You Control Remodeling Costs – (whether you Know it or not)!

You Control Remodeling Costs – (whether you Know it or not)!

Homeowner Decisions Drive More Than 50% of Remodeling Costs
Homeowner Decisions Drive More Than 50% of Remodeling Costs
This chart represents 8 remodeling jobs my firm performed in late 2007 & 2008.  The grey bars represent the percentage of the total remodeling price that went to general construction labor and materials.  This includes the price for demolition, site preparation, foundation work, framing carpentry, plumbing, electrical, and other types of purely “construction labor and materials”.  The yellow bars represent the cost of finishes and details.  This would include items such as plumbing fixtures, tile, flooring, moldings and paneling, cabinets, and the other items that make up the aesthetic decisions made by homeowners or designers.  The homeowner’s decisions about finishes, appliances, and details accounted for more than 50% of the costs in every case but two.  These discretionary costs represented anywhere from a high of 67% of total job costs to a low of 46% of total job costs.  The jobs ranged in size from $50,000 to $600,000.  And at least for these 8 jobs, there was no correlation between size and percent of discretionary costs.

If anything, the chart, above, understates the cost of finish decisions because often more detailed or elaborate finish decisions drives up the cost of the construction labor.  Two examples:

  • If you’re doing a bathroom remodel and you want a shower with multiple heads, this will increase the plumbing labor costs which costs are captured in the grey bars instead of the yellow bars,
  • If the addition you’re building has a complicated roof detail or multiple skylights, the extra framing labor is also captured in the grey bars instead of the yellow bars.
What does this mean for you?
Interpreting Ballpark Quotes:
Often when you’re starting a small or even large remodeling job you bring in different contractors and talk with them about approach and costs.  You always ask “how much will this cost?”  And many contractors will give you a single number; some will give you a range.  But rarely do you really understand what the single number or range mean.   A contractor will think about how much labor and construction materials it will take and then he will often double that number to give you a “ballpark” quote.  But as you can see from the chart, above, at least in the market that I work, that will usually underestimate the price of the job.  Sometimes a contractor hungry for a job will deliberately lead you to believe that the total job will cost less by underestimating the finish decisions.  At the end he can always (truthfully) say the budget increased because you (the homeowner) chose more expensive finishes than what he budgeted.  But as often as not, the under-estimate results from the contractor valuing “good design” less than does the homeowner.  You should always ask what percentage of the “ballpark” price is represented by finishes and details.
More importantly, this type of communication fails to let you know that you’re in the driver’s seat and that the individual decisions that you make about finish and detail level determines the price of the job. Let’s look at a remodeling job where the construction labor and material costs are $75,000.  The total construction price
would be $150,000 if the finishes are 50% of the final costs. The exact same remodel would be $215,000 if the choices of finishes and details are 65% of the total construction price — a difference of $65,000!
Finally, it means that you should never choose a contractor based on the “ballpark” price quoted.  You should however, think about whether the contractor has communicated the assumptions about finishes and detail he used in the “ballpark” he’s presented.

I would personally rather lose work than create these misperceptions about price at the beginning of my relationship with a client. So I show this chart and then give then a “ballpark” in the higher ranges and talk about what decisions they can make during the design process to bring this price down.

How to Interpret “Allowances”:
After you’ve signed a contract for a remodel but leave finish decisions to later, the contractor will put “allowances” in the contract to cover the price of the fixtures
and finishes.  Often, he will include what are called “builder grade” fixtures and finishes in the allowances.  So the allowance might be for a $50 delta faucet from Home Depot but what you have in your mind is a $500 KWC special order faucet.  All these individual decisions can add thousands or tens of thousands of dollars to the final price.  And create incredible friction between the contractor and the homeowner.

Why you should flesh-out a design before you begin construction:
Very few of us are indifferent to what remodeling costs.  Going over budget can permanently diminish the enjoyment you get from the changes you’ve made to your house.

I will not begin work on a remodel without fleshing out the design.  With a fully detailed design you can begin the process of remodeling with a very high degree of precision about the final costs.  I’m rarely more than 2% over-budget on a job.  Yes, the detailed design costs more.  But in my experience it saves money – sometimes a lot of money — in the end.  It’s much easier to control costs at the design stage than after the majority of the framing and rough in plumbing and electrical have been completed.  A detailed design can dramatically reduce the cost of add-ons.  After you’ve closed-in with drywall it’s expensive to decide to move or add a light fixture.   It’s cheap to do it at the design stage.  If the original finishes are too expensive at the design stage, then other less costly effects can be built-in to still give a sense of drama or elegance but at lower cost.  When the decision is delayed to the finish stage, the only choices are to downgrade the look or blow the budget.
Let’s look at the 4 projects where discretionary costs were substantially greater than or were less than 50%:
Project 1: First Floor Remodel — 65% of the costs were discretionary finish decisions:  The primary driver of price here was custom built-ins and high-end finishes.  Another driver was that the homeowner was so excited about the changes that he added scope to include more of the residence.  We still came in on-budget because we planned for the level of detail and we included a 15% contingency based on our sense that the homeowner was vacillating about scope.
Project 8: Basement Remodel — 64% of the costs were discretionary:  The drivers here were the choice of many high-end materials and finishes.   We came in 5% under-budget because we specified all the finishes before the job began.
Project 4: Whole House Remodel — Only 47% of the costs were discretionary:  Frankly, this was a property that I was flipping.  I added drama through lower priced touches such as color palette.  I deliberately chose finishes that were attractive but low priced.  The project came in 10% under budget because we found fewer problems than expected during the remodel so less of the contingency was used.
Project 7: Master Suite Remodel — Only 46% of the costs were discretionary:  We used stock finishes in unusual ways and we used a limited palette of finishes which allowed us steeper volume savings.  The project came in 2% under-budget.
There are 3 keys factors to control of remodeling costs,
–    A fully-fleshed out design,
–    An extraordinarily detailed budget, and
–    The appropriate contingency.
The spreadsheet I use with clients literally lists every finish item that will be purchased including every single plumbing fixture, each cabinet pull, and the detailed specs for windows, doors and cabinets.  This not only forces me and my client to think through the options but will also bring up items that neither of us has thought about.  If we’re thoughtful about this process, we will come in on-budget.

Data courtesy of Braitman Design/Build



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