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With Remodeling Comes Financial Risk: How to Minimize It

minimize financial risks when remodelingRemodeling can be an exciting prospect—you are creating the exact look you have always wanted for a particular area of the home. But, it can also be a very stressful process. You worry about picking a good contractor who will do the job well. It can be disruptive to your home life. You are spending a lot of money, and managing the financial aspect of the project, is a top-priority. Here are some tips for keeping spending under control and minimizing any money-related risks inherent in remodeling.

Mistakes equal more money. While you can’t bulletproof a remodel against anything going wrong, nor can you anticipate every problem that may arise, carefully planning your remodel can go a long way in protecting you, and your bank account. This applies no matter what the project may be, whether it involves that second story addition you’ve been dreaming about or remodeling your downstairs bathroom. The more specific you are in what you want, and the scope of the project, the better you will be able to manage it. You will have clear markers to define progress, and whether things are going as planned. The scope of the work must be very detailed.

A fixed price contract is a better alternative than one that operates on a ‘cost plus’ or ‘time and materials’ model. These types of contracts, and their somewhat ‘open-ended’ nature, are more likely to lead to disputes. While this type of contract will protect your wallet a bit better if something goes wrong, the primary benefit is giving the contractor a better position from which to handle risks should something not go as planned.

While homeowners get the jitters from stories about contractors taking off with their money, contractors may also have similar fears about clients not paying them. Assuring this will not be the case for you may boost their motivation a bit. Showing proof of funds can be a good way to start the relationship.

Construct a payment plan that works for your project, and makes sense. As the project moves along, the contractor will be paid at a set schedule for work completed. When it comes to the down payment, you may read a lot about never putting down more than X percent to start, but this is not always the best way to go about it. If the cost of materials, for example, is the bulk of the cost, it makes sense for the contractor to request enough to buy at least most of what is required before starting.

Write up a specific schedule of tasks required of the project, and the agreed upon cost. Pay the contractor as each task is completed. If he asks for the money beforehand, for whatever reason, be firm on sticking to the original plan. You may be looking at the big picture, but instead try to look at the project as a series of small jobs that need to be completed, and since this is what the project is, paying in this fashion makes sense.

Keep on top of change orders. They can often be a source of conflict because you may question whether it falls inside the scope of work that was defined at the outset of the project. And the reason they are a source of conflict? It typically means you have to spend more money.This is why getting as specific as possible with the scope of the project and ensuring you are executing and receiving exactly what you want. The clearer you are, the better you will be able to ‘argue’ against change orders with which you don’t agree.

Do not give the final portion of payment until everything on the list is done to your satisfaction; it is commonly recommended to withhold a small percentage, but it may not be enough to get the contractor back to fix any problems you discover. This is especially true if this small percentage was already worked into the budget.

Don’t pay cash. Cash payment often mean no paperwork, no accountability, and big problems if something goes wrong.


Image: Freedigitalphotos.net/stock


About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.

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