How to track allowances on a custom home

Short answer: To track allowances on a custom home, give each allowance its own budget line and cost code, log every selection against it, and turn any overage into a signed change order before the item is ordered. Each month, report allowance budget, committed selections, actual cost and the overage or credit still to bill for every house.

What an allowance is, and where margin leaks

An allowance is an amount in the contract price for an item the client picks later, such as tile, plumbing fixtures, lighting, appliances, flooring or cabinets. The contract price already includes it. When the client picks something that costs more, the difference is an overage the client owes. When they pick something that costs less, the difference is usually a credit.

Margin leaks in a few predictable ways:

• The client picks over the allowance, the item is ordered and installed, and the overage is never billed
• The overage is billed at cost, but the extra labor, handling and markup your contract allows are left off
• The bill is coded to a general materials account instead of the house and the allowance line, so nobody sees the overage
• Credits for unused allowances are not tracked, and closeout turns into an argument

Set up allowances before the first selection

• Give each allowance its own line in the estimate and budget for that house, with its own cost code or sub-code. Do not bury it inside a broader line like interior finishes.
• Write down what the allowance covers. Material only, or material plus installation? Taxes and delivery? Under the AIA A201 general conditions, unless the contract says otherwise, an allowance covers the cost of materials and equipment delivered to the site plus required taxes, and labor, installation, overhead and profit sit in the contract price outside the allowance. Many residential contracts use their own wording, so follow yours.
• Decide whether an allowance stands alone or is shared across several selections, such as one flooring allowance covering carpet, hardwood and tile.
• Set a selection deadline for each allowance, tied to when the item has to be ordered to hold the schedule.
• Put your change order terms for overages in writing: markup, when payment is due, and whether it is billed on the next draw or paid directly.

Keep an allowance log for every house

One row per allowance. These columns are enough:

• Allowance item and cost code
• Allowance amount from the contract
• What the client selected, and the date they approved it in writing
• Selected cost, plus any extra labor or handling the contract lets you charge
• Overage or credit
• Change order number and whether it is signed
• Billed yet? Which invoice or draw
• Actual cost from vendor bills coded to that house and line

The log is where the selection, the change order and the bills meet. If a row has an overage but no signed change order, stop the order until it is signed.

A worked example (SAMPLE, made-up numbers)

The contract includes a $12,000 tile allowance. The client picks tile and setting materials that cost $15,500, so the overage is $3,500. Say the contract adds a 15% markup to changes. The change order is $3,500 plus $525, or $4,025. If the tile is ordered without that change order, the $3,500 comes out of your margin on the house, and the $525 markup is lost too.

Now the other direction. The lighting allowance is $8,000 and the client picks fixtures that cost $6,800. The $1,200 difference is a credit, handled the way your contract says, usually by change order at closeout. Track it as you go so the final number is not a surprise to anyone.

Bill overages before the item is ordered

An overage is easiest to collect when the client has just signed for it. Once the tile is on the wall, it is harder. Get the change order signed first, then place the order. If the house is financed with a construction loan, ask the lender early whether overages can be funded through draws or must be paid by the client directly, and put the answer in your change order terms. For more on the paperwork, see change order tracking for builders.

How the software helps

• Buildertrend: allowances can be created in the estimate or added later through a change order. Options tied to an allowance update it when approved, and the client sees the budget and contract price impact before signing.
• JobTread: selections link to allowance budget items, overages and underages are calculated automatically, overages can turn into change orders, and unused allowance can be reallocated to other selections.
• QuickBooks Online: whatever tool you use for selections, the vendor bills still have to be coded to the right house and allowance line, and the signed change order has to show up on an invoice or draw. That is where most leaks happen.

See Buildertrend and QuickBooks Online for how the two fit together.

Close every allowance at closeout

Before the final invoice, reconcile every allowance on the house: allowance amount, final selected cost, change orders billed and credits owed. Every row should end at zero difference between what the log says and what was billed or credited. Allowances that stayed open in the log usually mean an unbilled overage or a forgotten credit.

How we handle allowances

Each month our team codes allowance bills to the right house and allowance line, keeps the allowance log current, and flags any overage without a signed change order in your monthly job cost report. Our founder reviews every close before it reaches you. This is part of job costing in Builder Books, $1,500 a month for up to 5 active homes. See pricing or construction bookkeeping.

Sources

• AIA Document A201-2017, General Conditions, Section 3.8 Allowances (AIA sample)
• Buildertrend, Selections and Allowances Overview
• JobTread, Selections and Allowances
• JobTread, Enhanced Selections and Allowances

Common questions

Related

• Change order tracking for builders
• Cost-plus vs fixed-price accounting
• Job costing for home builders
• How to job cost a custom home
• Request an introduction

By John Mos, Founder. Updated October 23, 2026. We do not give tax or legal advice. Please ask your CPA or attorney.