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The Hidden Costs of a Major Renovation

Mar 17, 2020

I write this while sitting at the Brisbane airport terminal waiting for our replacement plane to fly south with my wife for a week of glorious solitude on a 200-acre property after a most successful Home Show.

The team had launched Your Building Planner to homeowners with resounding success.

The Brisbane Home Show gave us the opportunity to speak with and offer assistance to so many homeowners and renovators, it was inspiring knowing Your Building Planner is going to help so many people.

Sitting here waiting for take-off though, who would have thought that an engine fail prior to departure would remind me of ‘WHY’ we do what we do and ‘WHY’ we are so passionate about our messaging.

As passengers were forced to disembark and we all trundled back to the terminal (with fire engines in tow), the lady behind us said to her partner “This ranks with our reno”.

My wonderful wife and I naturally burst into laughter, and we then heard about why a major renovation can rate with an engine fire on an aircraft!

The first sign of trouble…..payments made, nothing done in over 3 months

This couple’s story is sadly typical of the renovation disasters we have heard about for many years at Your Building Planner.

A major renovation with a payment method that had the couple paying 6 payments without knowing really what for, but paid anyway because the workmanship was good and the renovation was moving quickly. I say ‘was’ because the brakes suddenly hit with little done in over 3 months up to now.

The original quoted allowances for the fixtures and fittings now subject to costly upgrades with a builders 20% further loading

Unfortunately, this couple faced the same harsh reality experienced by 70% of homeowners undertaking major renovations.

Allowances set by the builder through his supplier (for the bathrooms and kitchen) were not up to the couples’ expectations. They are now stressfully awaiting the price of upgrades without any clear indication of cost.

The hidden potential of cost blowout is that estimates or allowances can run out of your control and with most also attracting a 20% builders further loading. Ask yourself… ” would you sign up for a new car without knowing the final cost?”. If not then why should you in a building contract?

The builder hadn’t paid tradespeople for 3 months

The couple then went on to say that just last week the electrician finally arrived to do some work, and they were concerned to hear him say he wasn’t rushing to this job as he “hadn’t been paid for 3 months!

So the job has gone well over schedule, trades don’t appear to be paid to date, final costs are up in the air, with variations yet to be charged.

A bad business model

A no-win situation for anyone, starting not necessarily with bad builders, but probably a good builder under the bad business model that most builders work under.

The builder’s workmanship is great but obviously the way the business is run means that the homeowners have a complete lack of financial transparency and, unfortunately, an outcome destined to become a major dispute.

Tips For Homeowners Undertaking Major Home Renovations

With over 40 years experience in the building industry, the team at Your Building Planner know all too well the warning signs to look out for when undergoing a major renovation.

TIP 1 – SHOP FOR YOUR OWN FIXTURES & FITTINGS (CALLED “PRIME COST ALLOWANCES” or “PCs”)

Ensure you have a clear understanding of exactly what your fixtures and fittings are before signing the contract. In the rush to sign a contract this is constantly overlooked.

Under the Your Building Planner model shop for your own PCs during the Design Development Stage ensuring you have the time to choose the very best products for your project controlled by your budget, saving you a minimum of 20% without the builders supply margin.

Our Shopping List Program enables you to shop for your own fixtures and fittings, saving you over 20% and delivering the look you want!

BONUS TIP: Even better, negotiate with your builder to add “supply your own fixtures and fittings” to the contract. This may be resisted because under the current business model builders rely on margins and indeed markups on later variations for additional profit (just as happened to this couple!).

TIP 2 – ENSURE THERE ARE ACCURATE SCOPE OF WORKS FOR TRADES

Ensure there are accurate scopes of works documentation for each trade to ensure electrician, plumbers, tilers etc have a clear understanding of what’s included. This will avoid works being excluded (that you thought were included).

Due to the complexity of renovations, the importance of not just any plans but also concise scopes of works documentation (including what is being demolished) is so important.

