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Making Allowances

Allowance amounts can cause serious problems for remodelers.

February 18, 2000
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Allowance tips:
  • Use a calculated allowance. Note it in the contract.
  • Specify vendor or supplier in your contract. Use only one vendor familiar with your procedure and company.
  • Quote retail prices only.
  • Note selections, prices, etc. with a signed change order before materials are ordered.

  • Allowance amounts can cause serious problems for remodelers. Coming up with a ballpark figure is a challenge, as is explaining to homeowners that they’ve spent more than the designated amount.
    To alleviate some of the headaches caused by allowances, Dennis Dixon, president of Dixon Builders, developed a method for calculating an amount that makes remodeling easier on the client - and, more importantly, himself.

    "When it comes to remodeling, there are a lot of unknowns," Dixon says. "Sometimes an allowance is picked out of the blue sky, and they are never enough, but I understand how it happens."

    Despite the good intentions behind verbal allowance agreements, without a written understanding, things are apt to go awry. Ultimately, it’s the professional relationship and the remodeler’s reputation that will suffer if there is a disagreement over allowances. "It leads to this Pandora’s box of evils," Dixon says.

    Rather than guess at numbers, Dixon sits down with his clients and shows the math.

    If, for example, Dixon is quoting a flooring allowance, he starts with the floor plan and notes the rooms where carpet will be used. He then takes the square footage and multiplies by 9 percent waste and divides by 9 square feet per square yard to arrive at the total square yards of carpeting used. Taking that figure, Dixon multiplies it by the price per yard to get the carpet allowance. The key to his success is tying allowances into the contract. "You can explain to the owners where you’re getting the $6,000 allowance from, but four to six months after the project starts, they don’t remember," he says. To ensure there is no future debate over, Dixon notes the figures in the contract. If questions arise, he uses the written agreement to clear up any confusion.

    And, after allowances are made, he supplies the client with an allowance summary sheet that includes the job’s address, categories, amounts and selection due dates to remind the homeowners of upcoming deadlines. When a client makes a selection, the choice and price are noted with a signed change order before materials are ordered. The signed CO gives the go-ahead.

    "It leads to bigger profits because I only quote retail prices so there are no arguments about discounts or rebates."

    Dixon has received nothing but positive comments from clients about his professionalism, and some have even referred his company because of the calculated allowance system.

    "The feedback I’ve received from new constructs and remodeling clients is they absolutely love it because it answers all their questions," Dixon says. "The way to keep a client happy is to keep them informed."

    Allowance example:

    (As written in the contract specs.)

    12. Floor coverings: Carpet specified is American Carpet Co. "Stellar Galaxy," Grade II installed over 9/16-in. rebond foam pad, .43 density. Supplied and installed by Carpet Co.

    Carpeted Areas: Great Room, Family Room, All Bedrooms, Powder Bath, Bath 3, Basement Area.

    Quantity: 390 square yards (per Allowance).

    Carpet Allowance:

    3219 square feet Carpet Area 2 9 percent Waste / 9 square feet per square yard = 389.8 yards Carpet.

    390 square yards 2 $24.35 per yard Carpet =$9,496.50

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