Costly mistakes that will blow your renovation budget

Country Exterior by Adam Hobill : Design
Author: Adam Hobill

Renovating or extending a home can be a significant investment and there is too much at stake for you to get it wrong. Unfortunately, the dream too often turns into a stressful and expensive nightmare. The good news is that it doesn’t have to be that way. Cost control and preventing budget blow-outs starts from the very beginning. It is influenced by the team you choose to work with, the brief you formulate, the decisions you make, the documentation you prepare, the way you engage and deal with your builder and the level of discipline you maintain throughout the construction process.

Here are seven common reasons that I see cause renovation budget blow-outs and a few tips to help you avoid them.

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1. Poorly established scope of works
One of the tricky things about managing a renovation or extension and controlling costs is knowing where to start and where to stop. If you do not understand that properly, the risk of your costs blowing out during the build will increase significantly. However, understanding what needs to happen in your own mind is only part of the solution, as once you’ve got it clear in your head you’ll then need to be able to communicate it clearly to the trades or builder. This is where you will be relying upon your documentation set. Your documentation set should include a set of professionally prepared plans and an Inclusions Specification, which is a document that itemises all of the inclusions, fittings and finishes that are missing from the plans (have a look at the ProSpex tool here).

It is critical that the builders quoting the project have access to this information to ensure that the quotes are accurate, thorough and easily comparable. One good way to ensure that the builder’s understanding of the project is consistent with yours is to ask them to present their own written Scope of Works and to also document what is excluded from their quote. It’s a bit like reverse engineering, as sometimes the clearest way to highlight what is included is to detail what is excluded. This will draw your attention to things that the builder sees that you have not considered and is a great way to iron out any grey areas.

2. Demolition is expensive!
Demolition is a process that is inherent in any renovation or extension project and it is labour intensive. It can also be like opening a can of worms because it is hard to know exactly what to expect once you start your building project; and that is why demolition can often lead to additional costs. Before a wall is removed, you must ensure that it is not load bearing, otherwise you will need to make an allowance for restructuring the wall.

Where possible, try to minimise the amount of demolition involved and, if it can’t be avoided, make sure you get professional advice about how to deal with removing load bearing walls.

3. The knock-on effect
One of the reasons that renovation projects have a habit of leaking money is because of the knock-on effect, where one decision will have an impact on several others down the line. For example, the decision to remove a non-load bearing wall may seem like the obvious thing to do to open a room up. However, that wall is also connected to the floor, the ceiling and two other walls; and once the wall is removed, you will then be required to repair and patch the gaps that the wall leaves behind.

This is where the knock-on effect can send costs spiralling upward, as you will also need to repaint the walls and ceilings where the repairs have been completed and, because you don’t want it to look like you’ve only painted the patched walls, you’ll need to repaint not only the entire room (which is now one big room because you removed the wall) but also the hallway that the room is now openly connected with. This scenario is played out again with the impact the removed wall will have on the flooring and at a much greater expense if you are trying to retain timber flooring, for example. These costs simply may not be avoided to complete the project as you would like, but you will need to think about it holistically and be realistic about the costs involved so that you can budget appropriately.

4. Electrical oversights
Electrical work is one area that often experiences a blow-out in the budget. Unless they are advised otherwise, builders will often only make allowance for the bare minimum requirements of electrical items in their quotes, which may only be one light and one power point per room. Often there will be no allowance for light fittings either, just the batten holder with a globe. If you are not aware of this then you are left exposed to the additional costs of more light points and power points (you will get charged per point) as well as the costs of the actual light fittings.

To rub salt into the wound, any additional expenses over and above what was quoted may also attract a builder’s margin of up to 20% on top of the additional costs. This is another example where using an Inclusions Specification will ensure that the quotes being prepared by builders or trades are thorough and consistent with your expectations. Once again, it’s about being properly prepared and informed so that you can be realistic about the costs.

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5. Not making realistic allowances
Too often I hear stories where people have been attracted to a competitive quote only to be disappointed by the outcome and shocked by the final cost of the project. This is often the result of clients not having enough input into the quotes that are prepared, or not properly understanding what is included in them. Unless a builder is given instruction otherwise, they will be left to make their own allowance, for potentially dozens of items, of their own accord. It is important to understand that the allowance is just that; a dollar figure attributed to the cost of a particular item. Quite simply, if the builder has allowed $300 for a toilet and the toilet you select is $800, then you will need to pay the $500 difference as an extra, or variation, as they are known. You will also be exposed to the requirement of paying a builder’s margin of up to 20% on top of the difference for the variation.

When assessing quotes from builders, it is important that you understand all of the allowances contained in them. You will probably also find that the quotes you are assessing are all presented quite differently, which can make it difficult to evaluate and compare ‘apples with apples’. So, unless you have prepared properly, you’ll probably need to ask lots of questions to give you clarity around what is actually included in the quote. Ideally, you should also spend some time visiting showrooms so that you have a better idea about what allowances are realistic for you. The best way to communicate all of these important allowances to builders is by using an Inclusions Specification, which keeps everybody on the same page and will become part of your contractual documentation, providing a clear understanding of your requirements and expectations.

6. Not thinking about what’s going on outside
If your project involves any sort of extension, you will also need to consider the impact it will have on the external spaces surrounding the home. We spend a lot of time pouring over floor plans and kitchen layouts, but this is sometimes at the expense of attention we should be giving to the spaces around the home. For example, retaining walls are often overlooked as drawings are developed; which means that the builder will not be aware of any requirement to include them in his quote. Unfortunately they won’t build themselves, so at some point this will become an additional cost you will need to pay for.

You may also need to factor in refinishing of external walls. Rendered surfaces have become popular and people often take the opportunity of an extension to render the entire house to modernise it. Again, the cost to render and paint the whole house will be much more than just the new extension, so you will need to communicate your expectations to the builder to ensure that all of the costs are accounted for and your budget doesn’t blow out.

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7. Surprise surprise…
The most common cause for budget blow-outs in renovation and extension projects is the element of surprise. There are any number of items that can pop up to catch even the most experienced designer or builder, like upgrades to electrical work, remediation of previous work done and structural upgrades; all of which generally can not be assessed until the project is underway. The sobering reality is that a renovation or extension project is inherently more likely to run over budget than building a home from scratch, so it is sensible to keep that in mind and allocate a contingency to your budget so that you are financially prepared. The size of the contingency required will vary greatly depending on how thoroughly you are prepared (see earlier points) and the type of project you are doing.

For a simple extension to a conventional home, a contingency of 5% may be ample if you are well prepared, however, if you are dealing with a much older heritage property, or a terrace-style dwelling, a contingency of 30% may not be enough if you haven’t prepared properly. Preparation is the key to minimising the impact that these surprises will have, as is working with a designer and builder who are familiar with the type of project you are planning. Their experience will help to foresee and minimise any significant blow-outs.