Remodeling Budget

HOME REMODELING

The budget is a crucial element of any remodeling project. As the size of the project increases, effective budget management becomes even more important. Before embarking on a remodeling endeavor, homeowners should familiarize themselves with essential budgeting concepts related to these projects. This understanding can help prevent costly mistakes and ensure a smoother process.

BUDGET STRUCTURE

Before starting any home remodeling project, it's essential to consider your budget and your remodeling priorities. Not all remodeling projects are created equal regarding return on investment (ROI). The key is to ensure you know that you are investing in the biggest (in many cases) asset you own: your home. If your budget is on the lower end, it is wise to evaluate what is most important to you and set aside the rest for another project down the road. The goal is to define a budget that balances investment vs value.

Once you have defined your remodeling budget, it is essential to allocate funds across all project phases: Design, Construction, and Decoration. Given that remodeling existing homes often encounter unexpected challenges, you must take part of your total budget and set it aside as a contingency fund to cover unforeseen expenses. Proper financial planning of your project will ensure that it runs smoothly and remains financially sound.

Common Mistakes to Avoid

Misalignment of your remodeling goals and your budget.
Establish your budget only after receiving a quote for a contractor.
Not setting a contingency budget.

Recommendations

Determine the current value of your home and compare it to similar homes in your neighborhood.
Validate your budget allocations and assumptions with a trusted remodeling professional.
Clearly define your remodeling objectives.
Stick to your budget and keep your goals clear during the project’s phases.

Industry Practices

Contractors and designers should associate payments to clear defined and approved deliveries and milestones.

DESIGN COST

There’s much conflicting information online regarding the cost of interior design services, what they are, and why they are essential. The cost of the design phase primarily depends on two key factors: the reputation and experience of the interior designer and the project's scope. In Charlotte, North Carolina, for properties valued between $750K and $2M, the average rate for a Senior Interior Designer typically ranges between $125 and $175 per hour. More exclusive or well-known principal designers can charge up to $350 per hour.

Interior designers can use several different pricing models to set their fees, although the Hourly Fee is the most common.

Hourly Fee: this model compensates the designer based on the actual hours spent working on the project.
Flat Fee: a fixed, predetermined amount that covers all services, including conceptual development, layout design, technical specifications, and installation guidelines and requirements.
Price-Per-Square-Foot: this approach is commonly used for large and complex remodeling projects.

Design activities required for a remodeling project

Common Mistakes to Avoid

Limiting design activities to the design phase to keep costs lower.
If using an hourly fee contract, do not set clear guardrails on progress and hours spent.
If using a Flat Fee, skip over or not clearly define the statement of work and all its inclusions and exclusions.

Recommendations

If opting for a Flat Fee, ensure it includes a minimum of two (2) major and minor corrections and a minimum of visits or time allocated to the construction phase. Ensure the designs include instructions and requirements to the contractors for each part of the design.
If the interior design firm differs from the construction firm, allocate time for the designer to be involved during the execution phase. This collaboration is crucial to ensure that the general contractor and designer work cohesively, preventing miscommunications and errors.

Industry Practices

Design costs ares typically paid upfront.

EXECUTION COST

Construction costs are associated with the Execution phase. In Remodeling, the construction cost can be subject to change due to unforeseen or later discovered issues, often once the demolition phase has started. These are quite common in remodeling projects that are not new builds; the remodel is often on older homes. Price fluctuation of materials or supply chain issues can also affect construction costs.

In remodeling construction, the labor versus materials breakdown tends to vary depending on the project type and its complexity. However, a common industry standard range is:

Labor: 40% to 50% of the construction cost
Materials: 50% to 60% of the construction cost. This includes everything from building materials to finishes.

Common Mistakes to Avoid

Paying upfront the entire construction phase.
No breakdown of construction costs is provided in the quote.
Payments are not tied to construction milestones.

Recommendations

Set and link payments to defined construction milestones.
Verify that all construction milestones are defined based on real activity completion (e.g., Framing, Plumbing, Electricity, Painting, etc.).
All additional costs must be justified, documented as a “change order,” and submitted for your approval before the work begins.

Industry Practices

Contractors often ask for deposits before starting work to buy construction materials. These payments should be linked to specific and approved project milestones (sourcing).

DECORATION COST

Home decoration costs are built around two primary components: the decorator’s fee and the cost of furnishings and accessories.

These cost structures can also vary but are similar to Interior Design fee structures. The most common methods are: Flat Fee: A fixed amount is agreed upon before the project begins. This is ideal for larger projects and provides you with cost certainty upfront. The fee can range from $1,000 to $50,000, depending on the decorator or stylist’s experience and reputation or the furnishings, lighting, or accessories selected. Hourly Rate: The rate ranges from $75 to $250 per hour, depending on the decorator's experience and reputation and the project type.

Typically, the budget for the decoration phase is dominated by selected furniture, accessories, and other materials or objects.

Common Mistakes to Avoid

Forgetting the decoration cost in the remodeling project budget.
Not Involving the Interior Designer in the decoration phase.
Submitting custom orders late in the process can incur delays in the completion of your project or simply require you to select another, perhaps less desirable option.

Recommendations

Interior Designers include decoration in their service offering, which provides a more cohesive result, simplifies the overall process, and often reduces the overall cost.
Establish a budget that covers both the decorator’s fees and the cost of furnishings and accessories.
Avoid custom furniture if you have a limited budget.

Industry Practices

Decorating phase require deposits upfront, including decorators’ services, furnitures, and accessories.

CONTINGENCY BUDGET

A contingency budget is a must in remodeling projects to handle unexpected expenses, such as unforeseen site conditions, design, or even your own desired changes along the way. It acts as a financial buffer, ensuring the project remains on track without overshooting the budget. This budget should be readily accessible within 24 hours to address any urgent needs without disrupting project timelines. However, it is essential to note that contingency funds are separate from the initial project budget and should only be used when unforeseen challenges arise.

A contingency fund should not be used for regular, pre-planned remodeling expenses. This precaution prevents overspending and safeguards your investment.

Common Mistakes to Avoid

Use contingency funds to pay regular and pre-planned project expenses.
Insufficient contingency budget allocation can result in running out of contingency before your project is completed as planned and having to put the project or parts of the project on hold until funds become available.

Recommendations

Set an appropriate Contingency Percentage
Place your contingency funds in a high-interest savings account and keep them separate from the rest of the project funds.
Limit its usage to unforeseen issues only.

Industry Practices

Typically, a contingency budget ranges from 15% to 20% of the total project cost.

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