In our first mailbag episode, we answer four questions that come up all the time for homeowners who are trying to make smart decisions before starting a renovation or new build. We start with a question about whether a $300,000 renovation budget is realistic for a family hoping to update a kitchen, family room, and primary bath. We explain that there is no honest way to answer that without some level of professional input. A builder or architect needs real information before giving a meaningful number, and homeowners also need to understand that their total project budget is not the same as their construction budget. Fees, permits, furnishings, landscaping, financing, and hidden conditions all affect what is truly available for the work itself.
We then talk about who homeowners should hire first when they are deciding between renovation, addition, or building new. We make the case for talking to an architect first because that early conversation helps clarify priorities, explore options, and create a path forward before anyone is locked into a builder or delivery method. We also explain that architects are not just there to draw plans. We help homeowners think strategically, assemble the right team, and stay aligned with the goals of the project from the first conversation through construction.
From there, we take on the question of whether it makes more sense to renovate, add on, or move. We explain that many people assume they need more square footage- when the real issue is how their current home is being used. Sometimes the answer is a major renovation, but sometimes the better solution is reworking a few spaces, shifting furniture, or making targeted improvements. When a bigger change is needed, we talk through the factors that matter most, including neighborhood value, long term plans, emotional attachment, sustainability, and whether the house can realistically support the changes being considered.
We close with a question about contingency. For older homes, we recommend setting aside more because renovations reveal unknowns the moment demolition begins. Structural issues, outdated systems, water problems, and other hidden conditions are what usually consume contingency funds. The larger point is that contingency is not optional. It is part of responsible planning. Good projects do not avoid uncertainty by pretending it is not there. They account for it early so that homeowners can move through construction with less panic and better decisions.
(00:00) Intro
(00:48) Q1: Is our budget realistic?
(06:15) Construction budget vs total project budget
(09:03) Hidden costs, systems, and phasing
(13:07) Q2: Who do we hire first?
(16:01) Why architects serve as a third party
(23:41) Q3: Renovate, add on, or move?
(24:25) Identifying what the house is really missing
(28:07) When renovation makes sense financially
(31:16) Time horizon, resale value, and neighborhood limits
(41:41) Q4: How much contingency do we need?
(43:12) Recommended contingency for old homes
(46:01) Ways to reduce unknowns before construction
(52:57) Final thoughts and outro
Sheri Scott (00:00):
Hi, and welcome to Home: The Second Story. I'm Sheri Scott with Springhouse Architects in Cincinnati, Ohio.
Marilyn Moedinger (00:05):
And I'm Marilyn Moedinger, with Runcible Studios in Lancaster, Pennsylvania, and Boston, Massachusetts. And today, we're doing something a little bit different. We're excited for this new format.
We're doing what we're calling a mailbag episode. So, we're pulling some questions that we've received, and we're going to read those questions aloud, and we're going to answer them right here.
Sheri Scott (00:31):
Yeah, these will be good.
Marilyn Moedinger (00:33):
I'm excited because these are questions that we get all the time. And what I like about these questions is that they're specific to a certain scenario. So, we'll be able to be specific in what we're talking about. So, I think we should just dive in, right?
Sheri Scott (00:47):
Yeah, absolutely.
Marilyn Moedinger (00:48):
Alright. I love this first question because it hits on a lot of things that we hear all the time. Is our budget realistic?
Sheri Scott (00:58):
And I applaud them even for asking.
Marilyn Moedinger (01:01):
Well, yeah (laughs).
Sheri Scott (01:03):
A lot of times (laughs), it's not realistic, and they have no idea they should be asking this.
Marilyn Moedinger (01:07):
Yeah. So, already we're off to a good start. Okay.
So, this person says, “Hi, we're a family of four, and we've outgrown our house. We've been saving for a major renovation and think we can spend around $300,000. But once we started adding up kitchen, family room, addition, updating the primary bath, I'm worried we may be way off. We don't need the fanciest finishes, but we do want it to feel beautiful and well-designed. How do we know if our budget is realistic before getting too far down the road?”
Sheri Scott (01:39):
Great question.
Marilyn Moedinger (01:41):
This is such a good question.
Sheri Scott (01:43):
Yes. What I want to say to our listeners is there will always be some kind of investment to get to a real answer. Whether that's your time, a builder's time, our time, there's some kind of investment that you need to make to get an honest answer that you can literally take to the bank.
Marilyn Moedinger (02:06):
I agree. You cannot expect … so, whatever level of effort you put in to getting the answer to this question is the level of accuracy you're going to get back out.
So, if you ask a builder, “Hey, I want to do my kitchen, family room, and my primary bath, what will it cost?” The builder might say, “Well, anywhere from $200,000 to $800,000.”
Sheri Scott (02:29):
Yap. And he's right.
Marilyn Moedinger (02:30):
And he's right.
[Laughter]
A good builder will not give you a specific number until that builder has more information. That could be in the form of drawings or a written narrative. At the very least, coming to see your house, getting to know you a little bit, understanding what you mean. Because by the way, everybody says, “I don't want the fanciest finishes.”
Sheri Scott (02:55):
I wrote that down. When you read it, I was like, “Yep, fancy finishes.” I know. Everyone's, “We're simple. We can compromise.”
