Allowance overages

An allowance is a set amount in the contract for something the client chooses later, like tile, fixtures or lighting. When the pick costs more, the overage should be priced and agreed the day it's picked. When it's left for the final bill, it becomes the biggest argument of the job.

A homeowner building a house asked how builder allowances really work, because the overages were landing on the final bill, all at once, at the end. Each selection had seemed reasonable at the showroom. Added together on one invoice months later, they looked like a different house's price.

Why it goes wrong

The client picks a $9 tile against a $5 allowance and nobody does the arithmetic out loud. Multiply by 200 square feet, add the faucet upgrade, the better vanity, the extra pendant lights. Each is a few hundred dollars. Together they're thousands, and the client hears about all of them on the same day.

How to handle it

• Write each allowance as a number, per unit where it makes sense: tile at $5 a square foot installed, or plumbing fixtures at $1,200 total.
• When the client chooses, price the difference right then. "That tile is $9, so 200 square feet is $800 over the allowance. Want to go ahead?"
• Treat the overage as a change order and get the yes before you order. A credit works the same way when they pick something cheaper.
• Set selection deadlines. A client who takes three weeks to pick tile holds up the job. Put the dates in the schedule and say that late picks move the finish date.

The change order form works fine for an allowance overage. The point is that the client sees the new total every time something changes.

A worked example

Say the contract has a tile allowance of $5 a square foot installed, for 120 square feet, so $600. The client falls for a $9 tile. That's $1,080, which is $480 over. The same week they pick a $410 faucet against a $250 allowance, another $160. Neither number is shocking alone. Sent the day each choice is made, they read like this: "That tile puts the job up $480, to $31,980. OK to order?" The client can say yes, pick something cheaper, or move money from somewhere else. What they can't do is meet both numbers for the first time on the final invoice, along with six others.

Write credits the same way. A client who picks a cheaper vanity should see the total go down that day. It shows the arithmetic runs both ways, and it makes the overages easier to accept.

This is general information, not legal advice. States differ on what a home improvement contract and its changes must contain. Check with your state’s contractor licensing board or an attorney.