5 Reasons You Should Never Use Allowances

Chad Hatfield and James Hammel of Alair Homes joined The Weekly to explain why they never use allowances on a project. 

September 14, 2020
Allowances the Weekly

Chad Hatfield and James Hammel of Alair Homes don't allow allowances on any of their projects. Here are their five reasons why: 

1. Allowances create risk. Always.

2. Allowances are land mines. They will always blow up in your face.

3. Allowances hurt relationships with your trades. 

4. Allowances only seem quicker and easier. 

5. Allowances are a symptom of a deeper problem. 

Watch the video to learn the reasoning behind these five convictions and check out HorizonTV to view more segments of The Weekly. 



About the Author



I have always used allowances in my design-build custom home projects. The allowances always include specifications and detailed estimates. For example, the plumbing fixture allowance would include a list of the fixtures included, the manufacturer and model number of each fixture, and the cost included in the allowance. If the manufacturer's cut sheets are available, they would also be included. The same for appliances and light fixtures. For finishes like flooring, the allowance would include the species and grade of hardwood, the manufacturer and product name of the laminate or vinyl flooring, or the manufacturer and style of the tile. Each allowance would be accompanied by a room by room quantity estimate and square foot cost of both labor and material.. For carpet, it would also include the grade of pad. The allowance sheet includes a note that the style of carpet could affect the cost, i.e. berber or carpets requiring a pattern match would cost more. The client is given a 3-ring binder containing a copy of the contract, specifications, budget estimate, and allowance information. The clients are instructed to take the notebook with them when visiting our suppliers showrooms.

This system has worked well and has never "blown up in my face."

Submitted by Chuck Miller (not verified) on Fri, 09/11/2020 - 15:08

Sounds very much like we do...the book with pictures of items included in a lump sum contract will help derail any understanding of what the owner is buying.
When using allowances we have found that it is best to have heavy allowances....your then have a higher GPM...if the client comes in below...you still have the higher margin. And when they shop for their selections...they can hold their head up high because they are working with a quality builder and not a low ball builder...Mark Worley www.worleyconst.com

Allowances always get me in trouble!

Submitted by Perry Henderson (not verified) on Fri, 09/11/2020 - 15:34

Completely disagree with their take on the allowances. Prior planning prevents poor performance. Before the job starts all of the allowances are already chosen. If they want to linear drain then that can be done and additional costs are incurred. That is brought up with our in-house designer. Our designers are experienced and know how the work is being performed in the field.

We give all of our clients allowances on certain finishes, not all of them. Specifically cabinets' countertop Plumbing fixtures electric fixtures tile materials flooring shower doors and a few other things. This does help us control our cost and keeps the communication clear with the clients. Also, all allowances are required to be chosen prior to construction being started.

Submitted by Max Christiansen (not verified) on Fri, 09/11/2020 - 16:03

they don't use allowances but they also don't explain THEIR process. Are ALL selections determined prior to breaking ground? We use a budgeting process, that assigns amounts to certain items. These budgets are intentionally higher that base grade. The client understands that going in.

Completely disagree. We have used an allowance system for the last 20 years that works like a champ. The key is you have to have a good system that addresses the nuances of sales and client thinking as well as production needs otherwise you are exactly right.

This is why designers exist ;) We can help guide the client through those selections if an allowance or budget has already been set. OR (and my preferred way) we can make the selections ahead of time and then go into the bid phase.

When the project specifics are not specified because: we are in a hurry to start the project and we will figure out what we want later. Everybody forgets contract administration cost and time. Taking the project owner shopping cost money. Ordering, specifying approvals and delivery issues can add to the issues.

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