Marilyn Moedinger (03:03):
“We don't want the gold-plated whatever.” That's what everyone says. “I don't want the gold-plated whatever, but we want solid things that will last at a good price point.” And you know why that's a popular answer? Why everyone says it? Because it makes sense (laughs).
Sheri Scott (03:19):
It does make sense. It does. That's a great idea.
Marilyn Moedinger (03:23):
There's still a wide range. So, there's going to be an investment of time or some money to pay some professionals to talk through this stuff. So, that's one thing. The other thing I want to say about the number itself. So, they are specifically saying $300,000.
First of all, I also want to applaud them for saying a number. A lot of times, we are expected to give feedback on a budget without being told the budget. That's really hard. So, if someone says, “Well, I don't …” I'll say, “What's your budget?” And they say, “Well, I don't know. What does it cost?”
I'm like, “No, no, no, no, no. You have a dollar amount that you can spend because you've looked at your own finances. I need to know what we're talking about here.” And then second, about that number, $300,000, that changes drastically depending on where you are in the country and what's going on at the time.
So, at the time of us recording this, gas prices are going through the roof. So, that is impacting construction costs. By the time this airs or by the time anyone's listening to this in six months or a year or whatever, who knows what's going on?
So, that number, that $300,000, is very dependent on where you are in the country. And even like — so, I do a lot of work in the Boston area; that number would change depending on what block I'm on in the city of Boston.
Sheri Scott (04:53):
Interesting, yeah. It's not like that here in Ohio, but it does depend on timing. And there are some pocket neighborhoods that pay a tax for living in those neighborhoods.
Marilyn Moedinger (05:06):
The fancy tax?
Sheri Scott (05:07):
Fancy tax, yeah. And that's so unfair, but it's true. Also, with that number and lumping in, that's a pretty large renovation. And you're touching the most expensive areas in the house, the kitchen and the primary bath.
Because we don't know where they are or what their existing house looks like, what it's going to take to renovate, we don't know if $300,000 is a good number or not. But I would say that it's going to be up there because (chuckles) you are touching the kitchen and the bathroom. A family room addition is pretty inexpensive to do because you're not putting in any cabinets, plumbing, nothing. It's just a room; you've got carpet and drywall or hard wood floor, whatever you put in.
When you're talking about budget and is it realistic, look at the spaces that you're looking to renovate. Are they the most expensive spaces, or are they more simple?
Marilyn Moedinger (06:15):
Yeah, that's a great point, too. And I also think the other thing about that number is a classic misunderstanding between homeowners and industry people, like builders and architects and designers. So, when a homeowner says, “My budget is $300,000,” they are speaking about that as a project budget.
So, that's their all-in number. That includes the permit costs, the architect or designer fees, the survey costs, the financing costs, the furnishing, new furnishings that they want to do, all of that. So, that means that the number that they have for construction is actually a lot lower than $300,000.
So, a lot of times, I'll start off by saying, “Hey, is that your construction budget or your project budget? Is that your all-in number?” And then we do a little math problem, and we subtract out those other things.
Sheri Scott (07:12):
That's smart. That's really smart because there are so many other things that come in. One thing that catches people that I talk to a lot is if they're adding on a bedroom, then that's going to trigger the septic system.
Marilyn Moedinger (07:29):
Great point.
Sheri Scott (07:30):
And that's something that people don't — and that's a big number. That's a big number. Also, putting in an addition here, you're probably adding in HVAC, there's just so many things that go into that number.
Not to mention landscaping. Landscaping is never included in any number ever. And you get to the end of the project; you have no money, and then you're looking at a bunch of dirt and can't make it really feel homey and finished.
Marilyn Moedinger (07:58):
I think the other thing, too, that you touched on there that's important to bring out is HVAC and systems. So, when you're doing a more extensive renovation, like this one sounds like. So, we're doing an addition, kitchen, updating the bathroom.
That usually means that you're starting to impact systems. You're starting to impact plumbing, electrical, and HVAC. And in an older home, a lot of times, those systems might be due for an upgrade anyway. So, now you're saying, “Okay, well, I have to upgrade my electrical panel because we need a bigger HVAC system” or “because we're adding all this stuff.”
You don't want to do a renovation of all this stuff, and then have a terrible HVAC system that isn't comfortable or that you're going to need to replace in two years anyway. So, sometimes what happens is … well, I call it the “while you're at it” costs.
It's during a major renovation that that's the time to replace all the windows if they're 30-years-old and they're old, weird vinyl, and now it's time to do that. Or now is the time to replace the roof because it's in year 20 and it's a 25-year roof or whatever.
So, sometimes those additional things in the shopping cart that you weren't planning for, you weren't thinking about, eat up half the budget. But it's a really bad idea to not do it now, because do you really want to finish a major renovation and a year later, be tearing out your HVAC system or redoing the roof or whatever?
So, that $300k and that scope — so a lot of times what we're talking about with folks early is, “What is that scope?” So, the wish list scope is different than the, “Well, here are the things that you should do while you're doing all this other stuff.”
And maybe we actually phase the project in a way that's a little bit different than the homeowner sort of envisioned at first, or we actually delay the project a year so they can save up a little bit more or whatever, so that they can take care of.
So, then they have 400k for a project that now we're taking care of some of those other things. And now they don't have to touch the house for the next 15 years (laughs). That's an important investment as well.
