Friday, March 7, 2014

Allowance for Kitchen Renovation and Bathroom Remodeling Through a Contractor

In some case when you receive a proposal or enter into a remodeling contract with a contractor, there might be a section called "Allowance". I have met many Home Owners that are not familiar with allowances and how they work. Let me see if I can walk you through it.

Lets say your signing a contract to remodel your bathroom or a kitchen renovation. Under the Cabinetry section it states "Cabinetry Allowance of $6,500.00. Allowance includes shipping and sales taxes.". What does that mean? You ask.
Cabinets for Kitchen or Bathroom Remodeling from Contractor
Cabinet Selection for Kitchen remodel.

In your contract cabinet selection might state: "Cabinets, manufacture, style and finish, to be selected". When you go to meet with the designer and select the cabinet style and finish, the contractor will price the design with the cabinet selection you have made and will have new pricing. So lets do the math. There is a allowance of $6,500 for the cabinets. The contractor priced your selection of cabinets at $7,355. In this case, if you want to go with your cabinet selection, the contractor will ask for additional moneys of $855.
What about the shipping and sales taxes. Sometimes when items are shipped from the distributors to the supplier there might be a shipping charge that will be passed on to the contractor then to you the buyer. State sales tax? The allowance has sales tax in the allowance amount. How much is the sales tax? (Allowance $6,500. / 1.06 in this case the .06 is Maryland sales tax of 6% = $367.92 ST plus cabinet cost of $6,132.08.

In this example the $7,355.00 = cabinet cost + shipping if any + the sales tax "-" the allowance of $6,500 = $855.00 over the stated allowance amount. Your new kitchen or bathroom will cost a few dollars more. It can also work the other direction. The cabinets in this example could have come in lower than the allowance.

If you can, the best way to avoided the ups and downs of the contract cost is to have all your selection made before you begin your remodel. That's where the Design/Build concept works well. I'll talk about that in a later posting or you can contact me at Caton Contracting and Remodeling web site or call 410-744-4338. I'll be happy to talk to you about your project.