How do I Keep Tabs on My Construction Budget?
Construction budget? Wooo boy, this is the big question I always get. And it is not an easy one to answer. In this time of exploding material costs and declining availability (of both tradespeople and some materials), controlling your budget is more difficult than ever. Below are some ideas that can help keep you from breaking the bank:
Entice the Contractor
In less busy times, clients have a lot of power over contractors. Right now, most contractors have a very comfortable back log and are already having trouble getting work done. This means they’re going to be interviewing you as much as you’re interviewing them. This means a few things. Are there things about your project that would appeal to them? A builder looking to get a reputation for eco friendly construction or stepping up from small additions to whole house renovations might be more willing to negotiate than someone to whom you’re just a way to keep paying his people. This means trying not to come across as crazy or unreasonable. They do not need the headache right now. If they think you’re going to be one, expect a headache percentage to be tacked on top. This means respecting what they bring to the table and being informed, but not micro managing. This will help to keep margins closer.
Include a Contractor in Design Decisions
Some projects work really well with a bidding process to keep the construction budget under control. On the other hand, some do not. The more likely change orders are to happen, the more worthless a bid is. There is really very little control over changes to the contract through change orders. So, if you’re doing a complicated renovation, or if you’re indecisive, your best bet might be to engage a contractor early in the process to act as the comptroller. Design professionals can give more educated guesses than lay persons. However, methods and building costs aren’t things that we get deeply into which can greatly affect the final price. Interviewing several pre-qualified contractors and selecting one to provide advice can be a great method of keeping the budget on target. I would recommend paying them some sort of fee for their time, and let them be helpful. They’ll also be intimately familiar with the design and so can give you a proper price tag when the design is complete. This will be much quicker than a traditional bidding process. In addition, you can always reject their proposal and either redesign or look for other contractors. If you’ve paid them for their time and expertise, it can be a win-win.
Include Flexibility in your Construction Budget
This advice is a bit of a cheat, basically saying have more money, which can be pretty useless when you don’t have it to spare. But that’s also part of my point, no construction budget ever survives contact with the showroom. Prices always creep up because once you’ve spent four hundred thousand, an extra three or four thousand isn’t that big a deal. Never design to the maximum amount of money you’re prepared to spend. Whether it’s all of the money you can get approved on your loan, all the money that the property can support, or just your personal budgetary vision, always have a reserve fund you can tap. You will almost certainly need to. Depending the size and complexity of the project, we would usually recommend at least five percent, and usually much closer to 15 percent cushion to eat into during the design process. Running out of money partway through the process is probably the worst thing you can do since all of that money you’ve poured into a project doesn’t really blossom into an asset until you’re finished, which can really hurt your overall attractiveness to lenders if you get into a pinch.
