There are some key reasons a project runs over budget. So what are the budget-blowing mistakes when building or renovating your home? Here’s the top 5 (and how to avoid them).

This post first appeared as an article in the April/May 2015 issue of The Owner Builder magazine. Whilst the research it refers to is specific to Owner-Builders, the mistakes I outline, and advice I give, is relevant to anyone who is building or renovating. Research shows around 50% of non-owner-builder projects go over budget too!! Read on if you don’t want this to be you …

Home building company, GJ Gardner homes, recently conducted a survey of 500 homeowners who had built their homes in the last decade. The research uncovered this fact:

Almost two-thirds (62.5%) of Owner-Builders ran over their budget.

In my experience, people usually embark on the adventure of being an Owner-Builder for two reasons:

1. They have a genuine interest in crafting something, creating their own home and being the driving force behind making it happen; and / or
2. They want to save money, either by eliminating the builder’s margin from their costs, or doing a lot of the work themselves … or both.

Building a new home or renovation is considered in one of life’s top 10 stresses. It’s no small feat to disrupt how you’re living in your current home and spend hard-earned money (or your mortgage) in creating a home for how you actually want to live. Especially if you have a life … a family … a job … to carry on with, whilst this disruption is occurring.

I’ll just take a moment to prepare you and apologise now – I take my professional role seriously in guiding homeowners in creating their homes, and so I’m super-honest in my advice … and can seem blunt and direct! It’s only because I’m so passionate about homeowners getting the very best from their homes, and for their effort, energy, time and money.

So, with almost two-thirds of Owner-Builders overrunning their budget, are these anticipated savings worth the undertaking you’re embarking on? Will they actually be realised in your project as you hope?

There are lots of reasons a project runs over budget. These are some of the more significant and avoidable ones that, in my experience, can have a big impact on the end delivery.

1. Not enough time spent in the design phase.

In the same survey, 37.3% of respondents wish they’d spent more time planning their new home. Things are inexpensive whilst they’re just lines on a page, and even though you may be itching to get started, you are not efficient, or make the best decisions when you rush.

The design phase is the opportunity to really build in efficiencies that will serve you well in the construction phase. For example, selecting materials and products with great availability builds in flexibility and the opportunity to enable competitive purchasing down the track.

2. Poorly estimated, or not enough information to accurately estimate on.

It doesn’t always take a high quality of documentation to achieve your necessary approvals, however the quality of documentation can radically impact the accuracy of any quoting you receive. It means that quoting and estimating requires lots of assumptions and room for error is significant.

3. Changing the goal posts on your original vision

It is natural to want more when you’re renovating or building. To want to squeeze out every last chance at getting what you really want. Ensuring this doesn’t cause budget overruns partly relies on the planning you do upfront, but also relies on understanding the consequence of certain decisions. High ceilings, for example (say 10 or 11 feet) will require non-standard glazing, and increased costs in internal lining, external cladding, lighting and scaffolding. These costs will seem inevitable – but they were the consequence of an initial decision that could have been made differently.

4. Taking too long

In the same research, 35% of homeowners overran the project timeline. And time is money when it comes to home building and renovating. Delays can mean having to source alternative tradespeople, materials, additional interest payments, additional storage payments, damage on site as materials are exposed to weather for too long, and having to extend approvals.

In one of our renovations, we had delays between the completion of wet areas, and had to source another tiler to finish off, when the original tiler had moved onto another big project. So, we had to get it requoted, and the second tiler was refusing to warrant the waterproofing done by the first tiler. We managed to deal with it, but the tiling cost more overall, and it was a headache we didn’t need at the time.

5. Changes on site

As I said earlier, when your plans are lines on a page, all your decision-making, changes of mind, and deliberations are relatively inexpensive. The minute dirt is turned on site, every change and variation will cost – in time and money. If you decide on site that you want to make a change, be prepared for budget blowouts (either in the cost for the change, the extra time costs, or both).

So, how CAN you avoid these potential challenges to your budget? Or at least minimise their damage. These are my top tips.

1. BE REALISTIC

Be realistic about what time and skills you’re capable of bringing to your project as an owner-builder … and whether they’ll help or hinder your cause. If you don’t have the time or inclination to be on site regularly and available to tradies for questions and decisions, and if you’re not a natural problem-solver, leader or manager, then you could regret the undertaking.

2. GET EDUCATED

Lots of resources, especially online and in the various courses available to OB (including this magazine). Do some careful research before you start. Understand the process and the role you will play. Plan, prepare, and plan again. Use that planning time to get as ready as you can – both you personally, and all the tools, equipment, people, and resources you will need. Like anything new, it will be challenging – so get informed so you’re in the best position to do a good job of it. You wouldn’t get up tomorrow and run a marathon without weeks of training first.

3. GET EXPERT GUIDANCE UPFRONT

Using a design professional can be super-useful in getting those efficiencies designed in upfront, and in fleshing out all of your concepts (while they’re on paper) and illustrating them for you in three dimensions. Also getting formal documentation done that is industry standard for quoting and constructing from is also useful. The average amount of money spent by Australians on renovating is almost $50,000. Most people wouldn’t randomly invest that amount of money in the stock market without some significant due diligence first. I see the assistance that architects and licensed building designers can bring to your project in a similar way.

