Allowances in a remodel contract: what they are and how they raise your price

If a remodel bid says "tile allowance: $2,000" or "lighting fixtures: allowance $800," the contractor is holding a place in the price for something you haven't chosen yet. When you choose it, the price gets corrected, and that correction usually goes up.

How an allowance works

Under the AIA's standard general conditions (A201), widely used in construction contracts (AIA Contract Documents):

• The allowance is included in the contract sum.
• It usually covers the cost of the material or equipment delivered to the site, including taxes, minus trade discounts.
• Labor, installation, overhead, and profit are priced separately elsewhere in the contract.
• If the actual cost is higher or lower than the allowance, the contract sum goes up or down by change order.
• The owner (you) selects the item and is responsible for selecting it on time.

AIA's example: a $10,000 flooring allowance. If you pick $12,000 flooring, the contract goes up $2,000. If you pick $8,500 flooring, it goes down $1,500 (AIA).

Home remodel contracts aren't always AIA forms, so read your own contract's allowance clause. Check whether the allowance includes installation, and whether the contractor adds a markup on any overage.

Why low allowances make bids look cheaper

Two bids, same scope:

If the tile you actually want costs $3,800 and your fixtures cost $2,200, Bid A goes up by $2,300 + $1,200 = $3,500, to $41,500. Bid B goes down by $200 + $300 = $500, to $41,000. The "cheaper" bid wasn't cheaper.

(Illustrative numbers. Work out your own with the quote comparison tool.)

How to check allowances before you sign

1. List every allowance in every bid, side by side.
2. Price your real picks. Shop the actual tile, faucet, and fixtures, or at least a realistic level of them. NKBA's advice: compare exactly the same products, since "the price for the same model of faucet... will vary by finish" (NKBA Bath Planner).
3. Add the shortfall to each bid's total before comparing.
4. Ask whether the allowance covers material only or material plus install, and whether overages carry a markup.
5. Note the selection deadline. A late selection can delay the job, and as the owner it's usually your responsibility.

Allowance vs. contingency

An allowance is for a known item with an unknown price. A contingency is a reserve for costs that may or may not happen (AIA). Going over an allowance because you chose a nicer finish is an upgrade. Pay for it by trimming somewhere else, not out of your contingency.

Track allowances as decisions

Every allowance is really a decision that hasn't been made yet, with a budget and a deadline attached. That's what RenoBinder is built for: each decision has a planned amount, the option you chose and its price, and a decide-by date based on lead times. The difference between planned and committed shows up before it turns into a change order.

General information, not legal advice. Read your own contract's allowance terms.

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