How Should I Budget for My Renovation?
If you were to take a poll of 100 people and ask them, "How much did you spend on your renovation?" the overwhelming majority would say, "More than expected."
That, in and of itself, can be a major deterrent if you're considering a renovation. However, not every cost increase is the same, and often, it can be well within the client’s control. This "spending more than expected" can be broken down into four main categories: the first two are client-controlled, and the last two are not.
Opting for more expensive fixtures and finishes.
This one is pretty straightforward and completely controlled by a client. You'll see costs go up if you fall in love with a range above the allowance number set in the quote. Your builder should be heavily involved in creating cost efficiencies and notifying you if you step outside of the provided estimates for your project.
Change orders.
Sometimes, the extra spending is due to the project's initial scope. For example, after the contract is signed, the client may decide to switch from paint to wallpaper for a room or add refinishing hardwoods. This is called a change order, and we wrote a whole blog about them here.
Unforeseen home issues.
Other times, the extra spending was unavoidable due to unforeseen circumstances, such as if opening up a wall revealed faulty plumbing, wood rot, or a structural problem.
Lack of scope clarity.
Still, other times are due to a lack of clarity on the agreed-upon scope. For example, the client may think that painting the whole home was included, but only several rooms were. The client must ensure that all the items they want are included or excluded in the scope.
Each of these escalations comes with unique frustrations, and a good contractor should do all they can to minimize these things before finalizing a work contract. However, the reality holds that most people spend more on projects than originally planned. If this is the case, how can you, a future renovation client, avoid the stress and anxiety of a project where costs escalate beyond your comfort level?
Step 1: Be honest with both your budgets.
When considering a renovation project, everyone has two budgets: what they want to spend and what they're willing to spend. It's the client's responsibility to come up with these two numbers. It's the contractor's responsibility to educate the clients on the value they're receiving for the project's cost (I.e., why spending more will be worth it for a client). It's the same situation as when you go out to a nice restaurant, and they read you the specials (I.e., the most expensive items they serve). You may have come expecting to spend $20 on your entree, but the halibut for $35 sounds too good to pass up. You weigh the costs and accept that the value you’ll get for a higher cost is worth it.
Step 2: Consider the age and state of the home.
If your home is relatively new (say less than 15 years old), has been well maintained, and you haven't had any issues, there's a good chance that there won't be many surprises once construction starts. On the other hand, if your home is old or has fallen into disrepair, there’s a chance this may increase the cost of your renovation. For example, if you're renovating an original bathroom in a 60-year-old home, you will most likely need to deal with some significant plumbing updates that will cost more than they would for a home with modern plumbing.
Step 3: Get an audit of your home's utilities with your renovation in mind.
This is a little deeper dive into step two, but significant enough to stand alone. Before you jump in on your renovation, you should have a specialist come out to assess your plumbing, electrical, and HVAC systems for overall health. This audit may cost a couple of hundred bucks, but that couple hundred dollars can save a lot of future surprises when planning for your overall project budget. Extensive plumbing work, rewiring an outdated home, or adding a new HVAC unit to accommodate a home addition are all significant expenses (may get up to $10k apiece). Having clarity beforehand is critical for you to not get too far down the road in designing your renovation only to find out a chunk of that money will need to go toward updating your utilities
Step 4: Align the contract price with wiggle room.
Even after taking these previous steps into account, you're likely to see costs increase, whether due to change orders, unforeseen repairs, or escalating material costs. In our experience, clients spend 7-10% above their contract price (some much more) when it's all said and done. So, with this in mind, if you have a budget of 100K, get the scope to a place where the contract price is around 90K. That way, when these costs come up, you can comfortably handle them, and if they don't, you can keep that money in your pocket or spend it elsewhere on the project or your home.
Conclusion:
No one likes surprises while undertaking a renovation, especially ones that add cost. We are confident that if you follow the steps above, you won't be caught by surprise; you will have planned appropriately so that when they arise, you're prepared to take them in stride and move one step closer to your transformed space.
Want to read about budgets for specific locations in your house? Check out these resources:
Setting Your Porch Renovation Budget
Setting Your Kitchen Renovation Budget
Setting Your Bathroom Renovation Budget