Calculating Renovation Costs Before Buying

Everyone’s dream is to buy a new house – even house-buying companies like us. But one of the things a lot of people don’t consider is the cost of renovation.

Everybody negotiates the cost of the property, deposits, and other terms and conditions, but often renovation costs are overlooked.

Many real estate agents actually don’t know construction costs, so they are not usually a great resource to ask. One of the challenges with remodels of new homes or existing homes is that contractors aren’t able to give an accurate price without a set of plans. That’s why a construction cost estimating service is so valuable in a real estate transaction because accurate costs are able to be provided.

Many times people purchase properties without considering what the construction will cost. For example, existing construction will require, at times, major structural renovations. For older properties, there may be asbestos or unsafe materials present.

Here are 4 strategies to determine renovation costs prior to buying:

Existing Conditions

The first thing one must do when purchasing a property is obtain a home inspection that will uncover unseen items. Home inspectors can use advanced tools to determine issues such as humidity in the house that can cause mold, unsafe structures that need repair, plumbing leaks, or excessive rust.

Have your home inspector provide you with an itemized report, which will help you negotiate the price down when negotiating your contract.

Often, an inspector can provide you with a budget for each of these items, although take these with a grain of salt because inspectors aren’t typically construction experts.

Major Renovation vs. Finishes Updates

Another major thing to consider that will affect renovation costs is whether you are considering just updating finishes or if you will be doing a major interior renovation, which includes interior partitions, drywall, and major selective demolition.

Typically, a finishes remodel includes demolition of existing floors, installation of new floors, possibly removing and replacing a kitchen, and repainting the interior. Sometimes you can reuse doors and maybe just repaint them, and for the exterior, you may just need to add a fresh coat of paint.

For major renovations, you will need to consider permits, structural plans, architectural fees, revisions, change orders, etc.

And you will likely have to hire a general contractor who will use subcontractors to perform the work, which typically inflates the price since you are paying for two companies’ overhead profits and supervision.

Level of Finishes

Everyone likes fancy and nice finishes. The more detailed, the easier it will be to sell a house later. But you can get extremely surprised at what the real costs of marble tile are, or what a fancy quartz stone might cost in your kitchen.

It’s important to remember that you can use “value engineering” strategies to reduce your construction costs while still maintaining the same level of finish.

For example, rather than getting imported Italian 2-inch-thick marble for your floor, you can typically get an identical or even imitation porcelain tile for about 20% of the cost.

For kitchen cabinets, there are different grades so you can pick the best one that your budget allows.

Costs

Here are some guidelines you can use when determining costs.

For major interior renovations, which include walls, ceilings, interior finishes, bathrooms, kitchen, etc., pricing will vary depending on the location in the country. The pricing will be approximately $75-$120/SF.

If you are doing a finishes update, which typically will include new floors, paint, a new kitchen, new bathroom finishes while maintaining all plumbing, structure, and electrical almost the same, you’re looking at about $50/SF.

And the way you determine what your cost would be is you grab your real estate documentation which discusses the square footage of your home, and you just use a budget cost per square foot above to determine what your renovation might be.

Again, these are rough guidelines, also known as rough order of magnitudes, but this will get you in the ballpark of knowing what your construction cost would be.

Conclusion

Finding a new property is an exciting time for anyone. It’s important to remember that one must look at all costs, not just the property cost. Construction costs can be dramatic if not taken into consideration.

By using some of the strategies and budgets above, you can determine what your “all-in” price could be.