Sheri Scott (10:23):
And some of the unknowns that you might encounter, you need to account for unknowns in a renovation, of course. And also, are you going to move out during the renovation? Are you going to have those costs associated as well?
I know we talked to one of the people that we interviewed for the podcast early on. They pretty much hit their budget in the actual renovation, but the renovation took six months longer. And they only had their place to move out to for that certain period of time.
And then the last six months, they were moving like every month because the builder was telling them, “Oh, well, we'll be done in six weeks, surely.” So, they signed a two-month lease, and then, “Nope, we're not done.” So, then they had to find something else because that was leased and just a disaster in terms of emotional (laughs) expenditure and money.
Marilyn Moedinger (11:22):
And I think that part of it is contingency. So, I think (spoiler alert), we have another question in our mailbag we're going to get to, hopefully, on that. But it is important to set aside.
So, if that 300k is your top-line number and that means you have no other money, that should not be the number that you — you need to set some of that aside.
Sheri Scott (11:46):
Yeah, that's not your construction budget.
Marilyn Moedinger (11:48):
That's right. To take care of some of those unknowns.
As we wrap up our answer for this question, I want to make sure that we're answering the actual question too, which is, “How do we know if our budget is realistic before we get too far down the road?”
So, we've talked about this before, about how to set costs, how to set budgets, how to talk about costs early. And I think it just boils down to, as usual, you need a good team. You need competent professionals around you who are giving you real information.
Sheri Scott (12:20):
Honest, yes.
Marilyn Moedinger (12:22):
Honest information, not just what you want to hear.
Sheri Scott (12:24):
Right. Not trying to get the job, but-
Marilyn Moedinger (12:27):
Yep. Not trying to lowball you. And how do you know if that person is giving you good advice? That's tough. So, we have other episodes where we talk about this, but it's basically you have to work with professionals who are trusted and vetted.
So, that means making sure that this person that you're working with, whether it's a designer, architect, builder, whatever, or some combination, have done good work for people in the past and are being honest with you.
So, that's how you find out if your budget is realistic. It is not on Google; it is not on AI. It isn't because there's too many little factors.
Sheri Scott (13:03):
Too many variables. Well, that leads us right into the second question.
Marilyn Moedinger (13:07):
Oh, perfect. Do you want to read it?
Sheri Scott (13:09):
Yeah: “Who do we hire first?” So, talking about the professionals, yeah.
“My husband and I know we want to either renovate extensively or possibly build new, but we feel stuck on the first step. Some friends say hire an architect first, others say talk to a builder first, and some recommend design-build. We don't want to waste time or money going in the wrong order.”
How should homeowners think about who to hire first? I love this question (laughs).
Marilyn Moedinger (13:39):
Great question.
Sheri Scott (13:40):
I'm pretty sure you and I are going to be on the same page.
Marilyn Moedinger (13:44):
Architects.
Sheri Scott (13:45):
Yes.
[Laughter]
Marilyn Moedinger (13:47):
And the reason we say that, and this is where for regular listeners already know that I used to be a general contractor. That's how I got started. I worked for a general contractor and estimator and project manager, build houses, all that kind of stuff. That's what I was before I was an architect.
And I would still say, talk to your architect first. The reason is the builder can give you lots of really useful information, but it's not very specific until you have some drawings (chuckles). And a good builder will say, “Well, sure, I can talk to you generally, but do you have drawings?” And if the answer is no, then the builder is like, “Well, I can't really give you specific information.”
Sheri Scott (14:28):
Yeah. There are so many reasons. One of them being that when you hire the architect first and design your home with someone, then you actually own those plans, that design. It's a whole copyright thing I'm not going to get into.
Marilyn Moedinger (14:50):
You don't own the design and the drawing, so that's complicated (laughs).
Sheri Scott (14:53):
Yes. But for purposes of this conversation, I will say you can take-
Marilyn Moedinger (14:59):
You are licensed to use those.
Sheri Scott (15:00):
You can take that design and talk to multiple builders. So, when you get it designed by an architect, designer, draftsman, whatever you choose – you can take those plans and talk to different builders. If you go to the builder first and your contract is through the builder, that design typically stays with that builder. So, you have zero opportunity to talk to multiple people.
Talk about starting off on the wrong foot; getting married to somebody in the very first step is insane. For you to commit to someone that is going to take you through the entire process, you have no idea what it's going to cost or how you're going to get along with them, seems crazy to me.
Marilyn Moedinger (16:01):
Yeah. I think the beauty of the architect's role that most people sort of don't understand or whatever. They haven't done a project, so they don't know. The beauty of the architect's role is we're a third party. So, we are not building the house. We are not … so, this answer is that … this person's asking about design-build as well.
And the situation you're describing is basically design build. As an architect, we are not committed to one builder. We're not committed to a set of- like, a production builder will only do certain details, only do certain designs, only use certain suppliers because that's where all their stuff comes from.
We are not that way. We can work with all kinds of different suppliers and all kinds of different details and all kinds of different things. And the architect also — so, during construction, if a dispute comes up or a question or tension or any of those things comes up, the architect is fully in the owner's court.
They're not building the house. So, I have (as an architect) no financial incentive to do certain things in construction that it's a gray area. And if you don't have that third party, it's just the owner and the builder.
