Why Remodels Go Over Budget

One of the biggest fears homeowners have when starting any kind of remodeling project is that the budget is going to get out of control. The truth is this does happen sometimes, but it's never because there's some unforeseen boogeyman or something that we couldn't possibly guess was going to be coming down the road. It typically happens from a series of mistakes, generally starting back in the planning process. The good news is once you know what those most common mistakes are, they are really easy to avoid. So let me show you exactly where things go sideways and what you as the homeowner can do to prevent them from happening on your project.

I'm Josh Kogler, the owner of Rockin' K General Contracting here in Bend, Oregon. We specialize in high-quality additions, ADUs, and remodels. And just to be clear, if you work with us, we are going to make certain your project does not go over budget. Unfortunately, I hear too many stories, and it seems to be too common in our industry, that these projects can go well beyond budget. Have you heard stories from your family or friends, or maybe a project you've done yourself, where it started at this number and grew to this? Let me know what it was down below — what kind of percentage, what was the starting point, where did it end? That'll give us a good picture of where the industry really stands. If you understand where this happens, you can make much better decisions for your project. So I'm going to walk you through the biggest reasons I see remodels go over budget.

Reason one, the first and biggest reason, is changing the plans mid-project. It costs so much more to redo things once they've already been built than if we would have just had the plans dialed in to begin with. Individually, those changes don't feel like a big deal, but once they start stacking and compounding on one another, it can be a pretty large increase. You should be working with a builder who's willing to go through that full pre-construction process and help you with making those decisions. Along with the builder, you should also have a quality architect and a designer. With those three people as a team working with you well before the project starts, you'll be far more likely to avoid any changes once you get going.

Now, inevitably, on every project there's probably going to be something minor you do want to change. Those changes should be tracked very clearly so that you don't just get a big bill at the end. If you decide you want to change from engineered hardwood to LVP in the project, you should have a builder that gives you a change order and tells you what it'll cost before doing the work. Then if you approve it, it is reflected in the total price. You don't want to have things just kicking off on the sidelines that you don't have a true picture of what they cost. So you want to make sure that is all extremely clear and you have a full understanding of it. Sometimes with those little decisions, you feel like you haven't made very many of them. And if you're not working with a builder that has a good way of showing you what the current running total is — the trajectory, the finish line we're aiming at if we stay on this trajectory — then you're much more likely to get yourself in trouble.

Reason number two: not fully understanding scope. The scope essentially can be boiled down to what's included and what isn't. You want to make sure you and your builder are on the exact same page when it comes to what's included. Let's say you're building an addition with an ADU. Does that include the driveway? Does it include landscaping? Are you going to paint just the new addition, or does that include painting the entirety of the existing house? This is why contracts are so important, because it's impossible to keep track of all those details just rattling around in your head. Have you or anyone you know ever gotten a proposal, and when you go through it you really have no clue what is included and what isn't? Then it's time to ask a whole bunch of questions. You need to have a line-item-by-line-item proposal that clearly lays out the entire scope. Otherwise, you can get into a situation where you thought the price was for the total project, turnkey, ready to go, and that wasn't the builder's interpretation. They thought you would be buying some of the fixtures or hiring out the landscaping on your own. Any of these ways can work, but you need to be on the same page up front and be clear about what is included in the number you're paying your builder.

Reason number three: not understanding allowances, or not having sufficient allowances before the project started. An allowance is for things that the customer needs to pick out. When I'm writing a proposal, I don't know exactly what type of countertops you're going to want. As a good builder, I should know roughly the range of what those countertops are going to cost. For me, the general range for a slab of any natural stone countertop, to purchase and then fabricate and install, is around $5,000 for a 5×10 slab. I'm going to figure out how many slabs your kitchen, bathroom, whatever it is, is going to need, and that is going to be my allowance. What you don't want is a builder that sets really low allowances. That can sometimes lead you to think the price is better before signing the proposal, but if there's not enough money allocated to buy the finish selections you like, you can have a huge jump in price. If the builder has budgeted for super low-end big-box-store finishes and you were envisioning quality finishes, you're going to have a huge delta in that price. So before you ever sign a proposal, look at those allowance line items and do some digging to make sure they're realistic for you, your personal taste, and your preferences. Your builder should make those clear-cut enough that you can easily go out and research the products and finish selections, so you know whether they set realistic allowances. If allowances still seem a little too convoluted, let me know and I'll be sure to break those out even more clearly in the future.

