Episode 8 | Danger of Allowances | Carmel Builders Sidelight Series

March 24, 2020

In this episode of Carmel Builders Sidelight Series, owner Louis Weiher discusses allowances in a remodel contract. What they are and why you don’t want them.  Its important to understand what you are getting into before a project starts! We hope this helps.

Transcript:

Welcome back to another episode of the Carmel Builders Sidelights Series. I’m Louis Weiher, I’m the president and owner of Carmel Builders, and today I’m talking to you about the danger of allowances. Allowances, as you probably know, are items in your contract that are uncertain. They might be a selection for flooring, for cabinets, for countertops, what have you. But it’s something that is a placeholder that you’re going to need to select during the project, not before we start. And I don’t like allowances, neither should you, and here’s three reasons why.

The first one is unknown costs. We don’t know how much something costs until we select it. So, while you might sign a contract for a fixed amount, the reality is with an allowance in there, you really don’t know how much it’s going to cost. If the countertop you want is ten thousand dollars more than your allowance, well then guess what? Your contract price really went up by ten thousand dollars. So if you really want to know how much your contract is, how much your project is going to cost, you should not have allowances in there because you just don’t know when we put an allowance in. It’s a guess at best.

The second issue is that the decisions when we decide on allowances are based upon timing; where they fit on the timeframe of your project. So early on in your project, we probably have to select cabinets. They get ordered pretty early, they go in pretty early. Later we might select the backsplash tile, or the sink, or the faucet. Well, those things at the end get selected later because we don’t need them right away. But, what if they’re more important to you? They oftentimes are. 

The reality is those final finished details are often what you as a homeowner are going to care the most about. But because we stick them in an allowance, you’re not choosing them until after you spent money on other things. And oftentimes you’re spending money on things that aren’t as important to you. You get to the end and the beautiful hardwood flooring that you love, you don’t have any money left for because you’ve burned up your allowance on other things that aren’t as important. So, we really want to make decisions in a remodeling project based upon what’s important to you, not when we need it. And allowances don’t allow us to do that. So that’s the second one. 

And then the third one is delays. I think people forget this a lot. Even if you choose the perfect tile, it fits within the allowance budget, it’s available, it’s everything you want, but guess what? It’s on backorder. And now it’s a month or two out and your project sits there for a month or two waiting for the tile to come in. That’s really frustrating. It’s a delay that could have been avoided if we had simply selected a tile before we start. 

In a previous video, I mentioned that we believe that there’s only two ways to price a project; before you do it or while you’re doing it. We believe really strongly, and you should too, price it out, get it figured out before you do it. Allowances don’t allow you to do that. So, be wary of allowances. Your contract should have very few and if they’re in there, you should understand why you have them in your contract. Thanks a lot.