And it's just the owner's word and the builder's word. And the builder's a lot more experienced than the owner. And good builders, by the way … I want to be really careful here because we love builders (chuckles) and builders are amazing.
Really good builders want that third party (chuckles). They want that person who's helping the homeowner through all these things, helping explain like, “This is why this is being invoiced now, this is why we have to buy the windows first. It's the first thing that we buy.”
“I know that sounds crazy, but they have the longest lead time, and we need to order them now.” And helping educate the owner through that process and helping them understand the process so that the builder can build. And that as a third party is a time-honored role for us to have.
Sheri Scott (18:15):
Yeah. And to start that way makes a lot of sense. Another reason why I think you start with an architect is because we can look at a lot of different options. We can help you look at the site. We can help you look at some of the other things that are going to come up during the process.
And all of that in the light of what you want to get out of the project of what your priorities are. Not necessarily, “Okay, let's get this done and get you in the ground.” But let's talk about it first. Let's figure out what your priorities are. Let's just take a minute and make sure that it's right.
And we do all of that as a preamble to the project, where I feel like — of course, there are builders that do all those things and assure their clients through a great project. There's no doubt.
But that really is our role; is to do all of the upfront stuff with you and then follow you through the entire project so that midway through the project, you're not telling somebody, “Oh, but we talked about this or we thought about this in the beginning, and it's not pulling all the way through.”
But that's part of our job too. So, if we're from the very beginning, we know all of the story. We know all of your things that you're wanting to accomplish, and we can help you through it all the way through.
So, when we're standing on the construction site and we're talking about roller shades, but we wanted it in a pocket, it's in the drawings. And it is a continuity all the way through instead of different people picking up different parts.
Marilyn Moedinger (20:11):
Exactly. I think that also goes towards the architects. So, I'm sure you've been through this too, Sheri, where someone calls you … this happens to me all the time. Someone will call in and say, “We want to do a project, blah, blah, blah.”
Great. We do a call with them or we meet them. And by the end of the call, I'm like, “We're not a good fit for you, or you don't need us, or here's a better way to do it.” Just because you're calling an architect doesn't mean that you're definitely working with that architect on this exact project.
I wish people would use this as a resource a little bit more and call us earlier. Not just when they want plans drawn up. You're already way too late to have — there's so much wisdom and so much help we could have been giving you well before that.
It's not just a service. It's not just a plans-drawing-up service. We're strategists. We've done this a million times. We've seen it a million different ways. And I also routinely talk myself right out of projects if I'm not the right fit.
My goal is just to help the person find the right combination of professionals or the way to get through a project. And a lot of times that's not me. That might be some other architect I know who has a better specialty in that.
Or it might be, “Hey, you should work directly with a builder. You've got a really clear situation. You're just doing the smaller project or you're just, whatever.” And I think that's also — people seem to want to just come to us when they know exactly what they want. And that means that that's really hard for people to do because we're there to help them figure it out. Right from the beginning.
Sheri Scott (22:01):
So, maybe instead of “Who do we hire first?” we should say “Who do you talk to first?”
Marilyn Moedinger (22:06):
And I think the answer is still the same. It's the architect who you talk to and who you hire. But your point there is really important. It's that you're not calling them to hire them right away. You're calling them to—
Sheri Scott (22:22):
Have a conversation.
Marilyn Moedinger (22:23):
Have a conversation.
Sheri Scott (22:24):
And I will say there are a lot of builders who, in the higher-end custom homes, they'll say, “Find an architect.” Or “Hey, I've worked with this architect.” They'll refer them to us. But they don't want to get in the middle before it's their turn (chuckles).
Marilyn Moedinger (22:43):
And it's a waste of their time. Yeah. It's a waste of their time. And the builders that I work with most frequently, if a homeowner calls them out of the blue, they'll take the call because they're good guys and whatever.
But if I call them and I say, “I have a project.” They're much more responsive because I've done 15 projects with them or whatever (laughs). So, that also is when you talk to the architect first; you're getting that conductor of the orchestra who's putting together the team that you might need.
Whether it's specific names of builders that are a good fit for you or, “This is the way you should progress through your project.” And I think we always wish that people would call us earlier and bring us into that.
When you're making decisions that are very expensive, like buying a lot or buying a home, bring us in because we can help you early.
Sheri Scott (23:37):
Yes. Well said. What's next, Marilyn?
Marilyn Moedinger (23:41):
I like this question about renovating, adding on, or moving. I think that dovetails really nicely with what we were just talking about. So, this person wants to know what they should do. So, we hear this all the time. This is good stuff.
Here's the question, “We love our neighborhood, our kids' school, and our lot, but our house just doesn't function well anymore. We're debating between a major renovation, adding square footage, or giving up and moving.” (Laughs).
“Emotionally, we want to stay, but financially, I'm not sure what makes sense.” How do you help clients think through whether it's smarter to renovate, add on, or move? So, that's exactly what we were just starting to talk about (laughs).
Sheri Scott (24:21):
Yeah. We get this a lot.
Marilyn Moedinger (24:22):
Well, step one, call us.
Sheri Scott (24:25):
Yeah. Starts with a conversation. “What are you missing?” That would be one of my first questions. So, you're in this house that you love. What are you missing in terms of architecture, in terms of structure, in terms of how you live your daily life?”
“What would you hope for? If you could scrape this house and start over, even on the same lot, what would you hope for? What would be the best outcome?”
