Budgeting a Renovation, and How to Compare Bids That Are Not Comparable

Questions This Guide Answers

How should I set a renovation budget?

Work from what you are willing to spend in total, then subtract what the project needs before it reaches finishes — design and engineering, permits, demolition, any structural or systems work, and a real contingency. What remains is the finishes budget, and it is usually smaller than people assume. Setting the figure the other way round, by pricing the kitchen you want and adding the rest afterwards, is how projects end up short at the point where the only remaining savings are visible ones. Build the budget from the bottom of the construction sequence upward, not from the photographs down.

How much contingency should a renovation have?

We do not publish a percentage, because the right figure depends on how much of the house is being opened and how old it is — a finishes-level project on a recent build and a whole-home renovation of a 1940s house carry very different risk. What matters more than the number is what it is for: a contingency covers the unknown (undersized framing, water damage, plumbing not where the drawings said, previous unpermitted work), not the undecided. Fund changes of mind separately as change orders. Spending the contingency on upgrades leaves nothing for the discovery that follows, which is the common way a well-funded project runs short.

Why are renovation bids so different from each other?

Because they are usually pricing different projects. The lowest bid is most often the least complete one: allowances set at values nobody would choose, demolition or disposal excluded, the electrical or plumbing upgrades the work will trigger left out, permit fees and permit-handling time missing, no contingency carried, a vaguer finish schedule, or overhead recovered later through change orders. None of that makes a builder dishonest, but it means the total is not comparable. Ask for quantity, specification and labour shown separately rather than a lump sum, and compare the scopes rather than the numbers.

What is an allowance, and why does it matter?

An allowance is a placeholder for something not yet selected — tile, fixtures, appliances, lighting. It lets a project be priced before every decision is made, which is useful, but it moves cost into the future without reducing it. An allowance set at a value nobody in the project would actually choose is a deferred overrun that surfaces mid-construction, when options have narrowed and changing course is expensive. The test is to go and look at what the allowance buys: if you would not install it, the allowance is wrong, and the time to say so is before signing.

Should I choose a fixed-price or cost-plus contract?

Both are legitimate and they allocate risk differently. A fixed price gives certainty and asks the builder to carry the risk, which they price for — but it only means something if the design is finished and the selections are made. A fixed price on a vague scope is a number that will be revised through change orders. Cost-plus is transparent and flexes with discovery, but the final figure is not known at the start, so it needs a clear fee structure, open books and a target budget with regular reporting. The real question is not which is better, but whether your design is far enough along for a fixed price to mean anything.

How do change orders work?

A change order documents a change to the agreed scope, with its cost and its schedule impact, approved before the work happens. That last part is the one that matters: a change order agreed afterwards is an invoice. Ask how they are priced before you sign — whether there is a stated markup, how labour is calculated, and whether schedule impact is included. Expect some: a renovation that opens walls will find things. What you should not expect is a stream of them for items that were foreseeable at the start, which usually indicates the original scope was thin.

What should a renovation payment schedule look like?

Tied to completed and verified stages rather than to dates, with a deposit proportionate to what it actually funds — mobilisation and long-lead material orders, not a large fraction of the contract before work starts. Each subsequent payment should correspond to work you can see finished, and where a stage ends in an inspection, passing it is the natural trigger. A retention held until the punch list is genuinely complete is normal and sensible, because the last few per cent of a project is the part most likely to drift once the money is gone. Texas also gives homeowners lien rights to understand; ask how subcontractor and supplier payments are evidenced.

Does a renovation add value to my home?

Some do, some do not, and the honest answer is that it depends on what the house currently lacks relative to its street. Bringing a house up to the standard of its neighbourhood generally holds value well; pushing it substantially beyond that standard generally does not return the difference, because the ceiling in any street is set by the street. Kitchens and bathrooms influence saleability more than most other rooms, and adding usable space tends to hold value better than reconfiguring the same space. But if resale is the main motive, be cautious: renovating to live in and renovating to sell are different projects, and we would rather say so than encourage either on the wrong grounds.

How do I finance a renovation?

The common routes are a home equity line of credit, a home equity loan, a cash-out refinance, a renovation-specific mortgage product, or paying from savings — and which is appropriate depends on your equity, your existing rate, and how predictable the project's cost is. We are not licensed to give financial advice and will not recommend a product. What is worth saying from the construction side is that draw-based financing has to be coordinated with the payment schedule: if the lender releases funds on an inspection cycle that does not match the construction stages, the project stalls waiting for money. Raise that with both your lender and your builder before work begins, not at the first draw.

Where can I save money without regretting it?

In scope, not in substance. Reducing how much of the layout changes, keeping plumbing where it is, phasing a project along a boundary the systems respect, and choosing a simpler material palette all save real money without compromising the result. What tends to be regretted is saving on what is behind the surfaces — waterproofing, substrate, valve bodies, ventilation, insulation — because it is invisible, it is expensive to revisit, and its failure is the kind you discover years later. Also regretted: saving by skipping design. Decisions are cheap to change on a drawing and expensive to change once built, which makes design the least effective place to economise.

Advisory

Speak with a NARI Certified Remodeling Designer

Get focused, one-on-one guidance for your renovation with Jennifer Valdes, CRD, NARI Certified Remodeling Designer.

This is a paid advisory service, booked and paid separately. It is not required before hiring PHR Design Build, and it is not part of a project consultation. Your full consult fee is credited toward a Design + Preconstruction agreement signed within 90 days.

• 30-Minute Consultation

  $150

  Best for focused questions, design direction, scope clarification, finish selections, or a professional second opinion.

  Call to Book — $150

• 60-Minute Consultation

  $225

  Best for a deeper discussion of renovation goals, layout, priorities, scope, budget considerations, and next steps.

  Call to Book — $225