You are contemplating buying a fixer that requires a fair amount of surface updating.
The house appears to have good bones, but you and your broker can't see what's going on behind the walls, nor are either of you a licensed and bonded contractor, experienced in the caveats of home renovations. Or maybe you are a homeowner foregoing a new home purchase and looking to add value by remodeling your home to today's standards.
PROCEED WITH CAUTION AND DO YOUR HOMEWORK!
When buying a fixer and / or considering a major remodeling project interview at least two licensed and bonded contractors experienced in major remodels. Make sure that the contractor you hire attends the professional home inspection for any home you are considering purchasing.
Although a professional home inspector can identify red flags in the structure, it is the general contractor you will need to look to, to provide quotes, advise on items in question and to make you aware of possible caveats associated with what cannot be determined until you get behind the surface i.e., possible repairs, bringing a deficiency to code, the permits required, costs, time frames, etc.
When you narrow-down your renovation contracting partner make sure that you have checked with the proper state licensing board to ensure that there have been no claims filed against him/her, and that the contractor is adequately insured, in the event there are any unforseen issues arising from error or neglect.
And now a warning! Although a guy may come highly recommended by the property's listing broker, he's less expensive than the award-winning contractor your selling broker recommended, he provides you with a plethera of personal attention... and you just feel in your heart that he is a honest and straight-up guy, he can wind-up costing you, and then some, if he miscalculates the project. Avoid making decisions based on "warm fuzzies".
Regardless of how much money you have set aside based on quotes provided to you by professionals, hidden costs can leave you spending much more than you originally anticipated. These hidden costs can come from a variety of places.
When you hire a contractor, that person gives you an estimate of how much it will cost to have a particular job done. But, "sometimes when a contractor begins doing a job, he finds out that there's more work involved than he thought," says Eugene Baldwin, a home-improvement specialist with home-contracting company Amerideck in Clinton, Md.
For example, a roofing contractor might start replacing shingles only to learn that some of the wood beneath the tile is completely decayed and needs to be replaced, as well.
Or a contractor may drill into a wall only to find something behind it that he wasn't anticipating. "If you get into a job and you need another type of equipment and have to go out and rent it, it will cost the customer more, too," says Baldwin.
Or all of the vintage windows seals in the home are deficient. In addition to being large windows, years of water intrusion may have also caused dry rot. That unexpected dry rot will need to be mitigated.
You want more canned lights throughout the home, requiring re-wiring, permits and inspections and one of the hidden costs that many inexperienced handy-men and homeowners don't think about... permit fees. Depending on the type of work you're doing on your home, you may be required to apply for a work permit. For example, a building permit is generally required from local building-inspection authorities for work that changes or adds to the structure of your property. Other permits you may need, depending on the project, are for electrical, mechanical and plumbing work. Often, you must pay an application fee in addition to the cost of the permit. Permit costs are generally based on the estimated construction cost of the project.
Anytime a home is remodeled and that update triggers that the element of the home be brought to today's standards, you are moving beyond the financial consideration of a simple surface remodel to the category of a renovation/restoration.
Hidden costs might not be so hidden... if you understand the contract.
The contract should include a description of the project and a list of what's excluded from the price," says Paul Winans, former chairman of the board for the National Association of the Remodeling Industry. "It's almost more important to know what's excluded than what's included," he says.
Certain tools and building materials might be excluded, as well as the cost of the products you want to have installed in your home. If there's a repair job in which a contractor is not sure of the extent of the damage, he might find that he needs to repair or replace a larger portion of the home than he originally thought.
Unfortunately, another hidden cost could arise from breaking something and having to fix it.
"If you're renovating your bathroom and you mess it up, you may have water all over the place and you have to pay for them to rip up the wall," says Demian Faunt, senior editor at DoItYourself.com. If this was the contractor's fault, does he had enough money in his budget to cover the repair? And what happens if the contractor so underestimates the extent of your project that he finds he has no profit? Your house is now all ripped apart and your contractor suddenly isn't so available or forth coming about why he no longer shows-up to the job site to supervise his subs? And do the subcontractors exercise their right to file a lien against your property, because the contractor that came so highly recommended by the listing broker...the one that paid you all that personal attention, failed to pay his subcontractors their wages for the past two and a half months?
And what if a contractor's equipment malfunctions and /or is broken during the course of your remodel...who is resposponsible? Was it outlined in his contract?
Costly upgrades
Sometimes homeowners are directly responsible for unexpected costs. For example, halfway through the task of having your bathroom renovated, you might decide you want to upgrade your tile or choice of shower fixtures. Unless you choose your brands or products before the estimate is completed and stick with them, be aware that your choices will affect the total cost of the project.
Another factor that can cause the price to fluctuate is the cost of building supplies. If the job is one that will take a long period of time, or if you received your estimate several months before the actual work began, there's a chance that the price of supplies used to complete the project will increase. If this happens, your bill may rise accordingly. If your contractor includes the cost of supplies in his estimate, ask him before you sign the contract whether those costs are subject to change.
The best way to prepare for hidden costs is to ask the contractor upfront which costs he expects to rise.
To prepare mentally, you can ask the contractor's references whether the final costs of their projects exceeded the estimates, and by how much. Those references also can tell you what the hidden costs were. If a contractor has a history of estimating too low, you can either find another contractor, or you can anticipate and prepare for a higher final price.
Also, make it clear at the beginning of the project that you want the contractor to let you know the minute he knows the project will cost more than expected so you have time to get your finances ready.
Do-it-yourself dues
Do-it-yourselfers aren't immune to hidden costs. They, too, can find themselves paying more for a project than they originally anticipated
Another place a DIYer might underestimate a project is when coming up with all of the supplies and tools needed. Unless the job is one that you've done before, chances are pretty likely that there is a piece of equipment you'll forget to list or there is a tool that might make the job easier. If you're doing a task for the first time, always give your budget some breathing room for supplies you didn't think abou
For that reason, it's important that you be very knowledgeable about a project before attempting to do it yourself.
"Look up how to do the smaller projects that not only are in your budget but your expertise level so you don't have to call and have a contractor come in" to clean up after you, Faunt says.
A home-improvement project can be one of the most rewarding investments you can make. But when coming up with your budget, make sure you include room for the unexpected costs that are likely to arise. That way, you can spend more time enjoying your improvements and less time worrying about how you're going pay for them.
At the end of the day, one needs to factor-in whether it would be more economical to purchase a brand new home vs. renovating an existing home. The only way you will come close to knowing is by asking serious, pointed questions of your contractor, by the contractor doing his homework before he provides the final quote, by you doing your homework, getting everything in writing, having a clear understanding of what is covered and what would be considered a change order, the costs associated with change orders, unknowns, permits, etc.
Approaching the opportunity from a position of "worst case scenario" is always the safer way to go. And lastly don't gamble. If you only have a small spread in terms of cash to work with, than anything beyond a surface remodel with verifiable pricing should not be attempted. No one wants to be house rich, cash poor or worse yet, to be homeless as a result of trying to cash-in on a poorly researched home remodeling endeavor.
Good luck!
Shari Gray