Wed. May 29th, 2024

How much a project is going to cost is always the biggest question mark in any house renovation (or any project, really). It is so difficult to get a definitive number yet it’s what people want to know more than anything else. The reason it’s so difficult is because there are a lot of variables. Even if you’re doing a small reno (like a bathroom), the cost will vary significantly based on which materials you choose. If you select marble tiles, it’s going to be much more expensive than if you choose linoleum. Faucets range from $20 to $2,000. You get the point.

My day job is to manage large capital budgets (like, billion-of-dollars large), so I’m a bit more comfortable with how this all works than the average bear. Yet I still find the whole topic very nerve wracking (perhaps because I know so much and it’s actually my money now).

Budget v. Estimate v. Actual Cost

First, it’s important to understand the difference between a budget, an estimate and actual costs. Very simply, the budget is how much you want or can spend. Your estimate is how much you think it will cost based on real information. And the actual cost is what you actually spend on the project. I’ll use a bathroom renovation project as an example for how this all works.

Budgets and estimates work very closely together because you often use an estimate to determine your budget. The internet can tell you what an average bathroom would cost, for example, but there are still a lot of variables, so it’s best to also do an estimate. A budget should also always include a contingency (more on that below).

To do what’s called a bottom-up estimate, you list all the things you need (materials and labour), figure out a cost to each and then add them all up. For a bathroom estimate, for example, you’d list all the materials (bathtub, sink, faucets, toilet, lights, tiles, etc.) and do some googling to figure out the cost of each (either because you pick one out and price it or you get a general idea of what bathtubs cost). Figuring out the labour cost is much harder, but there are some basic rules of thumb (30-40% of the total project cost). As the project progresses and money is spent (the actual costs) or you have a better idea of the labour or materials that are required, this estimate can be updated. It’s good to revisit the estimate as frequently as possible (especially after you find out some major costs like the price of all the tile or that crazy expensive bathtub you wanted) so you can identify early on if you’re over budget and figure out where you can cut costs.

This is how these three concepts work together. With the bathroom example, the original budget may have been $15,000 (because that’s pretty typical of an average sized bathroom), the estimate may have been $10,000 (because you priced things out and you’re happy with cheap things) and the actual cost may have been $12,000 (because things happen and you opted to spend more on tile than you originally planned). You always want your actual costs to be less than your budget (because then you’d be spending more than you can afford or wanted to spend) but it doesn’t have to be less than the estimate.

Contingency

Another important thing to remember is that your project should always have a contingency. Always. Even if you replace your kitchen faucet, it might cost you more than you expected. You might find that your pipe is leaking and have to replace that as well. Additional costs on small projects are usually minimal, so we don’t notice them (the kitchen faucet replacement cost $150 instead of $120, for example). But on big projects these additional costs can be show stoppers. The last thing you want to do is cut things out of your project or stop it altogether because you didn’t include contingency in your budget. A 15% contingency on a straight forward construction project is standard. If it’s something more complicated or your house tends to be a jerk, it should be closer to 20% or 25%. 

Using the bathroom example above, if you’re told that something is going to cost $10,000, expect it to cost $11,500-$12,000 (which includes 15-20% contingency). If you’re prone to changing your mind a lot, add even more. And, if you are working on a project where the number of ‘unknowns’ (things you can’t possibly know or haven’t bothered thinking through) is high, add even more.

Also remember that if schedule is very important to you, you might end of spending more to get the job done quickly. The contractor may have to bring in additional people to help complete the work, for example, which will cost more. Make sure that you are very clear on your timeline and include the expectation for the schedule in the contract with your contractor. As long as the delay wasn’t caused by you or something out of their control (like the weather), the contractor should be responsible for the schedule delay. We are generally fairly flexible with our schedule, so we’re not too fussed about this.

The budget should include all of your costs, including your contingency. So if your budget is $15,000 and you’re quoted $15,000 for the work (including labour and materials), it means that you don’t have enough because there’s no contingency included.

