Syllabus / Legal & Finance 101
How to stay on budget
Why do renovation projects go over budget?
The answer can vary case-by-case, but often it’ll be due to the “upsell trap” — once you start renovating your home, you get excited by the possibilities and sobered by the fact that you’re making decisions about fixtures, tiles, etc. that you’ll have to live with for years to come. So whenever you see a slightly nicer (and pricier) backsplash tile or fixture, you wind up doing a cost-benefit analysis (if I spend another $10 a tile, and I’ll enjoy this kitchen for 10 years, then it’s really less than $10 over time…) and opting for the more expensive tile.
Unfortunately, these incremental costs add up. And if you don’t have a good system for managing and tracking change orders, you can easily lose track of just how far over budget you’re going.
This type of chronic over-budget-ness isn’t the fault of your contractor, or of poor planning – it’s more a function of how home remodeling is less of a “finished product” and more of a “manufactured product”. If you go to buy a pair of shoes, they’re there in the store, already made, and they cost what they cost. But if you were having shoes custom-made, you would likely choose to make tweaks and changes that would result in a higher price. Think of your home like a pair of custom-made shoes.
How to control your budget
So what can you do to combat the rising tide of extra costs? The most obvious answer is to create a budget and stick to it as best you can. If you don’t at least have a starting point for the amount you’d like to spend, it’s easy to go over budget. In the average remodel, there are perhaps 100 items that you could custom-tweak and improve – if you go down the “improvement” rabbit hole with even half of them, you could easily exceed your initial budget.
Another key step is to manage your change orders. A change order means more than just signing a piece of paper and paying a bit more for different tiles — if you keep changing your mind, it also means time wasted sourcing the materials, as well as money spent buying, storing, and then returning the originals. When you shop for shoes and return them, it costs you nothing. But with renovation, there may be tearing out existing tile and ordering new materials, plus storage and administration – in other words, the actual process of changing your mind is costing you money.
Lastly, avoid scope creep – the result of accepting a bid that isn’t properly detailed and planned out. If you choose a bid from a contractor that lacks detail and clear planning (but it was the lowest bid you got), then chances are high that you’re going to end up paying more and more as decisions get made on the fly. Because this method is so inefficient (and unnecessarily costly), it’s usually better to go with the contractor that has provided the most detailed and accurate bid, even if he handed you a higher price.
Also, keep in mind that the money you’re spending now may not guarantee you a higher resale price. If you install expensive, ultra-customized fixtures and fittings and your buyer doesn’t share your taste, you could wind up pulling out all those gorgeous fuchsia floor tiles when you sell.