Why Going over Budget is a Lie 

The biggest myth about building your home or construction projects is that 

Everybody goes over a budget.   

Well…..it might seem like that.  It definitely feels like that!  And most homeowners would agree.   We’ve all heard the stories of “this or that that blew the budget”  But the reality of home design and renovations is that most people don’t have a clue about all of the expenses coming their way SO they cannot possibly make a realistic budget based on only part of the costs.  You think you know, and then you don’t!  Ever feel like that?

Having lived through it myself a few times, I might have agreed.  Budgets are made for busting……. if I didn’t know the dirty little secret. 

 The problem isn’t that people went over budget, (although they do) the problem is that they never had the right budget to begin with.

How can you blow a budget you never had in the first place?  Sure, we all know the number on the contractor’s bid, the architect’s fees and maybe some miscellaneous inspection fees from the town or local government (more on those later).  But did we really think this all the way through?  I know I didn’t.

WTF?!? $2500 to upgrade my water line from the street?  See below, cortisol levels rising, breathe….

There are several reasons why people go “over budget“

Pre construction costs

Working out in East Hampton, L.I. with a developer, we had a major delay.  Work was ordered stopped by the town and interest was building every day on the construction loans. Money was being lost every day we sat idle.

Local ordinances required a tree inspection, where they come out and measure the diameter of trees and the location.  Then they count the number of trees and you’re billed accordingly on how many you cut down and how many more you have to plant.  This takes money and time.  Time we hadn’t planned.  Money that we didn’t budget for….you starting to see?

There may be specific, wacky ordinances where you are too.  Now, I’m not knocking a good tree hugging, or whatever floats your boat, you just have to know what costs are local to your site, and include them in your budget.  And then figure for more…(15% is usually a safe emergency fund)  How do you do that?  ASK!  Your neighbors, contractor, the town, the guy who walks his dog in slippers and knows everyone’s business.  Don't wait for the car, squirrel.  RUN!

“I can't believe I have to spend this money and I’ll never even see it!”  

Say it once, get it out of your system and suck it up, Buttercup!  Because, that feeling will come again, many times.  Spare yourself the cortisol poisoning your veins and know that what you can’t see is more important than what you can when you build.  

There’s a saying, “When I’m healthy I’ve got lots of problems. When I’m sick I’ve only got one!”  The guts of building costs money and doesn’t show.  Breathe deep and move on to something you can control in the budget!

Some other hard costs associated with pre construction 

• survey 
• site preparation 
• field testing, water testing 
• local local government permitting fees 
• inspection fees 
• bank fees 
• relocation fees 
• rent, storage fees 
• legal fees and ….

Boring, boring, boring but they add up!  Just doing some quick math on that list above and I can potentially see 90K most people won’t even consider.

I live in a small town that’s unique, in that it’s cooperative.  Much like a cooperative in a high-rise, we own shares.  In order to build, I needed to buy more shares, which was another significant cost before building.

 Again, You need to know what’s local to you.

Allowances vs. Reality

The contract itself or the “contractor’s bid” is another source of blame for the budget busting, but read the fine print……..

 In a standard proposal or bid, there are specific “allowances” for items.  Some of these items haven’t actually been chosen by you, yet!

 How could your contractor possibly know the correct allowance amount to include for heating until you choose?  Until you choose!  Things like your kitchen cabinets, siding, trim, tile, flooring are all common allowances that are assigned a specific amount.  If your contractor is good, these allowances are based in reality.  $30,000 for windows and doors may be a reasonable allowance in your area for a certain type of window.  Is that the one you want?  Do you even know yet?

 Now I’m not trying to get you to freak out.  Every decision does not need to be set in stone before you let the ink dry on the plans.  You won't, can't know somethings till ya know, ya know?  

 But, you can go through the allowances and specified materials and see if they are similar to what you want.  You agree to the amounts when you sign and if you cannot stay within those numbers, kablewy goes the budget!