Under Your Building Planner model during the Design Development Stage – concise Scope of Works documents are produced for each trade ensuring your requirements are properly documented, with each trade clearly understanding what is required from them, to be incorporated into the final contract.

TIP 3 – BEWARE THE ‘PROVISIONAL SUM’

In building contracts, you are given a total contract price.
Some homeowners may think this is all they will need to pay. However, contracts generally have two underlying contract amounts making up the total price. The two amounts are called “Provisional Sums” meaning that some of the works in the contract are only an estimate and can change, and “Prime Cost Allowances” which we’ve covered in TIP 1. So most contracts will have a total price of say:

Contract Price = $500,000 with Provisional Sum = $150,000 and Prime Cost Allowance = $100,000

Now you may think that all you will need to provide funding for is $500,000, but that is not necessarily true and in most cases definitely not true.

The only price guarantee is actually the Contract Price less the Provisional Sums and Price Cost Allowances meaning the guaranteed amount in the contract is only $250,000!

So not only do you need to ensure the Prime Cost Allowances meet your expectations as we mentioned before, but ensuring that the Provisional Sum allowances are fair and reasonable. We have seen in many cases that a builder may just allow say $5000 for the excavation and the true cost is much more than that, subjecting you right from the start to a massive cost blow out and to add salt to the wound, plus a 20% builders margin.

Unfortunately, many contract tenders include low Provisional Sum and PC allowances just to win the contract, knowing that the gap between the tender price and the real price will be needed to be covered by you, and not the builder.

Under the Your Building Planner model with complete transparency of all costs, and the time for accurate Scopes of Works for each trade, the actual Provisional Sums are restricted to truly unknowns. These unknowns may be not knowing exactly what the demolition may entail until walls are actually removed for example. And the best part is that you will not be subject to a builders loading of 20% on the cost (other than the direct cost of the time of dealing with any extra work by the builder) and certainly you will see the real cost through complete transparency.

TIP 4  – ASK FOR A BREAKDOWN OF COSTS

Seek from your builder a more detailed cost breakdown to support the payment claims he is asking for in the contract. Many homeowners such as the couple we chatted with, simply trusted that the payments truly reflected the actual work done. What this couple is potentially facing is that if the builder doesn’t complete for whatever reason, the QBCC Home Warranty Insurance that the builder is required to provide, to cover such as failing to complete the works, may not cover the actual cost to complete by another builder due to the homeowner paying more than what was done.

There is actually a requirement for homeowners by QBCC for them to ensure they don’t pay too much too soon. With the complexity of renovations and lack of transparency it’s a tough call on homeowners to ensure that, but try to ask your builder for a full detailed breakdown of all costs, to have better clarity of where your money is going.

I’m sure the couple we were chatting with would have had the electrician and all other trades keeping the job on time, if they knew they were being paid from them.

Once again, Your Building Planner eliminates this concern. The Joint Security Account ensures you, the homeowner, receive complete transparency by co-signing and authorising all payments.

Refer to our article on ‘Maintaining Control of Your Building Budget‘ for further information.

Your Building Planner – a SAFETY NET for Homeowners & Builders

The above scenario is unfortunately too common, and one of the many reasons why builders have long recognised a major change is required to their current business model.

Your Building Planner IS the change needed to deliver the outcomes both builders and homeowners deserve.

Your Building Planner is the safety net that delivers a transparent and simple and cost-saving process to enable homeowners to reach their successful project completion. This will become even more important now that homeowners will be able to access great buying as hot pricing from trades and suppliers come online during and after the COVID-19 event. But all this could be risked if you don’t carefully choose the right model and builder.

For more information on Your Building Planner or to get started, contact the team today!

 


Peter Woods, Founder

Peter Woods has over 40 years of experience in the Australian Building Industry.
Starting his Canberra based family design & construction business in 1974, Peter moved onto large building project consultancy and project management, becoming one of Australia’s most sought after building consultants.

A respected advisor for various government and NGO’s, Peter’s knowledge is the epicentre of Your Building Planner products and services.

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