Allowances Explained

When Kirby Construction CO. provides a bid to a potential customer for a "Fixed Amount or Lump Sum" construction project, we will include allowances for specific items to be included in the contract. If one has never been involved in a building project, they may not be familiar with what an allowance is and why they are necessary.

When you receive the estimate of cost for your home, you will have select allowance items. Allowances, for the most part, are line item amounts on a "Fixed Cost or Lump Sum Contract." Allowance budget amounts are based on your overall budget, and any information you provide regarding your needs (for instance, if you say you are an avid cook, then a larger appliance allowance may be specified in your contract). Allowances are exactly what they sound like: You get a set amount of money for a certain product, and if you go over, your house will cost more than the contracted price with your builder, requiring you to pay the difference. If you want a $400,000 house, your allowance will be set at a certain number to accommodate your overall budget. If you want a $500,000 house your allowance and finish budget will increase. These allowance are actual cost controlled by you, the home owner. These allowance items include, but not limited to; Brick Paving L&M, Landscape, Handrails, Cabinets, Hardware Locks, Granite Tops, Flooring, Appliances, Toilet Accessories, Plumbing Fixtures, and Electrical Fixtures. Kirby Construction CO. shows a budget amount for each allowance item. You are giving the choice to find selections/finishes for each item online or from one of our select vendors.

e.g. You have a $10,000 Appliance allowance and are able to find all your appliances for $9,000. You are only charge for $9,000. Not the full $10,000 allowance amount. The $1,000 saving can be used towards another allowance items or can be credited on your next draw request. If you choose certain appliance products that cost $12,000, then you will be billed the $2,000 overage via a Change Order on the next draw.

A great source to choose allowance items is:

 

Two reasons why allowances are necessary to be established in a contract. One reason is that the cost of a particular item cannot be known prior to a true custom home.  An example of this are kitchen appliances, numerous selections of light fixtures, landscaping, etc...

The other reason an allowance is necessary is that some decorator items included in the contract are typically not selected by the customer prior to the start of a custom project. These items, such as cabinetry and floor covering are priced according to grade or per unit of measure and the range of pricing can be substantial. Kirby Construction CO. establishes an amount to figure into the cost of the home for these items (based on your budget) and this amount is then used as the allowance for those particular items.

Difficulties can arise for the customer if they are not fully aware of these allowances and if they are sufficient to allow for a fair amount of selections. Some builders will purposely include unrealistically low allowances to keep their bid low and this leaves the customer with very few selections without exceeding the allowance.

A customer most likely will have their financing in place prior to construction and the amount of the loan may not be increased to cover any overages when the project is completed. This can obviously cause significant financial hardship in finding other methods to cover the overage amount.

When pricing out a project, Kirby Construction CO. makes the customer very aware of the allowances in the contract. The customer may wish to increase the allowance to provide the opportunity to select higher grade products but we make them fully aware that the amount that the allowance is raised, is added to the total value of the contract as well.