When custom home building or remodeling in Arlington, VA, many contractors want to help move the process along by providing a quote and contract documents that include an “allowance.” This allows the contractor to come up with a total number for the customer to sign off on, without having made all the decisions that go into the construction process. It is a compromise between completely transparent, line-item pricing for every aspect of the project and a vague, lump-sum quote that fails to outline any details. Before agreeing to a custom home construction project that has allowances, it’s crucial to understand how they work.
What are allowances when building a custom home or remodeling?
Allowances are typically used for the second-stage components of a project, including items such as cabinets, paint, fixtures, or appliances. By making a quote (which is frequently converted into a legally binding contract) with allowances, the contractor sets a ballpark budget for these items based on a general estimate of the cost. At some point, the customer, working with the contractor, selects the items. The amount of the allowance is not the guaranteed price of the item, nor is it the maximum price. Rather, it is the experienced contractor’s best guess of the cost, and generally, quotes and contracts make it clear that the customer is responsible for the total cost even if it exceeds the allowance.
The hidden costs of allowances in a custom home build or remodel.
In addition to the possibility that the price the customer pays for the line item will exceed the allowance, these provisions have two major drawbacks. First, the allowance doesn’t take into account the cost of delays that might occur if the item the customer selects is on backorder or requires customization. Deciding on the item in advance means that the price and delivery time are known quantities.
A second drawback is that contractors often require customers to work with their preferred vendors. Having an established relationship with the vendor means that the contractor has more confidence in the quality of the item provided. But it also motivates the vendor to work with the contractor, sometimes to the detriment of the customer. Vendors will set pricing and payment terms in a way that allows the contractor to mark up the cost to the customer and keep the profit. This is either open – the contractor bills the client for the items and includes a markup in the invoice – or the vendor provides a marked-up number to the customer and passes the markup through to the contractor. The amount of the markup is entirely up to the contractor, leaving the customer open to paying a significant percentage more than the contractor’s price for the item.
In a competitive market for custom home building and remodeling in Arlington, builders sometimes try to expedite the process by including allowances that conceal potential pitfalls. It’s generally preferable to get a clear, specific price in the contract that includes transparency about any markup. This usually results in savings in the ultimate cost of time and money for a residential construction project.
At Alair Homes Arlington, we believe the home addition, remodel, and custom home building process shouldn’t involve surprises or hidden expenses. We explicitly outline the details of the project’s costs, including the payments made to vendors, subcontractors, and suppliers. We work closely with our customers to finalize the budget without allowances, setting clear expectations and delivering quality and value. You can learn more about how Alair’s commitment to transparency helps you during the custom home building or remodeling process in our YouTube video with one of our Market Partners, Architessa, below.
Contact us today for a consultation about your custom home build or remodel needs.
