In this article, we help you understand the terminology and the strategies when your home renovation costs are above your budget. We have a companion article, “How to Manage Your Renovation Budget.”
What is the difference between cost and budget?
A budget is an ideal amount you want to spend for the results you hope to achieve. The cost of your home renovation project reflects the market value for labor and materials at the location and time of your construction. There is optimism in your budget and reality in your costs.
Why do (your) costs usually exceed your budget?
Remodeling costs typically exceed renovation budgets because the values are generated in different ways, at other times, and for two different purposes.
|When||Budgets are created when forming ideas about your project; you define the work you plan to accomplish.||Costs are known closer to the construction time when your designs become associated with specific materials and dimensions.|
|What||Because you are making guesses about what you want, the values you can associate with the work are approximate.||Because many more of your decisions have been made, the $ values assigned to the part of your design are much more accurate.|
|Source||The source of your numbers will be based on what people, or the internet, think you want at a location different from the prices you will receive in the future.||The source of your numbers will be an estimate or a bid from a GC (general contractor) who is interested in undertaking your project. They are accountable for the specifics if you sign a contract with them.|
|Summary||Content, location, and date are part of the unpredictable variable.||The uncertainty is removed.|
An estimate can reduce uncertainty about construction costs
Your understanding of your budget will increase once you receive an estimate. Our article, How to Manage Your Renovation Budget, “States that an estimate breaks the average cost into categories by trade: walls, cabinets, doors, windows, floors, stone and tile, plumbing, and appliances. A general contractor creates the estimate and clearly articulates the cost of the different parts of your home renovation.
Pro tip: An estimate precedes the bid that can become the contract with your GC.
An estimate is an opportunity to manage your costs
You may have added more rooms and/or upgraded finishes during the design process. Any additions will increase the estimate, and these additional costs are a great way of testing what you value. This is your opportunity to return to the original scope and budget to determine that you appreciate the expanded design and wish to increase your budget, as described in our article, “Which Budget Personality are you?”
How to use value engineering and bidding to manage your costs:
Value engineering and bidding are ways to address costs that are too high.
Value engineering allows you to remove features you do not value from your renovation project. The most effective way to achieve significant change is to look for large numbers of 5-10% of the total budget. There are two main places to look:
- Consolidate big-ticket items within individual trades (decorative moldings, custom cabinetry, slabs of stone).
- Eliminate scope with multiple trades adding to a large number, for example, a suite of rooms.
Pro Tip: Congratulations on your ability to discern what you value! Whether or not your costs and your budget reach their starting point.
Competitive bidding provides accountability through comparison so you can move forward confidently with your choice. When you bid out remodeling projects, you get prices from multiple subcontractors; you will learn the high, low, and precise cost for a particular labor or material. Once you have comparative prices, you can choose the quality of the work that you desire. For example, many of our clients find that a B+ paint job is sufficient, as the A+ paint job with a more expensive brand can be reserved for particular rooms. One client wisely pointed out that bidding allows you to see how another GC or Sub-Contractor might build more cost-effectively.
Pro Tip: A low bid can be a distraction now and a liability later.
Moving Forward: The price that gets you what you want
Managing your costs means making decisions that are right for you. Get estimates at the beginning of your design process to test your goals. Request another estimate. Value engineering and bidding are tools you can use to decide what you value so that when you sign a contract, the costs will meet your expectations.
Pro Tip: A home improvement project is focused on your enjoyment; Financial return on investment, ROI, is relevant if you plan to sell within five years and is otherwise not a part of a home improvement pro.
Do you have other questions about how to manage your construction costs? Add them below, and we may include the answer in future articles!
At AKA, we specialize in transforming homes to increase light views and experience; we focus on our clients’ delight!
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About the Author
Allegra has a BA with Honors from Dartmouth College and a Master of Architecture from Columbia University. She aims to write straightforward and practical content for those who want to gut renovate their homes.