4. WINDOW SHOP WELL BEFORE YOUR PURCHASE

Having the time to compare prices, bargain, seek competition, ask tradies to sharpen their pencil, and get lots of quotes, can make a big difference to your overall costs.

It also helps to be not too fixated on particular finishes or fixtures so you have flexibility to capitalise on special deals or discounts. Big discounts can be achieved through securing end-of-line items such as tiles and carpet. The reverse is also true in protecting your budget. Making decisions well in advance, even stockpiling materials if possible (or asking the suppliers to store them for you) means that you’ll be ready for the work on site. Understand lead times, and don’t let material delays force the need to source something else urgently at a cost impost.

5. CREATE A BUDGET AND GET A FORMAL ESTIMATE

There are some great (and free) online tools to give you cost guidelines and help you create a budget for your project. Creating a budget that is realistic, based on industry information and research is the best start you can make to your project – and early in the process. I recommend running the figures the minute you have drawings you can measure accurately, with areas and lineal metres. Prior to that, you can make your best guestimate based on square meterage rates, based on research you can do for your location and intended construction standard and finish quality.

I also recommend including a contingency of at least 20% to cover those unexpected events that can and do occur. Worst case scenario is that you’ll have it leftover at the end to buy something nice with, or take a holiday to recover.

You can also hire a Quantity Surveyor or Estimator to provide you with a formal quote.

It can be scary finding out how much it will cost to build your dream, because there is a fear it will be the point that dream is killed. Honestly though, it is much better to know it’s affordable or not before you commence, rather than when you’re standing in a half-finished home.

See the end of this post for budget and cost guideline resources. 

6. MONITOR YOUR PROGRESS – IN TIME + MONEY

There’s a great business quote which is “that which gets measured gets managed”. It also applies in building or renovating your home.

The two main areas that require close management as an owner-builder are these:

1. Time

Create a program. Map out what will happen when, right from the design phase, to your approvals (and how long they’ll take). Then your commencement on site, what trades you’ll need and the order in which they’ll happen, as well as a rough duration for their work. You can then start looking at what materials you’ll need during the course of your project, and when. Then back track for any lead times to know when orders need to be made. Tiles can take up to 12 weeks if being shipped from overseas, for example. Look at when you’ll need inspections done and when so you can source those consultants. Build in some contingency, allow for holidays, some wet weather allowance (check your area’s rainfall and wettest times). There are lots of online resources which can help you do this, and even asking a builder, or project manager on an hourly rate to help you set it up will pay serious dividends in the progress of your project (and your sanity in managing it).

2. Money

Having created your budget, you can generate a “shopping list” for what you need. Source quotes for products, materials and trades, and allocate them against the budgeted amount as you go. As the work is completed, make sure you update your budget. The trick is managing the time and money relationship – often you might not know there’s an overspend or variation on a trade until the invoice comes in 4 weeks after the work has been completed. Keep open lines of communication with your tradespeople, monitor and ask how they’re tracking and anticipate those budget overruns before they surprise you. There are great apps which can stream all your bank transactions from your accounts, and then you can allocate them to categories as they turn up in the app – and then collate the data to see total quantities for those categories. Amelia used to suggest Pocketbook, however, it’s no longer in operation. An alternative can be a platform such as Xero. It only has paid levels, however there is a low cost level that may be very helpful for tracking project expenses. Given how much money is exchanged electronically these days, it is a useful tool compared to trawling over the statements at the end of the month, or filing through all of your receipts.

7. WEIGH UP THE TRUE SAVINGS (AS AN OWNER-BUILDER)

If you’re taking on the role of Owner-Builder because you’re seeking big savings in building or renovating your home, just think carefully. Builders will charge a margin – yes – however most established builders also have access to trade discounts for materials, and preferred suppliers and tradespeople who also provide competitive pricing. Builders with good track records will pass those advantages on to you.

Think about whether you have the skills and determination to manage the impact of not knowing what you don’t know, potentially making mistakes, reworking and associated time delays.

DON’T BE A STATISTIC

If this research by G J Gardner Homes is a statistical sign of how Owner-Builder projects generally track, then there’s a 2 in 3 chance you’ll overrun your budget as an Owner-Builder. (And there’s a 1 in 2 chance if you’re hiring a builder to help you with your project).  Whilst these are scary statistics, if your heart is set on executing your project as an Owner-Builder, see it instead as a challenge. Rise to it. Treat your project exactly as that – get prepared, get informed and educated, stay invested and attentive, monitor and manage. The statistic shows that there’s 1 in 3 Owner-Builder projects DON’T overrun their budget – and you CAN be in that third. It may not be easy – but I promise you, it will be worth it.

RESOURCES MENTIONED IN THIS POST

Free online Cost calculators:

http://www.homedesigndirectory.com.au/calculators/building-cost-estimates.php

http://www.bmtqs.com.au/construction-cost-calculator

http://askanarchitect.com.au/ask/calculator/budget-calculator

Free online Cost Guidelines:

http://www.bmtqs.com.au/construction-cost-table

http://askanarchitect.com.au/ask/content/cost-guide