Marilyn Moedinger (24:55):
I agree, and I think I would even be slightly more abstract than that and say, not, “What architecturally do you want to do?” but, “What activities are you currently unable to do properly in your house? What are your traffic jams? What is causing strife in your home?”
And what I've learned over the years is when I go visit someone in their home and we have this conversation and they're like, “Oh, we're fed up. We don't have enough space. We don't have enough storage.” That’s always one thing.
[Laughter]
“We don’t have a place that supports family life. So, the kids' toys are everywhere. We made the space in the basement for the kids. They never go down there. They only want to be in the living room, and all their toys are everywhere.”
And they're like, “We need to add on. We need to add on this thing. We need to do a renovation.” And 9 times out of 10, I can find a way to solve the problem that does not include an addition.
Sheri Scott (25:55):
Right. Because what rooms are they not using?
Marilyn Moedinger (25:57):
Exactly. Or what are they misusing? I have been on projects where I show up on that initial meeting and they're like, “We want to do a whole renovation, we want to do a whole addition, we want to do all this stuff.”
And I walk into the house and I'm like, “Guys, this is just about moving furniture around. If you just move the furniture from here to here and use this room differently and use this room. And maybe add a door here, maybe take a door out here …”
I'm talking, like, maybe you spend 10 grand on some new furniture and 10 grand on moving a wall or two. You do not need a half-million-dollar renovation. This house is big enough.
Sheri Scott (26:31):
Yeah, that's smart. That's great advice. Great. That's so helpful. And it goes back to the point, like we're not looking for a home run, huge project every single time we go talk to somebody. We're actually looking to help them.
Marilyn Moedinger (26:48):
Yeah. And if I can walk out of there and say, “Yeah, hire me to come by for a couple of afternoons and I'll help you decide where the furniture goes and rejigger a few things,” great. And we'll make a list of things that you can do.
Because everyone has their little laundry list of, “Well, life would be so much better if we had this light switch over here instead of over there.” Well, let's call the electrician. You don't need to add on to your house.
So, I start with that comment specifically because I think, as you said, people misunderstand that we're just going to be there to spend tons of their money and whatever. What good architectural professionals want to do is find the solution that works best for their client and their people.
And so, I actually offer these one-time consults, where I'll do it over Zoom, I'll do it in person, and I go and the goal is, “Let's figure that out.” And if I can leave there and say, “Great, you just paid me for an hour and a half of my time and you just saved half a million dollars,” great. Everybody is a winner.
[Laughter]
Sheri Scott (27:59):
Great investment. Great investment.
Marilyn Moedinger (28:01):
Because a lot of times the house works just fine with a few tweaks. It's just, people can't see it.
Sheri Scott (28:07):
Yeah. So, in the case that it doesn't and they do actually need to make a big change. And the question is, “How do you decide?” So, there's … and I think she also (she or he) said something about financially. Like, “How do we decide what is the best road to take?”
And again, like our first question, it's going to take some investment because you really do have to investigate a couple of different paths, I think, would be the smartest, the best way to cover all of your bases.
Like, “What are your options?” Let's find out what your options are. I think that most of the time, especially if you love your neighborhood, renovation, if it can be done and it makes sense economically, that's probably the best way. It's the most sustainable.
People go on and on and on about building new builds, sustainability. Well, the most sustainable building is the one that's already built. You're not doing more concrete. You have all of those materials already there.
Then we get to the financial question. And (chuckles) a lot of times the answer is, “I'm not sure yet.” I would say 100% adding on or renovating is dollar for dollar going to be more expensive than ground up new build. But there are so many things that play into that emotionally.
So, one of the things that we start with in my practice is after we sit down and find out what they're really missing, what they're really wanting, we oftentimes will do what we call a master plan. Which is not 100% figuring out absolutely everything, but it's finding out what's possible.
It's finding out just design iterations of, “How can we solve this problem in your current house?” And then after we get through the master plan, we have something to base some kind of price on. Because coming in and saying, “Well, this house doesn't really work …”
I can't say, “Well, if you invest $500,000, it's going to be awesome.” Until we design it and find out what awesome really is, and can we do it on this lot? And what are the constraints, and the setbacks, and all of the rules?
So, a lot of times, we’ll start with the master plan. So, we do that, we get through some money conversations. And then I think they would have enough information to at least make that decision. “Do we renovate, add on, or move?”
Marilyn Moedinger (31:16):
Yeah. And as you’ve said before, that’s an investment. In order to have information that’s that good, to make a multiple hundreds of thousands or even million-dollar decision, it’s worth spending a few thousand (chuckles).
And this is what I’m constantly … people are very short-sighted about this, and they are like, “Well, can you just do it for free?” Or “I don’t want to spend any money.” And I’m like, “You’re about to spend a ton of money. You’re making one of the biggest financial decisions that people make,” which is about their house.
And whether to buy new or renovate or whatever. It might take you a few dollars. It’s worth that investment to know that you’re making the right decision. I would also say that the renovation part — so, I want to underline what you said, “Renovation dollar for dollar is more expensive.”
But you could also spend fewer dollars overall than a new build. So, we got to figure that out. I think the other part of this is resale value. So, if you’re renovating, if you’re a bunch of money into a house, you want to be sure … you want to understand what your time horizon is.
