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Controlling Allowances

Strict allowance policies benefit homeowners as much as builders.

Why do builders prefer that the homeowners choose every single item that will go into the house before they break ground? It mainly relates to defining costs, scheduling, understanding lead times and knowing the details of a product selection and how they relate to the construction process. From an owner’s perspective, there are so many choices available and they may need time to understand, research and decide on something they like. They have to be careful though, as a choice postponed may end up being made at a time when the homeowners are feeling a lot of construction stress. Decisions made under stress raise the chance of buyer remorse.

But the reality is that some people have a difficult time choosing finishes like flooring, light fixtures, tile, and carpet before the house has at least been framed and they can walk through the spaces. Allowances are a necessary concession to that reality. Builders let the homeowners choose a limited number of products after the project is underway, while still keeping the job on schedule and on budget.

It’s useful to think of an allowance as a placeholder. Until a selection or product specification can be made, a budgetary number needs to be created for that particular line item. Qualifying that number may take the form of a square foot cost, cost per item or in some instances, be based on historical costs related to a specific level of quality. The best case scenario would be if an allowance can be tied to a specific product or specification so the homeowner has something to compare against.

For instance, say that the builder and homeowners agree on a $75,000 allowance for cabinets and built-in’s. The homeowners can spend that money any way they want. They may want mid-range kitchen cabinets with flat panel doors, or decide to upgrade to ornate cabinets with intricate moldings, or they may opt for more simple, less expensive semi-custom cabinets. They may want to spend more, or save money on that line item or reallocate those dollars to another item. The allowance just gives them a starting point or baseline when researching their options.

Allowances have an expiration date. That’s the date by which choices have to be made. A delay will affect the job schedule and may raise the final cost. Allowing sufficient lead times in ordering and ample time for manufacturing is critical and needs to be monitored.

Because of their potential for problems, most builders limit allowances to a few line items. These vary by builder, but common ones are lighting, plumbing fixtures, appliances, tile and carpet. During the planning stage, the builder will suggest an amount that makes sense given the budget for the overall home. Homeowners who want to spend more—or less—on these items need to tell the builder at this point.

Most builders also insist that the customer select allowance items from their regular suppliers and that they be installed by the builder’s regular trade partners. For one thing, the builder can’t be confident in the quality of unfamiliar products from unfamiliar vendors. For another, the use of regular suppliers and installers is crucial to controlling costs and making sure that the builder is comfortable in warranting the product. It eliminates situations like the customer who chooses carpet from a supplier unfamiliar to the builder, only to find out that carpet comes from Europe, and will take 20 weeks to arrive to the jobsite. Dyelots can vary greatly as well, costing valuable time and creating potential delays or disappointment.

The bottom line is that a well-defined allowance policy benefits the homeowners as well as the builder by controlling costs, keeping the job on schedule, and reducing unwanted stress for everyone. People who have built homes in the past usually understand this, which is why they generally prefer to work with a builder with a clear policy.

 

Warm Regards,

JB-sig

John Brink
Brink Custom Homes
P.O. Box 1902
Tahoe City, CA 96145

(530) 583-2005 – phone
(530) 583-4405 – fax

john@brinkcustomhomes.com
www.brinkcustomhomes.com