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Mortgage Matters

Blog by | July 20th, 2009

’Til dust do us part

Martha Uniacke Breen, National Post 

An architect-designer I know has a standing joke about most renovation estimates.

"First, you figure out what you feel is a reasonably accurate price, and what you feel comfortable spending. Then, double that figure. Add another 10% or so for contingencies, and you should just about get it right."

That may be a slight exaggeration, but it's true that the renovation that goes exactly as planned, right down to matching its original budget, is a rare thing indeed. Renovating is an art, not a science - especially with older homes - and so, naturally, is accurately predicting the final cost. But is it possible to avoid, or at least minimize, that ugly post-reno sticker shock?

According to CMHC's latest figures, an estimated 1.7-million households in 10 of Canada's largest cities spent a total of almost $21.3-billion on renovations in 2008, at an average of $12,600 per household. Of these households, 38% reported that the project went over budget, even though nearly 70% used a professional contractor for all or part of the job. Does this mean that contractors can't be trusted? Well, not exactly. But it could mean that there's a lot of confusion about how to approach the whole question of renovation financing.

David Potter, an independent financial advisor in Toronto, says that if blame should be laid, it lies equally on both sides of the contractor-homeowner partnership. "Often people don't have a well thought-out, articulate idea of what they want, and haven't done any research beforehand," he suggests. "For example, they know that they want their bathroom retiled, but haven't gone to the store to see what tiles cost or what the range of options are." Or they may go so far as to interview several contractors, but then not follow up on references, or just go with the cheapest quote.

"I think, personally, that to say you've gone over budget is a bit misleading, because if you go ‘over budget,' it may not have been planned properly in the beginning," says a prominent Toronto builder, who asked not to be named. "Everyone hears horror stories about the renovation that went way over budget and took way longer than expected, but it works both ways: What about the couple who argue over every decision, change their minds about the specs," or have other unrealistic expectations that complicate the contractor's job, and the project itself?

A certain amount of imprecision is a natural aspect of the estimator's art, and many contractors expect homeowners to be aware of that. "There's an underlying business philosophy that states ‘client beware' in whatever quote the contractor gives, because he knows that whatever contract he makes with you can be amended, usually to his advantage, if things change over the course of the renovation," says Mr. Potter. "Think about how estimates are done: to get a completely accurate quote, the contractor would have to do an enormous amount of research and investigation into materials, subtrades, and so on - which is unpaid work if the customer then chooses a different contractor. So it makes sense for him to give his best guess, knowing he can adjust later if necessary."

This is not necessarily dishonest; from the contractor's point of view, it just makes good business sense. After all, there are many variables beyond his control - ranging from your decision to go with the fancy tiles you saw in a magazine rather than his basic offering, to opening a wall and discovering structural damage or firetrap wiring. But a well-planned budget should allow for such contingencies right from the start: Mr. Potter recommends up to 30%, depending on the scope of the job, but it should not be less than 10%.

A lot of headaches could be avoided if homeowners just took the time to check out the contractor carefully before committing to a job. "You owe it to yourself to get three firm quotes; it's amazing how much they can vary, but it's because there are so many variables involved," says Mr. Potter. Often there's more than one way to approach a given project, and you should be just as wary of the cut-rate guy - perhaps more - than the contractor who pulls up in a Cadillac and quotes a Cadillac price. "Then, you must check references on any contractor you're considering, so you know if the guy is for real, both on the budget and on the time estimate as well. Ask former clients about the quality of his work: If it came in more or less on budget, if there were cost or time overruns, and if the whole project was handled pleasantly and efficiently."

One of the best ways to minimize financial surprises - especially with large-scale renos - is to work with an independent cost estimator, or in the case of a design-build company, a project manager whose principal job is to work with the architect and the trades to accurately estimate, and if necessary control, costs.

"The most important [safeguard] is to have your builder and architect in sync from the very beginning of the design process, so you can have realistic, hard numbers to create the design," advises the builder. "An architect is concerned about design; he doesn't necessarily know about the practicalities. The builder or project manager can foresee variables and realities that the architect may not be aware of, such as whether the project will infringe on a neighbour's landscaping, or require major structural changes." In most design-build or residential homebuilding companies, the company principal will take on the role of liaison between homeowner, architect and trades; his reputation depends on representing your interests fairly. But cost estimators can also work independently; you can find them in the Yellow Pages under Cost Estimators or Project Managers.

Rare indeed is the renovation that proceeds without at least some surprises. But if you have done enough research on the contractor to feel reasonably confident, and have properly prepared yourself for the process, it will help make your project go much more smoothly - for everyone involved, including your banker.



Here for all your mortgage finance needs,


Stephanie Ostash


The Mortgage Centre