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How to Financially Prepare for a Home Remodeling Project

Construction Money and preparing for a home remodeling project Image

Undertaking a home remodeling project can be a very stressful undertaking, as every contractor and company handles their finances differently. Understanding how to navigate the ambiguity of contracts, financing, and holding your contractor accountable to scope, schedule, and budget is key to project success.

The basics

Contract law is an ambiguous craft and every contractor, lawyer, and handyman has their interpretation of the law that governs the contractor and homeowner agreement. In Colorado, the rules and guidelines are just as ambiguous. The important point to keep in mind is that product supply and labor contracts are handled differently. Down-payments and payment schedules, along with the format of the agreement, are open to interpretation. This, however, doesn’t mean that there isn’t a right way to handle these concerns. Let’s start with a couple of important points.

  • A contract must exist for supplies as these are treated differently than standard construction contracts (this is why most contractors require money down to begin work). If a contractor orders product without an agreement, they can be out of that money after a home remodeling project is terminated without a way to recoup costs.
  • Contracts under one year in duration are enforceable through a standard signed proposal or estimate agreement and do not require full, lawyer-vetted contracts. Money, however, needs to change hands to be enforceable.
  • This is not law but common sense. You should always have a downpayment requirement to make sure the homeowner is serious about the project and to cover product cost. This amount varies, but it should not be excessive, thereby removing the accountability that exists for earning a paycheck for work complete vs. expected work

Further Reading: https://www.hollandhart.com/files/COLawSubcontractMaterial.pdf

How we handle the process

At Vigeo, we make an intentional effort to balance the needs of our business against the accountability that should exist between both parties in an agreement. This means we ask our clients to put their best foot forward and, in return, we reciprocate, ensuring we are all on-board for this adventure together. This is what you should be looking for in a contractor – the ability to find a win-win solution that incentives both parties to put forth their best effort. Here is what we require and offer to our homeowners to begin a home remodeling project:

  • A signed proposal and 50% down. This covers the material cost, limiting our business liability, and allows us to use our trade accounts and volume discount to plan ahead and make sure everything is ordered and on-site for the project.
  • Invoicing occurs at the end of the week for work completed, keeping both parties up-to-date on spend and holding us accountable for continued progress.
  • We bill what it costs us to do the project. If we find a way to make it cheaper for you or to increase ROI for the same amount of spend, we will.
  • We buffer our proposals by 3-4% percent to account for the unknown in the home remodeling process. We do this to ensure we don’t have to come back and ask for more money to complete work unless there are major unexpected repairs required to pass code requirements.

Here is what you get in return:

  • A reserved, first-come, first-serve spot in our schedule with a dedicated remodeling team who will not leave your project until it’s complete. This is a pride point for us. 99% of our clients will ask us to do more work for them in their house before we leave, reinforcing our business model and homeowner expectations
  • A customer portal that allows you to stay completely up-to-date on spend vs budget. You have the ability to see daily logs on progress, pay invoices, make product selections, and share progress with your friends and family
  • Full visibility into expenses and cost vs budget
  • An agreement in writing that the budget will not be exceeded without prior written permission

What to be aware of

Be wary of contractors who don’t seem to have your best interests in mind. If you’re presented with a proposal that requires you to give everything but doesn’t require the contractor to meet any obligation, this isn’t a mutual agreement but a predatory tool to take advantage of you. 30-50% down-payment is an industry expectation. There are too many contractors that have been burned by homeowners and even more homeowners that have been burned by dishonest contractors. Anything over this amount should be deemed unacceptable as the contractor doesn’t have your best interest at heart.

Always ensure your contractor is bonded, licensed, and insured in your municipality and that those records are on-file with that said municipality. Also ensure that the contractor is pulling the necessary permits. If you have a question about a contractor’s stance on whether there should be permits or not, call your city/county/state building permit office and verify what they tell you.

Financial Preparedness

From the text above, you can see that a project can be a fairly large financial burden for you. There are tools to help afford these projects but never overstretch your investment funds.

At Vigeo, we offer our clients the ability to finance the labor portion of their remodeling project (approx. 40-60% of the total contract value) but this option is not available on the down-payment. We do this to ensure our clients are not over-stretching themselves with their project and to ensure all product cost is covered and not financed by our team. In other words, approximately 30-40% of the total contract value is available for in-house financing using monthly payments over a period of time. This does require passing a credit check and can result in a lien against your home for non-payment. It’s best to verify all terms before entering into any financial contract.

Other options include leveraging your home’s equity to continue improvements. This can be a little more difficult than using cash on-hand in your bank account. If you decide to partner with a company like Vigeo that uses a customer portal for progress reports, this process is a bit more streamlined, especially if the financing officer is given access to spend and progress through their own unique login information.

The bottom line

Don’t overstretch yourself. It’s always better to save and to spend the money when you have it then to overstretch your finances and risk foreclosure or a lien. Construction and home remodeling is ALWAYS more expensive than you realize, so be prepared for the unexpected.

4 Comments

  1. The Homeowner General Contractor

    […] This post points out some of the leading considerations on whether you want to GC your next home renovation project or not. If you feel comfortable with the information above, then go for it! DIY home remodeling and renovation is an exciting and rewarding experience. If you’re uncomfortable with managing the aspects of the job required to complete a large project, shop around for a GC that is client focused, not easily upset, and gets your vision for your home. In the long-run, you’ll be grateful for that relationship and for knowing you’re getting the best outcome you can get. If you are interested in hiring a professional for your next home remodeling project, learn how you can financially prepare here https://vigeoconstruction.com/financing-home-remodeling-projects/. […]

  2. […] I think, in the end, I’m 50-50 on DIY vs hiring someone. I certainly didn’t save huge amounts of money, but money wasn’t the driving force behind my motivation to do the project to begin with. I also did not save any time, but during COVID, time is something I had a lot of. So if your determination to succeed no matter the cost to yourself is there, and you have time, maybe a DIY solution works for you. If you are leaning towards hiring a contractor but need to learn the basics and how to financially prepare, check out Vigeo’s process here https://vigeoconstruction.com/financing-home-remodeling-projects/. […]

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