So, if this house is the house that you’re going to be in for the next five or six years, then you want to be a little more conservative about how much money you’re putting into it. Because you don’t have a lot of time to recoup that or whatever. If this is your forever home and you’re going to be in here for 20 to 30 years, you have a lot more freedom to spend a lot more money.
If anyone tells you that they think they know exactly what the value of your house is going to be in 20 or 30 years, we don’t know what’s going to be happening in 20 or 30 years, but we can look back and say, “Over time, consistently, real estate and home values have appreciated.”
So, we can use that and say, “There’s no crystal ball, there’s no guarantees, but if you’re in a good neighborhood, in a good city, or a good town that holds its value, it’s probably going to continue to hold its value.”
And that honestly is the conversation that I have with my Boston clients all the time. So, people do things like buy a million-dollar house and put half a million into it, which on paper, you’re just like, “That’s insane.”
But these are neighborhoods that are extremely stable. They don’t go down in value. They often recoup that in appreciation in way less time than the 20 or 30-year time horizon. They often wish they would have done more. Because resale value isn’t about what you’re going to sell it for tomorrow if you’re holding on to it for 20 or 30 years (chuckles).
Sheri Scott (34:07):
Yeah, if you’re holding onto it. But there is a limit in most neighborhoods. I mean, the Boston example. But you can overbuild for your neighborhood.
Marilyn Moedinger (34:17):
Yes, you can.
Sheri Scott (34:19):
If you live in an Ohio suburb (laughs), for example, you certainly can overbuild and price yourself out of the neighborhood, and you will never get it back. However, it just depends on how you want to spend your money.
Because if you are staying there, if you're (and we could use Taylor in this conversation about aging in place) renovating this house to live there forever and age in place, and it is your last home, then do you really care?
You want what you want for the last third of your life. And maybe it doesn't matter. So, there are just so many things that come into this stage of life. Where you want to be, where you want your kids to be, if you have kids, school systems. Gosh, there's just so much that goes into location, location, location.
Marilyn Moedinger (35:15):
And that's the thing that can't change. It doesn't matter how awesome your house is – if it's in a location that you don't like, or it's in a location that doesn't support the lifestyle you want, with the schools that you want, or being close to your friends or the cool downtown area that you want to be close to or not because you want to be in the burbs or whatever.
Whatever your preferred lifestyle is, you have to choose the location based on that. And then the house comes after that generally. I think what I also want to say here is that this person is asking about, “Financially, I'm not sure what makes sense.”
And we are talking about financial things here. As architects, we are not financial planners. We're not advisors in that way. But we see a lot behind the scenes about how projects get financed, how people pay for projects, how people make these difficult financial decisions.
So, when I'm talking to my clients about that, that's kind of what I say. “Well, look, I'm not your financial planner. I'm not your money person who knows all the ins and outs of your finances. But what I can say are these are the advantages and the disadvantages that I see from my seat.” or “This is what I've seen other homeowners do and the decisions that they've made.”
But ultimately, I think there's also something kind of controversial tied up in this, which is that people see their home (which is a personal thing) as a financial investment. And so, you will always have this tension between — and this person is saying it.
“Emotionally, we want to stay. But financially, we don't know.” And so, it's very hard when you look at your primary residence as an investment vehicle. Then you're taking something super emotional (your primary residence), and you're turning it into something that should be strictly data-driven.
Your financial health and your financial picture, your investments. And I think that that tension is really hard to resolve. And I think understanding what that means as a couple or a family as you're trying to make those decisions. And you have to look at it in your overall picture.
But if your home is … if you're seeing it as strictly a financial investment, I think you're missing out on what the purpose of a home is (laughs). And at the same time, if you just make emotional decisions, you could get into trouble financially.
So, I think you have to look at both things. And the answer will not be the same for everyone. Which brings me back to what we always say, which is, “Bring us in early and we'll talk you through it.” We don't care.
I don't mean we don't care like, who cares? What I mean is we're not attached to one solution or another. What we want is to help you find what works best for you. That's what I mean.
Sheri Scott (38:20):
And I think there can be a process to it. And I think that if you talk to the right professional, they can walk you through that process. Like, “What is your budget? Have you figured all of the numbers out?” If you want to know what makes sense financially, you need to know your financials.
So, what would your budget be for renovation or addition? What would your budget be for a brand-new house? Because you may say, “I have $500,000 to renovate this house because I have equity in it and we can do this and that.”
But it may be a different financial picture to build a new house because of equity and what the neighborhood can hold and what you could sell it for versus holding it. So, you need to know your own budget before we can help you. Probably for both instances.
And then you need to find out what's possible. What's possible for your home, for your actual home? Not necessarily designing the whole thing, but what are the setbacks? What are the rules? What's your HOA say? Zoning, everything.
And if you want to build new, is there land available where you want to be? If you have kids in certain school district, there may not be land available. We have that problem around here. There's not enough developed land for people that want to do custom homes.
So, there is a process that you can move through. We have no idea to tell this person, “There's no clear cut. It's always better to build new. Don't renovate.” (chuckles) I would never say that. It all depends, obviously.
Marilyn Moedinger (40:01):
It all depends. And I think that's why having someone to usher you through those conversations … and in this situation, it's going to be several people. It's going to be sitting down with your financial planner, whoever, your advisor, if you have that person.
