Unless money is no object, having a budget is a critical component to every remodeling project. The time to talk about a project’s budget begins with the first design meeting and should continue in some form throughout the design and construction process.
It is fair to say that almost every client comes in with a wish list that exceeds their projected budget range. Obviously, something has to give in order to end up with a successful project and a happy homeowner.
Because of human nature and most homeowners' unfamiliarity with construction costs, most people inevitably underestimate what their project will cost. They are also sometimes almost secretive about how much they want to spend, as if the architect or contractor will make it their business to suck out every cent they can.
There are three questions you should be prepared to answer when discussing a project’s budget.
• The first is how much is your house currently worth? What could you sell it for if you put it on the market as is today? (This is not how much do you hope you could get or how much have you already sunk into it; it may require a conversation with a Realtor to get a realistic assessment of what the going market rate really is.)
• The second question is somewhat related: What is the current market range in your neighborhood and how much can you invest in your home to keep it within that range? Again, a conversation with a Realtor who knows your neighborhood would be helpful, or you can keep your eye on which houses sell in your vicinity and for how much by checking on the internet or frequenting open houses in your area. Now that you know what your existing house is worth (say, $300,000) and what the neighborhood will bear (say, a range from $250,000 to $450,000), you can conclude that it would be financially responsible to invest up to $150,000 in your current home.
• The final question is: How much do you want to invest in your home? Knowing the real estate situation and the amount that could be sensibly invested in your home, what do you want to do? Most people work with the amount determined by the above analysis, but some may not want to max out their equity option and choose to spend less. Others, convinced that this is their "forever" house and location, may decide to disregard the limit imposed by the neighborhood, and choose to spend more. They obviously have the right to spend whatever they want, but at least they do it knowingly.
This may be the time to interject a bit of reality about the value one adds to a home with a remodel. Watching cable home design shows may convince you that you will get every penny back and then some on the day the remodel is completed.
Not so, according to every return on investment chart known to man. According to "Which home improvements pay off?" on HGTV.com itself, the article cites Remodeling Magazine, which says that the greatest return on a home remodel results from a minor (up to $15,000) kitchen remodel at 92.9 percent. Replacing siding comes in a close second at 92.8 percent. It is downhill for everything else after that.
Hopefully, with a strong economy, home values are inherently appreciating so that after some years the remodel cost should zero out and even begin adding equity to your home’s value. This is why people need to be committed to their house for the long haul when they undertake a significant remodel.
Architects can speak in broad generalities regarding construction costs, such as an average cost for an all-new kitchen (about $40,000) or for gutting and replacing a bathroom (which runs $8,000-$12,000), but the final cost will actually depend on both the size of the space and the level of finishes and furnishings (appliances, plumbing fixtures, etc.) that are selected by the homeowner. A rough cost of $150 per square foot may serve as a general guideline for new construction, but an especially small or large project will skew that number, too.
The best way to face remodeling reality is to create a proposed master plan, contract with an experienced remodeling general contractor to create an itemized estimate for that plan, and then be prepared to "value engineer" the project until the design and the budget are aligned. Unfortunately, we have never been faced with the need to add more space because the budget estimate came in lower than expected! It always works the other way.
In reality, after much prioritizing and reconsidering, a compromise generally emerges: The wish list is trimmed and the budget is adjusted to meet somewhere in the middle.
In our next column, we will discuss the value engineering process in more detail.