What’s in a budget?

Posted by on May 13, 2013 in Blog, How to/ Tips | No Comments

When commencing a project or meeting with potential clients, I come across a common misunderstanding that has sometimes stopped a project dead in its tracks, before it has even started. Today I want to cover this issue so those of you considering building a new house or renovating, are not caught out.

I have written before about why projects go over budget, which you can see here, if you have not already done so. It is before your project starts however, that I want to speak about today; but I need to set the scene first. Before commencing a project, the most important question I ask my clients is: What is your budget? They often feel uncomfortable when I ask this, and I understand why. But we all have our limits, so there is nothing to feel uncomfortable about. Without knowing their limit I can’t know when to stop, and believe me you can throw a lot of money at houses. Not an option for most of us. The last thing I want to do is put my clients under financial strain; in setting their limit, I’m then able to work within that.

Back to this frequently occurring problem. It is not understanding what their budget needs to include. For those who have not been through the exercise of building or renovating before (a large number of my clients), they believe their budget covers the cost to build, which it does, but there is much more it must also include, which is what catches people out.

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I’ll demonstrate this via an example: The Newhouse family approach me to design their new house (I know, what are the chances). They tell me they have a budget of $700,000 for the project. Great. I then explain they need to subtract from that fees for:
–       An architect
–       Engineer
–       Land surveyor – creates a ‘survey plan’ – showing the boundary of the property and its levels, for me to work off.
–       Building surveyor – checks all the documents and the design to ensure it complies with the building code.

All these fees amount to anywhere between 10-15% of the value of the project. Our $700,000 is now down to (lets say 10%) $630,000 for building.

We aren’t done yet. Next is a garden, fences, driveways, decks etc. Or put another way, everything outside the house. Depending on how flash you choose to go, but at a minimum, this will be another 10% of the value of the project, and anywhere up to %20. Lets again assume 10% or another $70,000. We have now gone from our original $700k down to $560,000 left for building the house. You can see where I am going with this.

I’ve had many occasions where the budget amount is enough to cover the clients’ wants and needs for their house, and also the fees and external works I just mentioned, in which case: green light.

If not the client now has one of three options:

1) As I have mentioned in my other blogs on budgets, two things control the cost of building a house: the size of the house, and its level of finish (materials, kitchen and bathroom fitting etc). One of these two, if not both will have to be re-considered if what they want is not achievable in their now reduced budget for the actual construction.

2) Some clients have the means to increase their budget, allowing another added amount to cover these costs they did not initially allow for.

3) I have also had a few instances of clients putting their project on hold, till such time as they can afford to increase their budget and then start the project.

All of these options work.  However, upon deciding to design a new house or renovate, we’ve likely spent a lot of time dreaming about it and are keen to get started. To potentially discover you have to compromise or delay your project is never the preferred result. The key is to know this in advance so you aren’t caught out when it is your turn.

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