And if you don't, maybe it's a good opportunity to … maybe if you have an accountant, maybe they can recommend someone or have those conversations with someone who's looking at your unique situation. So, you can Google this and ask AI all you want, but those methods are not going to give you specific information to your specific situation, or at least as specific as a person who's kind of thinking through it with you.
So, I think as usual, it's about having those conversations with someone who can actually tell you things. And some of the things that you just brought up (like zoning, or what's possible on your lot, or is there land available) can mean that you can cross things off the list right away.
And you can say, “Well, actually, according to our goals and according to the reality of the situation, we actually can't renovate this house because of a bunch of zoning rules.” Or “We're in a historic district and so we couldn't do what we wanted to do anyway,” or whatever the case may be. Isn't it great to find out for a small investment up front – it's just not an option on the table?
Sheri Scott (41:28):
Right. It actually is a black and white answer sometimes.
Marilyn Moedinger (41:31):
Get to know faster (laughs).
Sheri Scott (41:33):
Yes, get to know fast. Yeah. Okay, you want to do one last question?
Marilyn Moedinger (41:39):
Yeah, let's do one more.
Sheri Scott (41:41):
Okay. This question is: “How much contingency do we need?” So, more of a kind of nuts-and-bolts numbers game. “We are the kind of people who like to plan everything. And the idea of surprise costs makes me nervous.” Good. It should make you nervous (laughs).
“We're considering a whole house renovation on an older home, and everyone keeps telling us to have a contingency, but no one says the same number. How much extra should we really have set aside, and what kinds of things usually eat into that contingency?”
Marilyn Moedinger (42:20):
Well, I feel like we should start by defining what contingency is. So, this person actually already knows a construction vocab word, “contingency.” So, I think probably most people understand, but just to define it, I call it the “Oh, crap money,” although I usually use a different word, but we're a family podcast.
[Laughter]
Marilyn Moedinger (42:42):
It's the oh crap fund. So, when something happens that was unplanned or that is a surprise, you need to have a bucket of money that you can pull from so that you don't have to stop the project or you don't have to change the project and delete parts of the project so that you can afford whatever.
So, that's a contingency. So, how much should it be? This is a good question. I give-
Sheri Scott (43:06):
(Laughs) I know. And it’s … go ahead.
Marilyn Moedinger (43:08):
(Laughs) I give a specific number. So, I can answer this pretty quickly.
Sheri Scott (43:11):
Go ahead.
Marilyn Moedinger (43:12):
We do a lot of renovations on really old homes, and I say, “Set aside 25 to 30% of the construction budget.
Sheri Scott (43:18):
That's higher than we say on new builds. But of course, we don’t have-
Marilyn Moedinger (43:21):
And that makes sense. Yeah.
Sheri Scott (43:22):
So many unknowns, yeah.
Marilyn Moedinger (43:24):
So, the reason I say that is because on old homes, I've seen it before a million times. We'll start getting into it. We have a great builder. Obviously, we have a great architect. We have a solid cost estimate, solid contract. Everybody's on board. Let's go.
During demo, we uncover a whole bunch of things. And the whole sill plate’s rotted out. We have to jack up the house. Well, that's 15 grand or whatever. Oh, we found this behind the walls or that behind the walls.
The good news is that if you have a contingency set aside, you can weather those things very easily. The other part of it is that your need for contingency goes down over the course of the project. So the scariest moment, the moment of most unknowns, is demo.
That's when you uncover everything in a renovation. And it's at that point that you should be able to nail down most of the unknowns because now you can see everything.
So, that's why we say such a high number because on old homes, we've had some major scary things that have been uncovered, but never a client who had to stop the project or something like that because everybody planned ahead.
Great. It goes into the furniture budget, or it goes back into savings or whatever. But rather have money left over at the end than have an issue like a rotted sill plate that's holding up the whole house that you can't replace because you didn't set aside some contingency.
Sheri Scott (45:04):
Yeah. Ours is much lower, 15 to 20, I would say.
Marilyn Moedinger (45:09):
For a new build, that makes sense.
Sheri Scott (45:11):
I do want to say it can (it all depends on your bank) be in your loan. You do not have to have that pot of money in your savings account. It can be in your loan. It's just a part of the calculation of the cost of construction.
Marilyn Moedinger (45:31):
And sometimes banks will require that. So, depending on your financing or whatever, the banks will either require that you have X amount of cash or that you are approved to have a loan that can cover that contingency. The bank also doesn't want you running out of money (laughs).
Sheri Scott (45:49):
Correct (laughs). That is right.
Marilyn Moedinger (45:51):
So, the bank is also very interested in making sure that you can complete this project in a way that leaves you financially solvent (laughs), right?
Sheri Scott (46:01):
Yeah. The other thing about contingency is that there are a lot of things that you can do to lessen your risk of unknowns. So, you should do all of those things. You should … in my instance, we always recommend to do soil samples.
Because sometimes, it is literally just having your builder go out there and dig a hole and look at it. Like, “What does it look like? Is it virgin soil? Does it fill up with water in 20 minutes?” There are simple things that you can do. Of course, you can do Geotech testing and all of that, which we also recommend in certain instances. But most of our things can be known except for the ground.
But there are still things that come up during construction that are unforeseen and/or errors and omissions, which we can get into some other time (chuckles), but-
Marilyn Moedinger (47:01):
Another topic, yep (laughs).
