You may already have a figure in mind for your renovation, perhaps from an early conversation with a builder. It is a sensible place to begin, but the difficulty is that a single figure says very little until it is clear what it is meant to pay for, and a renovation generally has to pay for considerably more than the building work itself.
What does a renovation budget actually have to pay for?
I am an architect, and in my view a renovation figure tells you very little until a list of what it covers has been written down beside it.
A builder’s price is built on a defined scope, which means it covers the building work that the drawings and specification set out and that the builder has agreed to carry out. Everything else the project requires sits outside that price because of what the document is, so let us look at what sits alongside it:
- Professional and consultant fees, including design, engineering and specialist reports
- Council, certifier and other statutory charges
- Items you intend to supply yourself, such as appliances and tapware
- External work beyond the builder’s scope, such as landscaping, fencing and driveways
- Moving out, storage and temporary accommodation while the work is carried out
Now, none of this means the builder is concealing anything, because council charges or the cost of storing your furniture were never the builder’s to include. What it means is that a realistic renovation budget is best understood as a project budget, in which the builder’s price is one important line among several, rather than as that price with a safety margin added on top.
When the amount finally spent is higher than the figure originally discussed, the additional cost will belong to one of four kinds, and each of them calls for a different response.
1. Known, but outside the quoted scope. This is the layer set out above: the consultant fees, the council and certifier charges, the items you supply, the external work and the cost of moving out. All of it was foreseeable from the start, so the response is to place it in the project budget from the beginning.
2. Known, but not yet resolved. The item had not been chosen, or the quantity of work could not yet be measured, so the price carried an allowance in its place. The response is to resolve it earlier where that is possible, and to allow for it realistically where it is not.
3. Genuinely concealed. This is a condition that a reasonable investigation could not have revealed before the work began. It is the only one of the four that is truly unexpected, and it is the one a contingency exists to absorb.
4. Created by a later decision. Upgrading a finish or relocating a room after the price is agreed is a change to the project rather than a failure of the budget. The earlier such a decision is made, the less completed work it tends to disturb.
It is worth applying this to any cost you are uncertain about. Could it have been known before the price was given? Could it have been known, but not priced with any accuracy? Was it genuinely concealed until the work began? Or was it created by a decision that came later? Worked through honestly, this tends to show that far fewer costs belong to the concealed kind than the word hidden suggests.
- Known, and outside the quoted scope. Place it in the project budget from the start.
- Known, but not yet resolved. Resolve it earlier where you can, and allow for it realistically where you cannot.
- Genuinely concealed. This is what a contingency is for.
- Created by a later decision. Decide earlier where the most work stands behind the decision.
Allowances: known, but not yet priced
The second kind appears in a quote as an allowance. In New South Wales, the standard home building contract separates two of them. A prime cost item is an allowance for something not yet selected, such as a stove or a set of tapware. A provisional sum is an allowance for work that cannot yet be priced with certainty, such as excavation where rock may be encountered.
The notes accompanying that contract indicate that a provisional sum should be used only where the work genuinely cannot be priced before it is carried out. They also ask that the site be assessed, and tested where necessary, so that the work can be included in the fixed price instead. In the same way, an item selected before the contract is signed, with its brand and model identified, can be priced accurately rather than carried as an allowance.
Every allowance is a figure in the total that is not yet the final figure, so several of them together put the cost certainty of the project at risk. How an allowance is adjusted once the actual cost is known is set by the contract itself, and it is a matter worth raising with your solicitor before you sign.
What the existing house can conceal
The third kind is where renovation differs most from building new, because an existing house contains information that no drawing can show until the building is opened up. It is also the kind that tends to cause the most difficulty, because it is usually found once construction is under way, when there are far fewer options for negotiation and the homeowner is in a less favourable position.
Keeping part of the house does not make the work attached to it free either. Reaching a service or altering a structure damages the finish around the opening, and that finish has to be made good. Where the original tile, board or paint can still be obtained, the making good is limited to the part that was disturbed. Where it cannot, the work has to continue until the difference stops being visible, which can mean the whole wall or the whole room, and it is that larger area which sets the cost.
Decisions made after the price is agreed
The fourth kind begins with a choice rather than a condition, which makes it the one most within your control.
A decision costs what the new item or the new arrangement costs, and it also costs whatever has already been done on the basis of the earlier decision. Changing a finish while the specification is being written alters a document. The same change once the item has been ordered alters an order, and once it has been installed it alters completed work. Changing the layout inside a bathroom early in the design moves lines on a drawing. The same change once the pipework has been set out and the waterproofing has gone on can reach the drainage positions, the framing that the fittings are fixed to, and the tiling laid around them.
None of that means every detail has to be settled at the outset. It means the decisions worth resolving first are the ones with the most work standing behind them, which are usually the layout, the structure, the position of the wet areas and anything with a long delivery time.
Time sits between the budget and the price
Price movement is another instance of the second kind, known from the start and not yet resolved when the figure is written. An initial budget is set against the building market as it stands when the project begins, while the builder’s price arrives only after design, approval, documentation and tendering. In New South Wales, for example, the determination of a development application alone can take several months depending on the council. Construction prices continue to move over that period, so the budget is worth reviewing as the design develops rather than being treated as settled on the day it was written.
What can be established before signing
Each investigation carried out before the price is agreed replaces a particular kind of assumption with information. A detail survey establishes the levels and existing features the design is built upon. The survey itself is worth matching to the project: work within the existing house may need only a simple survey, whereas an extension is better supported by one that also defines the boundaries, which costs more. A geotechnical investigation informs any new footings, and in an older house, asbestos sampling can confirm whether the materials being removed contain it, while carefully opening up part of the existing structure before tender can confirm whether a wall is load-bearing.
No single report makes a renovation certain, because each one has limits, so the value of an investigation is set by what the unknown could cost if it were discovered later, rather than by the fee for the report.
What remains after that is the concealed kind, and this is what a contingency is for, rather than a reserve for upgrades decided along the way. You will often read that a renovation should carry ten to twenty per cent on top, but that range is a rule of thumb rather than a calculation, and no published method has been calibrated for a house renovation. The amount is better judged by how much still remains unknown: how complete the design is, how thoroughly the house and the site have been investigated, how many allowances are still unresolved, and how much of the existing building is being retained.
Map the whole-project cost
Before a builder’s price is accepted, it is worth writing down every category your project will need to pay for. That list runs from the builder’s price and the consultant fees to the council charges, the items you will supply, the external work, the cost of moving and the contingency. Each of them is then marked as included in the builder’s price, allowed for elsewhere in the budget, not yet allowed for, or not yet known.
The lines marked not yet allowed for are the costs that would otherwise be called hidden later, and at this stage they can still be placed in the part of the budget where they belong.
Where Home Mastery comes in
Home Mastery is an education platform for Australian homeowners who are planning to renovate, extend or rebuild, and it is being built now. Its purpose is straightforward enough: professional knowledge should reach you before the decision is made, rather than afterwards. That allows you to see the whole project before committing to its individual parts, and to take a genuine part in the decisions that shape your home and your money without having to become the expert yourself.
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Ed Hung is a registered architect and the founder of Home Mastery.
