How to avoid budget blowouts during a renovation or home build

Perway Construction Services
May 09, 2024

Embarking on a custom home build or renovation project is a thrilling moment – however, we’ve all heard the horror stories about huge cost overruns and projects that ended up costing double or triple the originally quoted amount.

So, how do you ensure your project stays within your budget – and doesn’t end up ripping through your hard-earned savings or equity? This blog explains it all.

Choose the right builder in the first place

The first element of effective budget management sounds simple, but can be more complex than it appears. Choosing a builder is one of the biggest decisions in the home building process, as they are wholly responsible for creating or renovating your house that you will live in for years to come. If done right, you will be guaranteed to get a great quality build and a great quality customer experience that will enhance your lifestyle and most likely increase the market value of your home.

Firstly, ensure your builder is 100% above board, and holds all the necessary licences, accreditations and insurances. Then, ensure they have a track record of successfully delivering projects like the one you’re planning on time and on budget. Look at customer reviews on their website, Google or social media channels, and ask the builder for testimonials and references from previous customers.

Make sure your builder interrogates your underlying needs

Finally, when you meet with the builder ensure they listen to you and seek to understand your underlying issues. You may find the best solution is something you hadn’t considered.

Consider Margaret and Tommy’s story. They wanted to put an extension onto their home. Builder A came in, had a brief chat with them, took some measurements, and gave them a price for the extension that they said they wanted.

Builder B came in and held a much more thorough discussion. Builder B unpacked why Margaret and Tommy wanted an extension: the underlying problem was that they needed more room, as their kids were getting bigger and needed their own space.

While they thought their only option was to extend and to build out, Builder B advised that they could redesign a partially unused upstairs area and renovate it instead. This would give the family the same result for thousands of dollars less – meaning Margaret and Tommy would come in well under their original budget.

Which builder would you have chosen in this situation?

Nail down the quote

Once you confirm the details of your project, you should discuss the budget as early as possible. Your builder should provide you with a comprehensive and understandable quote that has as many items as possible included. This should be detailed and in plain english, without jargon terms and a minimal amount of inclusions and exclusions.

You should pay your builder for this quote, as that way you can be more certain that the builder has taken their time to get it right. In fact, we generally recommend that you avoid free quotes, as  this often means the builder doesn’t spend quality time considering everything that is needed for your building project. Therefore you probably aren’t going to get a quality proposal in which everything has been detailed and included.

When you get your quote, go through the list of inclusions and exclusions with a toothcomb to unearth any items that may have been assumed by the other. For example, a builder may include lighting in their quotation, but only includes the batten, not the light fittings; whereas you may assume the light fittings are included. If you’re unsure, obtain clarification on what is excluded from the quote so that you both fully understand where the responsibility for an item lies – and the true cost of the build so you can budget for it.

Other words you must be alert for in your quote are indicative, provisional sum and prime cost.  These mean the builder hasn’t committed to exact prices, so the costs may increase.

  • Indicative is the estimated price or the likely price range for which something will cost to supply or install.
  • Provisional Sum (PS) is a cost allowance made in the quotation to cover both the supply of the materials and the labour of the foreseeable work. The work requirement is uncertain at the time and cannot be accurately quoted.
  • Prime Cost (PC) is a cost allowance made in the quotation for the supply of specific items which have not been finally selected at the time of quotation (such as tiles or tapware). The PC is limited to the cost of the material and does not include the cost of any labour to complete the installation works.

It is vital that you understand these when reviewing quotations so you are prepared and are able to budget for any variations before starting the project.

Make sure the contract’s watertight

Once you’re happy with the quote, it’s time to sign the agreement. It almost goes without saying that you should never embark on a project without a signed contract, as it protects both you and the builder. If you don’t have a contract and something goes wrong during the course of your build, then you have no right to recourse and you are left in a very vulnerable position.

Many builders use home building contract templates from industry associations like Master Builders Australia or Housing Industry Association (HIA). A well-crafted contract includes the following things to ensure potential future disputes are avoided:

  •  The description of the works is clear
  • The inclusions and exclusions list is clear
  • The agreed contract price is inclusive, reasonable and clear
  • There’s a clear process for variations to the contract price
  • The process for resolving disputes should they arise is clear
  • The key construction stages and review process is clear
  • The milestone payment dates are clear

If you need to, get legal advice to ensure the contract is fair and impartial. Even small changes to contracts can cause large headaches – and have significant budget implications – down the line.

Ensure you have an adequate contingency fund

Even if you’re happy with the quote and your contract is rock-solid, you should always ensure essential you have a contingency fund that’s sufficient to accommodate any unexpected changes (such as sudden increases in material costs, alternative fixtures and fittings if there are stock issues with your chosen options, or additions/upgrades to the project).

A quality builder will advise you of any particular areas of risk; it may even be worth seeking to procure certain items or materials early in the build process to mitigate stock issues or price increases.

Talk to your builder!

Finally, a highly effective way of preventing budget blowouts is to talk to your builder frequently during the construction process. Establishing a good interpersonal relationship with your builder, and maintaining it for the duration of your renovation or build works, is essential to successful delivery of your home build or renovation project. It’s worth putting in the effort to speak with the builder regularly and develop a positive, professional rapport.

You should be comfortable speaking to your builder about progress, selections, must haves, wants or any of your worries or concerns at any time. In our experience, the key to a good builder-client relationship is establishing expectations from the initial meeting. You must communicate the expectations that you have of the builder; equally the builder must communicate their expectations of you. Expectations you should have of the builder might include the following:

  • The builder must communicate frequently using an agreed communication style; the communication must be maintained throughout the project.
  • The builder must keep you updated on the schedule and updates on the project, including on any issues which may have timeline or cost implications.
  • The builder must project manage the entire job, as this is what they have trained to do in their profession. It is not up to you to manage any of the building works.

Expectations the builder may have of you:

  • You must be quick to respond to selections and any other decisions about your home build.
  • You must communicate with the builder if you have any worries or concerns, or if the builder has done something wrong, so that the builder can respond appropriately and rectify any issues.

Setting these expectations from the outset of the project will form a solid foundation for a great relationship throughout the build – and ultimately avoid disputes, delays and budget blowouts.

Perway Construction Services is Perth’s most recommended and experienced custom home, renovation and extension builder. We’re here to help you navigate the building process and ensure your project is completed just as you envisage it. To experience Perway quality, get in touch today.