Sheri Scott (47:03):
There are things that come up that need to be paid for, and it's not fun money. It's not, “Oh, the thing that came up is I want this better tile in my kitchen.” We're really talking about a construction contingency.
Marilyn Moedinger (47:20):
Absolutely. Yeah, it could become fun money towards the end when all of the potential surprises are uncovered and we know that there's nothing else coming down the pike, but it is not beginning. It's not fun money.
I've done this with a couple of clients. Most people are a little too nervous to do this this way, but we've done it a couple times. Where we will design most of the project and then we get a price. We get a builder on board, so we know where we stand. But we don't finish the drawings until we do demo.
Sheri Scott (48:03):
Oh, interesting.
Marilyn Moedinger (48:04):
So, yeah, so we'll pull a demo permit; the contractor pulls a demo permit. And this is for gut renovations. This is for when we're gutting the whole house down to the studs inside and out. So, then they'll gut it, and then we finish the drawings.
Because the famous line is, “We can't see through walls, we don't know the answer until we demo.” Well, demo happens on day one. So, we actually say, “Well, let's wait to finish the drawings. Because now, if we finish the drawings after demo, we have all the answers.
So, we already know that we can't put the toilet there where we originally thought. So, we then will take that time after demo, map out everything, make sure everything works, and then the drawings reflect actual conditions instead of our inability to see through walls.
So, there's a little bit of risk there. And the risk is that you have a demoed house and we find something crazy, but that was a risk that was already going to happen.
Sheri Scott (49:05):
Right, exactly. Yeah, you're really mitigating a lot of that.
Marilyn Moedinger (49:09):
Yeah. And I think people get nervous about doing the demo before the design is completed.
Sheri Scott (49:16):
But you would have an idea.
Marilyn Moedinger (49:17):
Yeah, we're very far down the road. And then at that point, too, we know the real cost. So, then we can pull other cost levers and say, “You know what? Because we've done the demo, because we see what we're dealing with, the project is going to be $75,000 higher than we originally thought because of all these other issues.”
Well, now we can mitigate that by saying, “Okay, let's pick the less expensive tile. Let's dial back on finishing the whole basement and just get it basically ready. You can finish it later.” And we can pull that 75k back out of other things, and it won't feel like a scramble.
It will feel like a clear, calm — maybe not what we wanted, because we wanted all that stuff. But we can do it in a calm manner, not in the heat of battle during construction while everything's flying around. So, we've done that a few times.
I recommend it highly if you've got a good team and if you're up for ... it's a little bit more of a non-traditional approach, but I think it saves money.
Sheri Scott (50:20)
Interesting. I like that a lot. I can see where it lowers that fear. It lowers some of the anxiety. And it lowers the disappointment where if you design it all and you fall in love with exactly the design that you have, and then you open up the walls and you can't do what you wanted.
Regardless of how much it costs with the contingency. But there's an emotional cost to that too. To have to plan on that and then not get exactly what you were expecting and wanting. Another thing about expectations is, “Expect to spend that money.”
Don't have a contingency thinking, “We'll only spend it if there's a mistake or if there's something that goes wrong. Just plan on spending it. It's part of the construction cost. It's going to happen. And then if it doesn't, yay, we can celebrate (chuckles) that and spend it somewhere else. But it really should be treated as a construction cost.
Marilyn Moedinger (51:24):
I agree. And I think having that understanding up front means that it's the same thing about … what do they say? Under-promising and over-delivering. So, if you say this project's going to cost 100 grand and it costs 90, everyone's thrilled. If you say it's going to cost 75 and it costs 90, everyone's upset.
So, let's just have that contingency in place, that gives us that little bit of cushion. We're going to come in under that as … we're going to work as hard as we can to come in under that. But we also need to fix things like the sill plate rotted out under that.
To get back to the question, “How much should we set aside?” So, we've heard on new builds, it can be less because there's fewer unknowns and especially if you do soil testing and stuff like that, which I fully agree with.
And on a renovation, you want to set aside more because there's more unknowns and it's older and there's weird things that happen. And then what kinds of things usually eat into that contingency? I think we've talked through that.
It’s the unknowns. It's usually the unsexy things like high water table or (chuckles) foundation stuff or structural things or things like that that are not super fun. So, yeah, it's better to have something saved up to take care of that so that it doesn't ruin your whole financial picture.
Sheri Scott (52:48):
Right. Well, that was a downer to end on (laughs).
Marilyn Moedinger (52:53):
No, it's about good planning.
Sheri Scott (52:55):
Yes, it is about good planning.
Marilyn Moedinger (52:57):
So, this person saying that they like to plan everything and the idea of surprise costs makes me nervous. Well, it makes us nervous too. So, here's a way that you can handle that and it's easy-peasy. No stress.
So, how's that? Is that better? (laughs).
Sheri Scott (53:12):
That's better. Thank you. I feel better.
[Laughter]
Marilyn Moedinger (53:16):
Alright. Thanks for joining us on Home: The Second Story. If you'd like to come on the show and share your story, email us at admin@htsspodcast.com. We'd love to have you as a guest. Also, if you have questions you'd like to ask us in a mailbag episode, please send them along.
Be sure to rate and subscribe wherever you get podcasts and follow us on Instagram. We'll see you next time.
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