A construction allowance is a placeholder dollar amount included in an estimate or contract for an item the owner has not yet selected. Common allowance items include light fixtures, plumbing fixtures, flooring, cabinetry, appliances, and landscaping.
At the time of selection, the actual cost is compared to the allowance. If the actual is less, the difference credits back to the owner. If the actual is more, the difference is billed as an additional cost (typically through a change order or a separate allowance reconciliation). Allowances let projects proceed without locking every selection at contract signing, but they also expose the owner to cost variance.