HOW TO: Navigate Remodeling Allowances
The tricky allowance schedule. What is it and how do we manage it?
Homeowners often get hung up by allowances because they don’t understand what they are and how they work. Allowances are critical to managing your money during a remodeling project.
What are allowances?
When a remodeler bids a project, most of the cost can be figured out by doing a ‘take off’ from the plans to determine how much material is needed. They also collect bids from subcontractors to determine their costs. However, there are some items that a remodeler has no way of knowing the cost. That’s because the homeowner still has to choose these items, and those prices could be all over the map. Kitchen cabinets, for instance, could range anywhere from $10,000 to over $50,000. Therefore, an allowance schedule is created for the items that an owner will select. These are called selections. If the owner has shopped ahead of time and obtained price quotes, then real numbers are used. However, if the owner has not made their selections, then an estimated amount is used.
How do I know how much my allowances should be?
First, get a handle on how much your remodeling dreams will cost. You can check out Remodeling magazine’s 2015 “Cost vs. Value Report” on our website at www.blueridgehi.com to get national averages for common projects. You can also research specific products to determine basic ballpark costs.
Then figure out how much you have to spend. If you’re paying cash, that’s easy to answer. But if you’re borrowing, you need to assess how much a bank will lend you and what that loan will add to your monthly expenses.
Once you have decided how much you’re able to spend, you can begin to see how much you have available for cabinets, countertops, flooring, plumbing and electrical fixtures. Obviously, if your budget is $50,000, it is not realistic to have a cabinetry allowance of $40,000 because that leaves nothing left for labor or really anything else in the kitchen!
What should I look for when comparing bids?
A reputable contractor will provide extensive details about products and services they’re delivering. Equally important is what is not included. Review your allowance schedule carefully, and be sure they are realistic for what you want. Also make sure you know what your budget covers. For example, flooring allowances usually cover the material, underlayment and installation. Read the contract to know exactly what it covers. If you’re not sure, then ask. A reputable contractor will happily and easily answer these questions.