Budgeting for Your Remodeling and Construction Project: What to Expect

Budget concerns are one of the biggest barriers for homeowners considering a remodeling and construction project. In many cases, it's not the cost itself. It's actually the process of getting bids, understanding them, and determining if they are accurate and fair.

Unfortunately, there's a lot of myth and misinformation about the budgeting process and what home remodeling should really cost. Too often, this stymies homeowners who could truly benefit from upgrading their space.

In this post, I'll go over the key things you should know about budgeting for home renovations. I'll cover the basics of project costs, describe the types of firms and contractors that you can hire, and explain the different kinds of budget proposals that you may encounter.

I hope that this information helps you feel more confident about moving forward with your vision for your home remodel and allows you to get great value along the way.

Understanding Remodeling and Construction Costs

In general, the cost of a remodel is made up of a combination of labor and materials. Although the term "labor" is often associated with the physical work of construction, it actually encompasses a range of professional services necessary to complete a project.

For remodeling and construction, these services typically include:

• Planning and design

• Permitting

• Site preparation, including demolition, disposal, and remediation

• Mechanical, electrical, and plumbing work

• Other labor by subcontractors, including framing, painting, tiling, and other installation

• Supervision and project management

• Inspections

In addition to these services are the costs of the materials themselves. This involves everything you would expect based on the work being done, from flooring to siding to cabinets.

The costs of labor and materials are not totally independent. Certain materials not only have a higher price but also require more costly installation. For example, in kitchen remodeling, both the materials and installation are more expensive for ceramic tile flooring than luxury vinyl planks. Similarly, in a bathroom remodel, intricate tilework on the shower floor will be more expensive in terms of both labor and materials than installing a pre-fabricated shower pan.

Getting Started: Envisioning Your Remodel and Setting a Budget

For any remodel, the first step is to think about your goals. Reflect on questions like:

• What parts of your home need work?

• What problems do you want the remodel to solve?

• Are you looking mostly for cosmetic changes or do you want to transform the space and its layout?

• What should the final result look and feel like?

• What are the "must-have" and "nice-to-have" elements of the renovation?

It often helps to make lists as you go through this thought exercise. Then you can start to convert your ideas into a more concrete vision with defined priorities, which is especially important if you have to make tradeoffs to stay within your budget.

Ballpark Budgets and Realistic Expectations

At this stage, you should start thinking about your budget. For some people, it helps to consider two numbers: what you'd prefer to spend and what you're willing to spend.

In doing this, try to be realistic. Setting your budget at $20,000 for a full basement remodel is only going to lead to disappointment. You won't be able to perfectly predict how much the job will cost but do your best to have a realistic ballpark figure for what you're planning to spend.

Getting an Idea of Remodeling Costs

One of the factors that influences your budget is where the work is being done. Prices aren't the same in the Midwest compared to major cities on the coasts.

We've created a series of guides to the average costs for remodels in Des Moines, IA, and the surrounding area, and you can access them with the links below.

• Bathroom Remodeling Pricing Guide

• Kitchen Remodeling Pricing Guide

• Basement Remodeling Pricing Guide

• Home Addition Pricing Guide

• Deck to Four-Season Room Pricing Guide

These may be helpful to review as you try to get a ballpark idea of what your renovation may cost in this part of Iowa. And while they won't be totally accurate for other areas of the country, they may help you get a rough idea of the relative costs of different types of projects.

Choosing What Type of Remodeling Company to Work With

If you've never done a home renovation before, you might think that every remodeling business works in roughly the same way. But there are actually two significantly different approaches to remodeling.

• Design-build: A design-build firm handles the entire project under one contract, from initial planning to final inspections. They have an integrated team of designers and experienced construction managers. The designers collaborate with you to zero in on a remodeling plan, and once complete, the project smoothly transitions into the on-site work.

• Design-bid-build: With this approach, you start by hiring a designer. They create the project plan. Then you take that plan to general contractors in order to get bids. After that, you select a general contractor and schedule the work.

You might be wondering: What does this have to do with budgeting? Let me explain.

With a design-build firm, you'll work together to outline the scope of the project, and then you'll get a single proposed price for the whole shebang, including all the design, materials, and labor involved in finishing the work.

With the design-bid-build model, you'll first pay for the designer's services. The designer may try to estimate what the construction will cost, but you won't actually know until you get bids from contractors. If the contractors' bids come in higher than anticipated, you either have to expand your budget or go back to the designer to modify the remodeling plan.

In this way, a design-build model involves a single price for the entire project, and the design-bid-build approach means you have two separate prices, one for the designer and another for the general contractor.

In addition, there's also an important difference in the types of proposals and budgets with each approach.

Types of Budgets and Proposals for Remodeling Projects

The budget proposal that you'll receive will look very different if you're working with a design-build firm versus hiring a typical general contractor.

Many design-build firms offer a fixed-cost budget, also known as a lump sum budget. In contrast, general contractors usually offer an itemized budget, also called a time and materials budget.

• Fixed-cost budgets: With a fixed-cost proposal, you see the total price for the entire project rather than a breakdown of individual items. More importantly, because the cost is fixed, the design-build firm assumes the risk of cost overruns.

• Itemized budgets: With this kind of proposal, you'll see an estimated line-by-line cost for each component of the project plus a built-in markup for the general contractor's services.

Many customers start out thinking that they want to see an itemized budget because they assume it means more transparency. But the reality is that a fixed-cost budget tells you more about what you will actually pay.

That's because an itemized budget is only an estimate. At first, it may seem like an amazing deal. But if the price of materials goes up or they need more hours of a subcontractor's services than expected, that simply gets added to the bottom line. Depending on how the work goes, those extra charges could be big or small, but you're the one who takes on the risk.

With a fixed-cost budget, you don't have to worry about all the little details. Instead, you can focus on whether you're satisfied with the final result, and if the job requires more work than anticipated, it doesn't come out of your pocket.

Contracts and Payment Schedules

Before moving forward with any bid or proposal, I strongly encourage you to brew yourself a cup of coffee and sit down to actually read over the contract in detail.

The full contract is where you can find essential information about things like when you have to make payments, whether any services fall outside the contract's scope, and what happens if the construction doesn't go according to plan.

If you're not one for fine print, consider asking a family member or friend to read it over and highlight any key sections that you should be aware of.

Dealing With Contingencies

One important consideration is how the contract deals with any contingencies or unexpected costs. How these are handled often depends on whether you're signing a fixed-cost contract or a time and materials contract. As a general rule, a fixed-cost contract offers far more protection for homeowners against cost overruns.

In either case, though, you can help prevent future headaches by making sure it's crystal clear what will happen and who will pay if the initial proposal underestimates the actual cost of completing the job.

Creating a Plan and Budget for Your Home Remodeling Project

Compelling Homes is a design-build firm that has been serving clients in the Des Moines area for more than 15 years. Our dedicated team has expertise in both customized design and high-quality construction, and we work tirelessly to make every remodeling project a success.

On top of that, we know the importance of listening and communication in managing any project. That includes being clear about budgeting and ensuring that the remodeling plan aligns with your needs and priorities.

Our website offers more information about our team and our portfolio, and we invite you to contact us directly to find out more about how we can help with your remodeling project.