Ever been asked by a client what they should expect to spend on a kitchen or bathroom remodel? If you are like me, the answer is a resounding yes! However, what a project costs is not actually relevant. What is relevant is what resources the client can allocate for a remodel project – with a few constructive parameters. The following are some tips to share with clients to help them establish a realistic project budget.
1. Determine Their Discretionary Income. Most homeowners know what their financial resources are and their financial obligations (mortgage, school tuition, elder care, retirement savings, etc.). The difference between the two can be characterized as “discretionary” income that is available for renovation projects. There are some caveats to fine-tuning the discretionary income amount down to a realistic budget, and a discussion with a financial advisor may be their launching point.
2. Determine the Market Value of Their Home. By averaging the assessed property value and the market value of their home using an established online real estate company (Compass, Redfin, Zillow, etc.), a reasonable market value can be determined. From this value, a few industry rules of thumb can be applied, ensuring the project investment is money well spent, by calculating a budget that is an appropriate percentage of the market value.
- If the property has a water view (no dock), take 10% off the estimated value – regardless of the room under consideration – to reach the value used in this equation. The understanding is that 10% of the property value is attributable to the water view.
- If there is a mountain view, take 5% off.
Once you have the adjusted value, you can apply a room multiplier of:
- .15 to the adjusted market value for a kitchen (a full gut job, additions not included)
- .08 for a primary bath
- .04-.05 for a kids’/guest bathroom
These multipliers render dollar values that are considered prudent for the specified rooms. This exercise can help clients prevent overspending for the geographic region/home value and avoid dipping into savings. It’s advisable to have a contingency cushion of 10-20%, from the adjusted market value, for unexpected events like rot or new code-compliance requirements.
3. Assemble the Project Cost Estimate With a Bottom-Up Approach Rather than Top-Down. With a top-down approach, the sum of all the desired cost components is added up and becomes the project budget. However, this approach can lead to sticker shock and sleepless nights. With the predetermined budget number at the bottom of the page, a designer and/or contractor can help identify the costs of the design features and material costs to be added above the bottom line. Essentially, the components are subtracted from the budget number as you go up the page, rendering a zero or positive value when you reach the top of the list of design features and materials. If not, the homeowner may need to consider editing out some design features/materials or expanding their budget, but the good news is that not a single hammer has swung at this point.
4. Help Clients Define & Fine-Tune Items in Their Project Budget. Despite the contributions of HGTV, Pinterest, Instagram and the World Wide Web, homeowners may be hard-pressed to identify the design features and materials they want (or their associated costs) on their own. Further, everyone’s needs and desires are different. By helping clients prioritize their needs vs. their wants, a project can be edited to fit any prescribed budget, saving redesigning and specification time. This is also an opportunity to show your added value as a design/build professional. Don’t forget to define ALL components that are expected to come under the heading “total budget,” such as sales taxes, design fees, permits, pet kenneling, overnight stays at hotels, take-out meals, etc.
Remodeling is not an inexpensive endeavor, and most homeowners are not intimately familiar with building material and labor costs, potentially leaving them feeling queasy when they attempt to create a budget for the project of their dreams. By sharing your budgeting experience and expertise with clients, you can preempt disappointment and deliver intrinsic value to clients.