 If you decide to order a kitchen that’s $100,000 and you’ve got an allowance for $25,000 for cabinets, you have just gone over budget, but the budget was never in your favor.

The budget didn’t change, it never had the right numbers. 

 Now the reverse can work in your favor.   Let’s say your contractor gives you an allowance for electrical work of $35,000.   You happen to have a nice old uncle who’s going to do all the work for you because you were always his favorite, you can take that out of the budget!  

Or 

You’re given an allowance for flooring and it’s priced out as wide oak at nine dollars a square foot and you’ve chosen a laminate that’s $1.35 that you got on a closeout, awesome sale, then that savings should be reflected in what you pay.  Pay close attention to allowances and what things cost.

Plans have Incorrect Materials Called Out 

Plans have materials ‘called out’, or specified, right on the set of drawings.  This means that in order for your plans to get approved, they have to state what materials you are going to use.  Like the siding, roofing and windows to name a few whopper ticket items!  Take a look, there’s your Anderson 400 series windows called out right there on the window schedule.  

But what if that’s not what you decided?    What if you’ve fallen for a custom Pella window with impact resistance.  The difference in costs is real!  Like 25% more money real!

Many allowances and amounts the contractor included in their proposal are based on the plans you give them.  If you’re not specific about everything you want, there are some educated guesses being made!

 The contractor WILL bid the job based on the specifications that the architect put in the plans that may not necessarily be the things that you’ve decided you wanna go with.  

I have an engineering firm that I use often because they work quickly to get through the inspection process in NYC (which can be a nightmare).  In order to expedite plans through the city, they use standard materials, every time.   

The same damn siding put it in the drawings, Certainteed‘s Sandune #0430 or whatever, every time.   If you don’t want that Certainteed siding and you want something a little different, maybe a little Nietzha or cedar shakes or you wanna do brick, your price is going to be different.  Make sure you say so!

 The architect specifies the materials that you want to use in the plan so that when you do get that bid it is what you want.  But only if you tell them.  

Be clear about the materials you want to use and your budget will be more accurate.

 I knew my plans had general materials 'called out' so I made a list.  Actually, more like a short story for each contractor that bid my job.  I listed every bit of info from roofing shingles to the style of door and window casings I wanted with pictures and specifications.  My contractors were able to give me bids with the same materials to compare amounts for the same materials.  Makes it a fair fight.

What’s NOT included in the Contract or Allowances

(Oh, there’s sooooooo much, it makes buying a car look like a fair deal.)  

Exterior 

• Landscaping
• Decking
• Sprinklers
• Railings 
• Stonework
• Driveways 
• Gates 
• Fences  
• Sheds

 Interior

• Lighting trim kits and bulbs
• Fixtures - that’s every single light in the house
• Audio, security controls, thermostats
• Plumbing - doesn’t include a single toilet, sink, faucet, drain or shower body.  
• Shower glass
• Mirrors
• Sinks
• Closets
• Countertops, handles knobs and tile
• Appliances
• Appliance hookups
• Handles, hooks and rods
• Furniture

 All of these things and more are nowhere in any budget till you put them there!  Now I wish I could say all my planning worked out perfectly, but this is construction people!  We did eat at a table made from a 4 x 8 sheet of plywood for a year, till I could afford the dining table I had been dreaming of.  But a few tablecloths later and who knew?

 Changes

The National Builders Association estimates between 4 -17% of the total budget on a new home build is spent on changes to the plan. 

That’s between 12.5k on the low end to 75k + in avoidable costs!  

 That's a big number.  Let me repeat that because I almost choked. 

$12,500 to spend any way you want on the home of your dreams and you pissed it away on changing your mind?  We can do better!

That’s a fabulous walk-in closet for his and hers, a steam shower, home office or gym.  GONE.  Think long and hard before a single nail gets hammered and you’ll save, big time!  

Stick to the plan and you can stay on budget!

Best,

Liz

xoxo

Check out my blog on Heartbreak of Changes and How to Stay the Course!