Have you ever received a bid or estimate from a contractor that had something called an allowance or placeholder on it and been curious what it is? Bid allowances are used frequently to show that the work in question will be performed under the base contract, but that the exact costs, scope, or item are not yet determined. Since we don’t know the exact cost yet, we can put an “allowance” in it’s place temporarily until a final decision is made on what to do.
Allowances are very useful in a couple of ways. First, if used correctly, they essentially halt unexpected change orders as all important decisions are front-loaded before the final contract is signed. Second, they provide a good discussion point for the “low, medium, and high” budget ranges of a given product and what you can expect to spend on what quality. (All faucets have the same basic functionality, but there is a huge difference between a $100 one and one that costs $500+.) Lastly, they allow us to get you an accurate estimate much more quickly by estimating the cost of the item without having to request hard pricing. Sometimes suppliers need a long turnaround time, which then makes you wait longer just to see approximately how much a scope of work will cost.
“Wait a minute,” you say. “You guys are supposed to be the experts, why don’t you know how much my project will cost even after taking the time to put a full estimate and scope of work together!?” We are the experts, but even our knowledge of construction and building does not help us in the mind reading department. We can tell you what average pricing is for a given type of project, say a bathroom or kitchen remodel, based on projects we have performed in the past. We can give you square foot pricing based on historical data and budgets, and estimate your project closely that way. But we can’t give you an exact, fixed price, guaranteed cost proposal until we know every detail about your scope of work and have it exactly how you want it.
Dishonest Use of Bid Allowances
WARNING: A small percentage of contractors, often new home builders working on higher volume, will use allowances dishonestly to trap their customers into paying a much higher price than the initial contract enumerated. The basic trick or scam is to put artificially low allowance numbers in an estimate which will deflate the contract price and make it look like you are getting a smoking deal – let’s say on a custom house to be built. While the price appears low, in reality you will snake-bit down the road when you realize the allowances he provided barely cover HALF the cost of a budget-minded option, much less a high-quality product like you were expecting.
Let’s say you sign the contract and assume you are getting a nice, large house with reasonable amounts allotted for carpet, light fixtures, sinks and faucets, appliances, etc. Ground breaks and work proceeds as agreed to – you’re on cloud nine envisioning your new house! However, the phone starts ringing and it is your contractor calling almost every time. The message is always the same – “We are starting work on your bedroom carpets today Mr. So-and-so. Right now we have the absolute cheapest, nastiest carpet with a comprehensive 37-day warranty going in, but for just a few dollars per square foot more you could have the finest Persian weave and we’ll install it TODAY!”
Well, a few dollars per square foot multiplied by 1000 square feet across 4 bedrooms and all of a sudden that is an extra $2000 not planned for in the contract. Not ideal, but if that is the only thing that you go over on… Uh oh, your home builder is calling again and this time it is an upsell of $3000 for a better quality tile in the bathroom… You can probably tell where this is going, but the issue is that thousands of consumers who understandably have little knowledge about the construction industry are getting caught in this trap every year.
Allowances are not meant to harm the homeowner or the contractor. They are not meant for turning an extra buck after a job has been sold with dubious change orders. If used correctly, they are a legitimate way to provide a solid budgetary price that will turn into a 100% fixed price contract once the customer is done specifying their preferred materials and products. Allowances are also a great way to start the conversation about what areas are your highest priority during your remodeling project. Read on to see how R. L. Rider Remodeling uses a proper system of allowances to assist the homeowner get the project they are dreaming of.
How Does R. L. Rider Remodeling Use Allowances?
If we decide that we’re a good fit to work together during your initial conversation, an estimator will come out to your property and perform a site survey. While we gather measurements and take photos of the site to help us estimate it accurately at the office, we also ask questions regarding budget, desired finishes, any must-have products, etc. This gives us a better feel for what type of project you’re looking for and what quality of materials/finishes you are expecting.
Back at the office, we will get to work putting your estimate together within 3 days so you can quickly have budgetary information to work and plan with. Some items are pretty set in stone – drywall, lumber, electrical wiring, and many other items are basically commodities with industry standards that don’t require any choice or deviation. Other items – faucets for sinks and showers, lighting fixtures, tiling for your floor – have a million different options at a million different budget levels. Taking the information you provide us about your project, we do our best to specify products and materials that fit within your budget range. We are not always perfect at this, and it is impossible to predict where a person likes to splurge and where they would prefer to save money.
Let’s take a closer look at picking out a showerhead for your new luxury, tiled shower. You could get a beautiful, functional showerhead with great water pressure for $300.00 and just feel so happy that you are finally rid of the old one that never sprayed right! But maybe you want a little more luxury… you want the “Back Massage Deluxe 5000 Model with Shampoo and Haircut Capabilities” … and don’t forget the gold-plated finish! The Back Massage Deluxe 5000 showerhead costs $2000.00, but what a small price to pay for such a functional piece of plumbing.
Both of these showerheads require the same water supply connected to them. They require the same amount of labor to install, the same size hole to fit in, and are going in the exact same location in the shower. The only unknown then is how much does the showerhead itself cost?
Here’s what we do when we come across a showerhead, a faucet, a countertop, anything that we want the homeowners to decide on themselves (after all, you’re the one who has to look at it every day!) We put an allowance, or placeholder item, in the bid and make a note to circle back to that line item. Once the full estimate is done, we will have say 80% completely known and priced accurately leaving 20% that have allowances and thus need some input from the owners.
In addition to the line-by-line estimate that will detail the entire scope of work of your project, you will also receive a worksheet to help guide you through your choices. We call this worksheet a Product Selection Resource and Checklist. This sheet lists all the local vendors we frequent, contacts within their sales teams whom you can schedule appointments with, and a list of online resources as well if you don’t want to visit any showrooms. Finally, this list features each of the items that required an allowance on the estimate.
Armed with this information, now it is time for you to make your product selections! Either with the assistance of our interior designer or flying solo, you now have the information and resources to see exactly what you need to pick out, where to go to do it, and how much you can spend and stay on budget. Here’s where you can really get creative and choose the things that are most important to you. You can go under your allowance on every category and see your contract price drop by that amount. You can go wildly over budget without change orders because we do not sign the final contract until you have everything decided on! Most people stick close to their budget and spend a little more on one or two big ticket items that they know they will personally utilize the most.
Have questions about a project? Need help deciding on a contractor? Give us a call at 517-487-3713 or fill out our web contact form and you will receive a response within a max of one business day. We are committed to zero sales pressure and seek to provide a professional, knowledgeable experience to every client that contacts us!