In 2015, home improvement spending in the U.S. reached $340 billion -- an all-time high that is expected to increase 2 percent per year for several years -- according to the Harvard Joint Center for Housing Studies. According to a report from the JCHS released last month, two big drivers of this activity are millennials buying older, relatively affordable homes that need renovations, and aging baby boomers who are adapting their homes for their changing needs.
All of this remodeling is good for the country's economy and for updating over-the-hill housing stock. But remodeling can be risky for homeowners who aren't prepared for the work and costs ahead. The process of remodeling a home is typically fraught with pitfalls that can spiral budgets out of control.
Homeowners who start a remodel unprepared often get stuck partway through the project, unable to finish. As a result, they can become trapped in a torn-up, unfinished house that is almost impossible to sell.
So what can you do to avoid the financial perils of remodeling?
You must do your homework, and then do more homework. The more planning and exploration you do up front, the fewer the surprises you'll have to derail your budget.
Here are eight tips to help keep your home improvement budget under control.
1) Gather information. If you're buying a house that you intend to remodel, find out exactly what you're getting before you buy. Also, gain insights into hidden issues by getting a thorough home inspection.
2) Clarify your goals. List your wants and needs, and then prioritize this list. The more detail you can provide, the better. For example, instead of "remodel kitchen," jot down specific projects -- for example, installing new stock maple cabinets and granite countertops, replacing the kitchen floor with hardwood, adding low-voltage kitchen lighting, replacing the dishwasher and so on.
When doing this, it helps to get a rough idea of typical costs. You can pin down average costs for most remodeling tasks by searching phrases like, "How much do kitchen cabinets cost?" on the internet. Your resulting list will be an important tool when you move on to working with a designer or architect.
Of course, you may not be able to do everything you want, so decide which improvements are key -- and be prepared to give up the lesser ones.
3) Work with a professional designer. A well-designed remodel doesn't cost more to build than a poorly designed one -- in fact, it usually costs less because good designers know how to take advantage of building efficiencies. For major construction, you'll need an architect who knows how to unite the changes with your home's style, optimize the use of space, deal with structural issues and draw the necessary plans for permits and contractor bids. The architect can also help shepherd the project, guiding it through the permit process and overseeing the contractor's work.
You may choose to work with a professional interior designer who knows the many available options in materials and can help you achieve the look and feel you want for your remodel within your budget.
4) Keep it simple. Talk with your architect or designer about developing a design that is simple and affordable to implement.
For example, you can save on plumbing costs by planning kitchens and bathrooms so they utilize existing drains, vents and supply pipes. When possible, you can usually save by working within your home's existing footprint to eliminate costly foundation and roof work. Adding a second story, however, can be both costly and incredibly disruptive.
5) Avoid the "while we're at it" syndrome. During a remodel, it's very easy to think of additional improvements you would like to make. Though some of these may make sense when the walls are opened up -- insulating walls or upgrading plumbing, for example, "while were at it" improvements can devour your budget.
6) Hire a qualified, reliable contractor. This is key to getting your job done right and on budget. The best way to find a good contractor is through personal recommendations from friends or neighbors who have had similar work done. Alternatively, you can find qualified contractors online through referral sites like HomeAdvisor or Angie's List. Before choosing a contractor, interview and get bids from at least three candidates, ask for references and ask former clients for the pros and cons of their experience.
7) Have a solid contract. Be sure you get fixed bids. Do not work on a time-and-materials or cost-plus basis -- open-ended agreements can destroy your budget.
Your contractor agreement should clearly detail all work to be done, including specifications for appliances and finish materials. By far the most common conflicts between contractors and homeowners arise when the two parties don't agree on what work or materials fall within the original bid's scope.
If you request additional work or changes after the fact, the contractor typically writes-up a "change order," which can be very expensive.
8) Pay in increments. Break down the project into smaller goals and pay as each goal is reached. Before beginning, detail the schedule with your contractor and tie your payments to the completion of each goal.
Don't pay your contractor too much in advance. Do, however, expect to pay for a portion of the work and the cost of materials that need to be purchased. If you are working with a contractor you trust -- and who trusts you -- this shouldn't be a problem.
At the end of your job, make a punch list, which details all tasks that still need to be completed. Make the final payment only when all work is finished.
Never pay with cash, and be sure to keep receipts and records. You'll need them for your taxes and as proof of payment if there's a dispute down the line. When you make the final payment, ask your contractor to sign a "conditional waiver and release upon final payment" form (also called a "release of all liens"), which can be found online. This protects you from subcontractors who might otherwise put a lien on your home's title if the contractor doesn't pay them.
At this stage, you'll be able to breathe a huge sigh of relief and enjoy your newly remodeled home.
Don Vandervort offers more information on saving money during a remodel at HomeTips.com.
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