Set an allowance only for the things the homeowner has not picked, price each one at retail for the level they described to you, and make it materials-only. Then write one sentence that most contractors leave out: labor changes caused by the selection are priced by change order. That sentence is worth real money. Say you carry $3 a square foot for 150 square feet of shower tile and the homeowner comes back with a $9 porcelain in 24x48. The $900 material overage goes on a change order. The large-format labor premium, $2 to $6 a square foot per EstimationPro's 2026 tile pricing, is another $300 to $900 of setter time. Without that sentence, it is yours.
Which items should get an allowance in a remodel?
Only the ones where the homeowner's choice is still open and the price swings with it. Everything you can see and measure gets a firm number.
The usual list on a kitchen or bath:
| Item | Allowance when | Firm price when |
|---|---|---|
| Tile | They have not picked it | They sent you the SKU |
| Cabinets | Line and door style are undecided | You have the cabinet quote |
| Countertops | Material is still "maybe quartz" | Slab and edge are chosen |
| Plumbing fixtures | Faucet, valve trim, vanity open | Model numbers in hand |
| Light fixtures | Pendants, vanity lights, fans | Model numbers in hand |
| Appliances | Brand and size open | They bought them already |
Michael Stone, writing on remodeling pricing at Markup & Profit, puts it simply: the fewer, the better. Every allowance is a decision you have handed to the homeowner, and every decision is a chance for the job to change after you signed it.
Allowances are for the choice that is unknown. When the condition is unknown, like rot under the toilet or a cracked cast-iron drain, that is an exclusion or a contingency line, not an allowance. The difference between an allowance and an exclusion is worth getting straight before you write either one.
How do you pick the dollar amount for each allowance?
Ask where they have been shopping, then price from there. Not from the cheapest line at the home center.
The question that does the work, standing in the bathroom: "Have you been looking at tile anywhere yet?" A homeowner who says "Floor & Decor, the big gray ones" has just told you the allowance. One who hands you a phone full of zellige has told you something else. Stone's bar is that a contractor who asked enough questions should land within 5% of the final selection. That is tight, and it is the right target.
The spread is why you ask. Material-only tile prices from EstimationPro's 2026 figures:
| Tile type | Material, per sq ft |
|---|---|
| Ceramic | $0.50-$5 |
| Porcelain | $3-$12 |
| Large format (24x24 and up) | $4-$15 |
| Natural stone | $5-$25 |
| Glass | $7-$35 |
A $3 allowance and a $12 allowance are both "porcelain". On 150 square feet that is a $1,350 gap from one word on the estimate. Write the assumption next to the number, the way Stone recommends: Tile allowance $6/sf material, 150 sf, based on porcelain in the range you showed me at Floor & Decor. Now the homeowner knows what the number buys, and so does anyone comparing your bid with the next one.
Stone's other example is the one to remember. A $4,000 appliance allowance in an $800,000 house, he writes, is asking for a fight you will probably pay for. Size every allowance to the house and to the person, not to the bid you want to win.
Should an allowance include labor?
No. Make it materials delivered to the site plus tax, and carry your labor and markup in the contract price. That is how the AIA's A201 general conditions define it in section 3.8.2, and it is the cleanest version for a remodeler too.
The trap is assuming that makes labor fixed. BuildingAdvisor argues labor rarely belongs in an allowance, since installing oak flooring costs the same as installing maple. For wood floors, fair enough. For tile it is wrong, and tile is where most remodel allowances live:
- Large format carries a $2 to $6 per square foot labor premium for substrate prep (EstimationPro).
- Herringbone and chevron take 20-30% more time than a straight lay.
- A freestanding tub instead of an alcove tub moves the rough-in.
A201 handles this in the same section. When the allowance is adjusted, the change order covers the material difference and any change in the contractor's labor, installation, overhead and profit. Put the same idea in your contract in plain English. If you are working without AIA paper, the sentence is: Labor or installation changes caused by a selection are priced as a change order.
How do you write the overage and credit clause?
Say what happens in both directions, with the markup stated as a number. Leave it out and the homeowner decides it for you at the kitchen table.
A clause that covers it:
Allowances are for materials delivered to the site, including sales tax. If a selection costs more than its allowance, the difference plus 20% is added by change order, due on approval, before the item is ordered. Labor or installation changes caused by a selection are priced on the same change order. If a selection costs less, the difference is credited at cost.
Overage markup is not optional. The upgraded vanity is new material you order, receive, handle and warranty, the same as anything else you sell. Use the markup you use on materials everywhere else; if you have not settled that number, what to mark up materials walks through it.
Credits are where published advice splits. Stone suggests you should "probably credit markup as well" when a selection comes in under. Others credit at cost only. Credit at cost, and the reason holds up when a homeowner asks: the time you spent chasing and ordering the selection did not shrink because they picked cheaper tile. Either position is defensible. Not writing one down is not.
Get the change order signed before the item is ordered, not after it is installed. Handling change orders without losing the customer covers the paperwork side.
When should allowance selections be due?
On a date you write next to each allowance. A201 section 3.8.3 only asks the owner to select "with reasonable promptness", and "reasonable" is an argument, not a date.
Work each deadline backward from the schedule:
- Find the day the item gets installed.
- Ask the supplier for the lead time on the day you write the estimate. Custom vanities and slab counters are the ones that bite.
- Subtract the lead time, then another week for the homeowner to change their mind once.
- Write that date on the estimate and in the contract, with one line saying a late selection moves the finish date by the same number of days.
The vanity is the classic. Demo is done, the plumber is booked for rough-in, and the homeowner still "has two they like". Plumbing rough-in depends on the vanity. Without a written date the delay is your schedule problem. With one, it is a clause you point to.
Where does setting allowances usually go wrong?
Setting them low to win the bid. BuildingAdvisor, which writes for homeowners, calls low-balled allowances "an old trick to make a bid look attractive", and tells readers to compare allowance figures across bids. So the homeowners doing their homework are already looking for it.
It works on paper. Drop the tile allowance on that 150-square-foot shower from $6 to $2 and $600 comes off the headline number. Then week three arrives, and every selection is a change order. The money comes back to you, eventually. The trust does not. A homeowner who has signed four change orders by the time the tile is in stops believing your next number, and that shows up at the final payment and in the review.
Set allowances where the homeowner will actually land, and let the headline number be higher. The contractor with the honest allowances loses a few bids to the low number. He loses far fewer jobs halfway through.
What this misses
The prices above are published 2026 ranges, not quotes. Tile labor alone swings from $4-$8 a square foot in the Southeast to $8-$15 in the Northeast by EstimationPro's figures, so treat every number here as a place to start asking questions.
Several states regulate what a home improvement contract must say about price and changes. This piece does not cover state law, and a clause like the one above should be checked against yours.
And an allowance is only as good as the conversation that set it. The answer to "where have you been shopping" gets said once, in the bathroom, and forgotten by the time you type the estimate that night. BidWalk builds the estimate while you walk the job, so the store and the tile the homeowner mentioned end up on the allowance line instead of in your memory.
