When completing a renovation, many homeowners understandably dread the thought of unexpected costs. Depending on the project, it can be difficult to predict what those costs may be, however you can prepare yourself financially when planning out your renovation.
First and foremost, you want to make sure that you and your contractor set aside a portion of your budget for those unexpected costs and create a contingency fund.
What is contingency for?
When planning out your renovation, there are things your contractor can see and there are things he can’t see—mainly what’s behind the walls and in the ceilings. As an example, there may be a plumbing or HVAC stack running through a wall that you wanted to tear down that you didn’t know was there. This is when you may need to use your contingency.
This expense wouldn’t have been in the original budget and you’d likely rather not cut the costs from something else that is a mandatory in your renovation.
A contingency budget is also commonly used in the bathroom. Moisture or mold problems can be an expensive repairs depending on the extent of the damage. There are some obvious signs of moisture and mold that can be seen before demolition, and you want make sure you take a close look for those before starting to make sure your budget accurately reflects those needs.
How much should my contingency fund be?
This is case by case on each project and largely dependent on the size and budget of the renovation as a whole. For example, on a smaller renovation like a bathroom, you will require a higher percentage of contingency of the overall budget. A simple issue with water damage or electrical can cost a couple hundred dollars and can quickly eat that contingency. On smaller renovation projects you can easily have a contingency anywhere from 10 to 20 per cent of your total budget.
On larger scale projects where you’re dealing on projects that are more than $100,000, the required contingency percentage will be less, as the overall budget is more. If you’re dealing with a 10 per cent contingency on a $100,000 job, that’s $10,000 of buffer that you have to work with, which is great but may be too much overall. When you’re dealing with these larger scale projects you can have a contingency percentage of 3 to 8 per cent.
The secret formula
Even though everything I mentioned before is true, there’s one caveat that I haven’t mentioned for determining your contingency. What will determine your contingency is how much investigative work and planning you do before you start your renovation. The more time you spend investigating what will need to be done for the renovation and access the risks involved, the lower the contingency percentage you will need as you have allocated costs for certain items that you know will come up.
Renovations are exciting, and although they are a lot of work, you should enjoy watching your vision come to life!
Working with a contractor or inspector and walking through your home before you start your renovation, can help with those unexpected costs, as these experienced professionals may be able to see things that you can’t.