As you begin the custom home building process, you will no doubt begin to understand the significance of specifications and allowances. In our book and a previous blog, we discussed the importance of creating detailed specifications. If you have gone through a thorough design specification process, you will inherently reduce the number of “allowances” in your overall scope of work; which we believe results in a better experience for both the builder and homeowner.
There are times when allowances will be used during the pricing process, but these should be mostly avoided if you have created detailed specifications. However, when selections are not made, prior to the commencement of contract or construction, allowances may be necessary. First, let’s be sure we understand what the term ‘allowance’ means, when used in the estimation process. First, we define allowance as “an amount specified and included in the construction contract for a certain item of work (e.g., appliances, lighting, flooring, etc.) whose details are not yet determined at the time of contracting.”
If you have gone through a complete design specification process, you will inherently reduce the number of “allowances” in your overall scope of work; which we believe results in a better experience for both the builder and homeowner.
Because the specifications process requires significant time and resources, some builders may bypass the specifications process, and simply provide allowances for the estimate. Other times, a homeowner may not feel it’s necessary to pay the architect, designer or builder, the design fee that is customary, to complete detailed specifications. This is an area where we believe the buyer should beware!
Allowances, when used as the primary means for price estimating can often leave a lot more questions than answers and interpretation versus selection. Allowances also make it challenging to ensure that you are comparing apples to apples. So again, we recommend getting detailed specifications, versus using overly general allowances to budget a home building project.
When a builder provides a price that uses a lot of ‘allowances’ or has vague specifications, there is room for error, but quite often there is also a misunderstanding of the quality of products provided and/or change orders made. So, it is well worth the investment of time, money and resources to create detailed specifications. In Chapter 15 of our book, we show a clear example of two different houses, with roughly the same square footage, that vary significantly in the cost and quality of the home built.
With that said, it should be noted that, in some areas of the project, it may be standard practice to use some allowances, based on the overall design, quality, and scope of work. We believe it is important to have a clear understanding of any allowances used in your overall pricing to ensure that the allowances are consistent with your overall design preferences and specifications.
Now, when a quality, reputable builder meets with a client to discuss their expectations and offer an estimate, allowances may be required in some areas. However, it is important to understand that a realistic allowance is one that truly and consistently reflects the entire scope and quality of the job. For example, a customer who wants high-end finishes, custom millwork and top-quality materials is probably not going to want to use mid-grade appliances or builder grade fixtures in their kitchen or bath. So, the entire estimate and associated allowances are based on this consistency of quality. A $2M home will likely have Thermador or Wolf/Sub-Zero appliances versus GE or Kitchen-Aid. Too often, we see less reputable builders or contractors under-estimating or using allowances for inferior products. This can result in tens of thousands of dollars difference between one estimating proposal and another. You may not realize this at contract signing, but you will when those products are being ordered, delivered, and installed in your home. And, by that time, it’s too late!
A quality, reputable builder understands that it’s not just about winning the bid, it’s about providing you a quality home building experience. They will work hard to ensure that your expectations are met every step of the way and with every product selection. So, again, if your estimates have more than 5-8% variance, we suggest you dig deeper or avoid this process altogether by investing in a complete set of design specifications.
If you want to be fully educated on this topic, be sure to read the entire chapter dedicated to this subject, in our FREE ebook: “Designing & Building Your Custom Dream Home: How to Create an Experience You’ll Love to Remember.”
Ready to get started? Contact Mueller Homes today, and let’s talk!