilet before selecting one and reviewing whether it will fit the existing rough in. It requires time, effort, and expertise. Some are willing to skip this step to make it easier on themselves and get the contract signed, then deal with it later.
Others may choose to provide low allowances to encourage the client to sign with them because they are offering a “cheaper” price. Once it’s time to make selections, and the price is higher than noted in the allowance, it’s too late to turn back, and the client is on the hook.
Allowances can lead to low-quality products
When given a budget for a specific item, it can be tempting to choose cheaper options to keep within the allowance. This can lead to lower-quality products that may end up being disappointing, or not standing the test of time.
Also, a contractor will not have the same level of experience and knowledge as a designer. They would not have the capacity to help the client figure out which Fixtures and Finishes will best meet their tastes and needs.
Allowances can cause delays
In our industry, finishing a project on time is almost unheard of. The most common thing we hear from our clients at the end of every project is that no one in their family or friends believes that we finished on time.
Not making decisions before construction begins will likely create delays during construction, while decisions are being considered and made. Alternatively, a client may feel rushed to make a decision to keep the project going, leading to a decision that may not be well thought out. 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
If a client ends up not being happy with the items that were selected within the allowance, it can create conflicts between the client and their partner, or even the client and the contractor.
What is a better alternative to using an Allowance in a Renovation?
Instead of working within allowances, we find at Sosna that it works best to start with a budget, then work with a designer within that budget to create a design that best meets the client’s wants, needs, and taste.
Working with the designer, the client will select all of the Fixtures and Finishes before construction starts, keeping in mind the overall budget and making thoughtful decisions during the design phase. Then, when it’s time to create the renovation agreement, knowing the selections made, we are able to 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 allot to designing the project before construction needs to begin.
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 #renovatoryoucancounton