Pricing the Unknown
While working through a project, it is important to keep your budget front and center. A great way to do this is by requesting construction estimates from contractors early in the process. With that said, reviewing construction estimates at this stage can sometimes be baffling. Why is one so much more expensive than another? Why does one have pages of detailed line-item costs while another is simply a lump-sum total cost? It can sometimes feel like comparing apples to oranges…to cheeseburgers.
Often, the source of this variation is the tricky little thing known as “allowances”.
What Are Allowances?
An allowance is the price included within an estimate for an unknown condition, or yet-to-be-determined selection. (The final size of a structural beam is an example of the former, and your kitchen faucet is an example of the latter.) This helps you get an understanding of the total project costs before everything is worked out and finalized. Typically, allowances cover only the cost of the material, with the associated labor costs being separated out for clarity. As you progress on your project, these allowances can be changed to fixed amounts once the final fixture or finish is selected or the unknown condition is revealed.
How Do They Work?
The most important thing to keep in mind is that an allowance is an open-ended cost. For example, the project estimate may include an allowance of $2,000 for your new refrigerator. As the project progresses, you may end up selecting a $10,000 Sub-Zero refrigerator (increasing the project total by $8,000) or finding something on sale at Home Depot for $1,000 (lowering the project total by $1,000). If this happens after the construction contract is signed, a change order will be issued to rectify the original allowance amount with the final actual cost. The same is true for other selections – you can end up purchasing tile for $6.00 per square foot or $60.00 per square foot. If you have 2,000 square feet of tile in your project the difference can be significant.
What to Look For?
First and foremost, make sure that allowances are included, and clearly labeled, within the estimate. Depending on the contractor, you may receive an estimate that only includes structural materials and labor. This bid will look amazingly cheap compared to others until you realize there are no fixtures or finishes included, e.g. flooring, plumbing, lighting, etc. Keep an eye out for notes like “Provided by Owner” or “Supplied by Other”, they are a sure sign the estimate is not comprehensive.
Second, review the details of the allowances to see if they match your expectations. If you know the level of quality you’re looking for, take a few minutes to research online if your desired stove is closer to $1,000 or $10,000. It’s never fun being surprised later when you realize you have to pay more to get what you wanted.
Finally, be aware of the potential ripple effects of your choices. Sometimes labor costs may vary depending on your selections, such as intricate mosaic tile versus large format tile. If you are planning to have cabinets over your refrigerator, the final height of the fridge may be critical. Want the gorgeous Wolfe stove? It may require a special hood with additional exterior ventilation! The more decisions you make prior to the start of construction the better, and the fewer allowances you’ll have moving forward.
Now that you’re equipped with a basic understanding of allowances, you’re also empowered to use them to help you manage your overall budget. Want to splurge on expensive countertops, consider getting tile on sale to balance the increase in the countertop allowance amount. Maybe nix the expensive chandelier so you can cook on that nice 6-burner range? The more you’re armed with an understanding of how your budget is managed by allowances the less surprises you’ll experience, and the happier you’ll be with the final project!