Finally, number four is hidden conditions. This is what most people seem to blame the majority of cost overruns on: "We had no idea that was going to happen." In my experience with my company, that is a teeny tiny percentage of what goes on on an actual job site. If I walk into a home and it was built in 1960, I know that we're probably going to need to replace the plumbing in the walls of a bathroom if we're doing a full bathroom remodel. I account for that. I have a bid number next to that to have my plumbers come in once demolition's done. If you work with a builder and they don't have a track record of consistently avoiding those costs, you could be getting yourself into trouble. It's easy for them to open up a wall and say, "Well, we could have never seen in the wall." That's true, but they knew the house was built in the '60s. They knew it was going to be old galvanized and cast iron drain systems. It's got to be replaced. It's pretty clear. So I hold builders to a very high standard. I am a builder, and I believe we're the professionals and it's our job to know those kinds of things. But you tell me what you think. Are some of those truly hidden, or should we as builders be better about projecting what the actual site conditions are going to require? Once in a while there is a truly legitimate thing that no one could have foreseen — a wonky thing that wouldn't be expected by the best builders in the industry. Those can happen, but it should be a really small percentage. So when you're interviewing builders, ask where their last projects came in compared to their initial estimates. Any good builder should know what's going to come up, what surprises there might be, and allocate some money in the budget for those things so they stop going 30% over budget.

So how do we avoid these four common mistakes? Number one, planning up front. I know that's not the answer a lot of people want to hear, but that's what it takes. There aren't any cheat codes. There aren't any hacks. You've got to spend some time up front really planning this project out. Number two, you've got to be clear with your builder on what's included and what isn't from the beginning. We've got to know the scope. If we can't be clear, based on the documentation — proposal, estimate, contract, whatever it is — about what exactly is included, then we're setting ourselves up for big issues down the road. Number three, we've got to know that those allowances are actually going to cover the things we envision finishing the house with. If you've got a bathroom fixture allowance and the builder put it at $200, you can quickly see you're not going to find a tub, a toilet, a shower valve system — all the things you need — to fit into that allowance. See what that allowance is, hit some showrooms, go online and put a cart together of all the items on the list, and compare the price of that cart to the allowance your builder set. That's a quick exercise that will tell you right away: are we even speaking the same language? Are we going to be in the same ballpark when the whole thing's done? Fourth, we want to minimize any hidden conditions or surprises. Make sure you're working with a builder who knows what it's going to take to complete the project on your home. If it's an extremely old home, they should be planning on replacing the plumbing. If you've got really old wiring, they should know that by looking at the house and plan on upgrading it as part of the proposal.

This is why you need to spend your time comparing proposals from different builders, because what can happen is you get excited about that low number first, but then you find out it doesn't include half of the things you really need to get done. At the end of the day, most budget issues don't come from some scary boogeyman or something no one could have seen coming. They come from lack of planning. They come from misunderstandings between builders and homeowners. If you pay attention to those four specific steps, you will avoid 95% of all the ways a potential project could go way over budget. I hope that gives you a clearer picture — four steps to keep your eye on to make sure any builder you might work with is taking those things seriously, so you can avoid those unwanted costs down the road. If you have any interest in working with us at Rockin' K General Contracting, go to rockinkgc.com and click the book a call button, and that'll set you up with a free call with me personally. If you made it this far, thanks so much. Let me know what you want to see the next episode on, and we'll be sure to make that just for you.