Updated: Apr 10, 2020
You could have guessed, but one of the most common problems facing home renovations are budgets. At the time this post was published, statistics show 44% of US home renovations end up going over budget. (nerdwallet.com)
How is this possible? We have the internet, budgeting apps and software, so why do homeowners stumble when it comes to home renovations? Let’s take a deeper look.
Home Renovation Education: You're Probably Misinformed
First, let me start off by saying that most homeowners are not versed in the process of home renovation. The average American only does this once maybe twice in their lifetime. This “market gap” exploded when major media networks became aware. Since then, the popularity of the home improvement industry has skyrocketed by way of TV shows, magazines, celebrities and more. Today this industry generates more than $400 billion a year in the US. (homeadvisor.com)
What happens when you add unlimited marketing to a consumer group that has little to no experience? The answer is, a highly impressionable consumer who can be misinformed.
Many of the home renovation TV shows portray a happy and excited host that fixes and flips homes with ease. The strikingly beautiful homes with high end finishes are designed to perfection, leaving clients gleaming at their home. What they don't disclose is how this process works in the real world. Everything from the cost and timelines, to the number of professionals involved is highly misleading.
Read the fine print! Most of the costs are donated or pro bono, including materials, labor and professional services. Yes... it makes for great entertainment, but don’t let that fool you!
Why an Accurate Home Renovation Budget Matters
When it comes to construction, there are many variables to be aware of. Unlike the average household budget, the typical renovation project has many layers including materials, scheduling, deliveries, inspections, permits, contractors, architectural and engineering costs and more. Not to mention they are constantly evolving!
The probability of unexpected costs in a renovation is greater and the price tags tend to be higher. Additionally, they typically can’t be put off or delayed.
For instance, “my roof cost way more than planned” Unless you want to take shelter in a tent you have to find the money elsewhere, which means you need to omit funds from other areas of your project or…you guessed it… go over budget! This is where many homeowners become frustrated and deflated.
Common Budget Snags:
NOT DEFINING A COMPLETE SCOPE OF WORK – There is a lot more to building a scope of work than most people would care to know. You need to be SPECIFIC!
Pointing to a picture on Pinterest is not enough.
It takes knowledge that you can only obtain from experience and working with and building relationships with the many people who make it all possible. It would be like trying to play a new board game with strangers and ditching the rules. If a picture is worth a thousand words…imagine what goes into that Pinterest picture!
EXCLUDING A CONTINGENCY – It may seem obvious, but having a backup resources is not a nice to have…it is an absolute MUST! When it comes to the amount of money you should put aside, it really depends on the type of project, the age of the home, and scope of work.
I would suggest between 10% - 20% of the total cost of the project. For example: If your kitchen remodel was quoted at $50,000, you want to have up to $10,000 set aside as a contingency. Lastly, never allocate contingency funds for non-emergency items. If all goes well, you put the money back into your bank account and keep to your budget of $50,000.
CONTRACTOR QUOTES & PROPOSALS – I wouldn’t be the first person to say that collecting quotes and proposals from contractors is intimidating.
Many contractor quotes/proposals lack standardization which can make comparing contractors impossible. It's not like shopping on Amazon and comparing products apples to apples. Instead, you end up trying to compare apples to some kind of questionable fruit. For example, some contractor quotes/proposals are very detailed, others are not and some read as if they are written in a foreign language with industry terms and references. Additionally, you can end up with large cost variations that make you scratch your head thinking, "Didn't I explain everything the same way, what am I being charged for?"
Now what do you do?
How do you know you were provided-
A. The correct scope of work?
B. Fair pricing?
Unfortunately, many homeowners will give up and abandon their projects thinking its out of their budget, or others will exceed their budget due to misleading or confusing information. In either case, how can you trust you made the right decision?
You Don't Have to Do This Alone!
People hire a financial advisor to manage their retirement funds and they hire a home inspector for guidance during a house purchase. Don't feel like you have to navigate a renovation project alone. R&E Advisors offers renovation consulting to help homeowners accomplish their goals and make their dream home a reality. This is accomplished by closely partnering with our clients and defining their scope of work with the detail and coordination necessary. Our clients reap the benefits from years of experience, knowledge and networking with industry professionals across many projects.
Don’t let these pitfalls take over your project! Home renovations can be fun and exciting without the frustration! You just need a partner who only serves you and your best interests.
Click HERE to learn more about our services.