Scope

Figuring out your exact scope is so important in project planning. If you don’t know what you want to do, you can’t possibly have a good estimate for the work. We are always as specific as we can possibly be. Ambiguity always seems to work in favour of the contractor. When we were defining our underpinning scope, we didn’t know what to include so we got a bunch of quotes and then went through each detail in the quotes to form one giant, comprehensive scope of work. Contractors are notorious for asking for more money, even when something was clearly included, so it’s important to have a clear contract that lays it all out. Also, if you add scope to the contract after it’s signed, it’s much harder to negotiate the price because it’s not really possible to bring in anyone else to do the work, so they have the leverage.

Scope creep is always something that happens. For our basement renovation, we added a new boiler and radiator heating system to our scope but this was a new contract altogether so we were able to negotiate the cost of this work and it didn’t impact our underpinning job.

Basement Renovation Estimate

For our basement renovation, our final quotes were $45,000 for the underpinning and $25,000 for the installation of the radiant heating pipes and radiators. So $70,000 for everything. Because I was fairly confident in the price of the work, I added 10% contingency for a total project budget of $77,000 and rounded up for good measure to get a budget of $80,000. I did everything humanly possible to make sure none of the extra $7,000-$10,000 was spent, but things happen. And that’s precisely why contingency exists.

It’s important to also remember that tax usually isn’t included in someone’s verbal estimate. It’s not until you get a written quote that you’ll see taxes included. If you’re lucky enough to live in Ontario, that’s already an extra 13% right out of the gate. If you pay cash or work with some shady people (no judgement – I’ve done this for smaller jobs and may have done it here…), you can usually avoid this additional cost. But for major projects, don’t work with shady people. You can still avoid paying HST by paying cash, but it’s a personal choice and depends on how much you trust the contractor. And always have a contract. Cash payment doesn’t mean a contract can’t exist. It just means an invoice usually doesn’t.

Basement Renovation Actual Costs

Now for the moment of truth.

Our original contract included everything we needed to underpin our basement and was originally quoted at $45k. We had lengthy discussions with the contractor to understand what typical issues arise during this type of work so we could account for those surprises. The major one was a high sewer pipe. We figured that we’d end up having to lower ours (which we did), so we included the cost ($3500) in our estimate right from the start. Also, because it was so likely, we also got them to include a quote for the work in our contract so that everyone remembered the price that was originally quoted.

There were a few other pieces of work that we didn’t think about when we were setting our budget, including upgrading our water pipes to the street, building a new set of stairs and finishing the concrete floor.

For the water pipe upgrade, the quoted price was $1700 (but my budget was $0). For the stairs, the quote was $1000 (I had budgeted $800) and for the concrete finishing the quote was $5000 (and I had budgeted $1000). These additional costs totaled $7700 – or 17% above the estimate (and 7% more that my contingency). But because of delayed underpinning work, we got a big discount on the pipe upgrade and sewer relocation work. Our stair guy gave up on his job and didn’t come back to collect the other half of his payment, so there were also savings there (although my dad then had to finish the job). And we waited a few months until busy construction season was over to lower the concrete finishing cost to $2800 (although we ended up paying more because the underpinners did such a crappy job at pouring the floor). We also negotiated a final settlement with our underpinner because of all the issues we had with the job. So at the end of the day, what could have cost us $56,200, cost us $47,500.

The hydronics work ended up costing us slightly less because the original quote ($25,000) included an extra radiator which we didn’t need and the materials had a considerable markup. After I called around to get prices on rads, I re-negotiated the contract with our contractor and got the price down considerably. At the end of the day we paid just over $22,000. 

All in all, we did extremely well against our original budget. We planned on spending $80,000 for the entire basement project and we spent just under $70,000! Pat on the back for me!

Final Cost Comparison

Here’s a full comparison of our estimate, budget and actuals for the project.

TaskEstimateContingencyBudgetActual
Underpinning$45,000$5,000$50,000$43,500
Hydronics$25,000$1,000$26,000$22,000
Stairs$1,000$0$800$500
Concrete$2,800$0$1,000$3,500
Total$73,800$6,000$77,800$69,500

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