If you’re planning on starting a new home or renovation, whether that’s your first or fifth, going over budget is likely your biggest concern. And for good reason. This fear is very valid considering most projects do go over budget.

According to an article written by Porch, 44% of home projects go over budget, and of those who did, they spent an average of 38% more than planned. 

To give you a better understanding of those numbers, if your budget for your home renovation is $250,000 and you spend the average 38% more, then you’re project will likely become 345,000 ($95,000 more than expected).

Working with General Contractors closely over the years, it’s clear to see how those overages occurred. And it snowballs; the reasons seem small, and yet the overages  continue to build and build until this snowball is too hard to push any further. 

Let’s take a look at the 3 top reasons projects go over budget.

1. Not Having A Realistic Budget

This is where it starts. Understandably, we don’t keep tabs on the cost of labour and materials like we do with the price of groceries. And yet, even when we have an understanding of the price of grocery items, we’re still shocked when the total is calculated. But you can’t fault us for that. It’s human nature to think our money will go further than it actually does (optimism bias and the planning fallacy). Not only that, there is a tendency of only focusing on the visible, aesthetic elements without fully considering the underlying structural or construction-related costs.

Nevertheless, that large amount of money you have, may not be enough. So, if you don’t have enough at the grocery store, you have a few options: Do not purchase specific items, lower the quality of the items, or get more money. 

Prepare your project with the idea that you could end up having to choose one (or all) options listed above and speak with a General Contractor you trust to see what sort of position you are in. And continue to do so throughout the project.

2. Not Having A Clear, Overall Vision & A Detailed Plan

Without a very clear vision of your future home, your designer will be unable to give you a detailed plan. Many homeowners rush the design process and design the bare minimum they need for a permit. They think they’ll make decisions when the plans are being reviewed for permits or make decisions during construction. They don’t consider all aspects of how they want their home to look, feel, and function, and how a single change can alter other areas of the project.

While there’s so many things wrong with this approach - your quote will be based on an incomplete picture of what you want in your future home. Without a detailed plan, your builder will be unable to give you an accurate estimate on the overall cost of the project. You’re setting the budget up to fail from the start and continue to worsen as you change as you go. What’s worse, the changes you make to the plans during construction are an after-thought. 

From a design perspective, this could affect other areas. For example, I had a client last minute change their crawlspace to a basement. If they had spoken with me, I would have told them they are over their square footage. The results - they had to remove a bedroom and bathroom. Huge mistake for wanting a little more basement. From a build perspective, this results in more labour and material cost (and possible mistakes). I had another client decide at the last minute to have wall-mounted toilets. This required a larger wall behind for support. Because the walls were in, they decided to move the layout around. Now it’s an awkward layout resulting in doors bumping into each other, door swings opening the wrong way and so much more.

Have a strong vision for your overall home, make a detailed plan and change as little as possible.

3. Accepting The Lowest Quote

If you work with a General Contractor, they will see those low quotes a mile away. In most cases, they will have a solid team they have carefully selected and they won’t have any issues with inaccurate quotes. But sometimes they’ll need to find a new hire and have to get quotes from other professionals. The best part is, they should know what things cost. So that quote that was half the other guy’s - yeah they know they’re full of $hit. 

But if you’re working on your own, you being the General Contractor, won’t know what to look out for. And if you’re looking for a General Contractor, how do you choose? They say to get 3 quotes and pick the middle one… but how do you know that one is right? It’s safe to say, don’t pick the lowest quote. Do your research on your hires. Don’t just base it off of price. They may not be accurate to begin with. 

While projects do change, homeowners change their minds, and prices do increase without notice, budgets can be controlled.  Additionally, it's important to prioritize your wants and needs, so that if you do encounter unexpected costs, you can easily make compromises without sacrificing the overall vision of your project. Another tip is to set aside a contingency fund. This will serve as a safety net for any unforeseen expenses that may arise.

You can stay on budget, it just takes time to create a clear overall vision, detailed planning and preparation, and a whole lot of honesty with your numbers, all before you break ground. If you want help doing it (including an incredible budget spreadsheet), join us inside Homeowner HQ.