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Home Money Pits: Protect Yourself from Unexpected Expenses

Alexandra Macqueen, CFP

When major household repairs and projects go awry, the unexpected costs can place a tremendous strain on your home life. Here’s an overview of the most common ways in which these costs can spin out of control, and a guide to using a project management approach to help keep headaches to a minimum.

The Many Faces of Potential Money Pits: Know Your Foe

Unexpected home repair and renovation expenses can arise whether you’re a current owner or a new home buyer, and whether your home is new or older. The cost of house repairs, retrofits and renovations can grow when basic upkeep is ignored, if a house is purchased with unforeseen or unanticipated problems, and during home renovations generally. Costly home repairs can also arise suddenly, such as a tree falling onto your roof, or an unexpected flood. Although the costs of these kinds of disasters are typically covered by your home insurance, you’ll still be dealing with the repairs as they take place. We’ll address each of these situations in turn.

Maintaining a Good State of Repair

The plot of the popular 1986 movie “The Money Pit” revolves around the challenges for a couple (played by Tom Hanks and Shelly Long) in renovating a home that has been allowed to gradually fall into a state of disrepair until it’s falling down.

Homeowners are commonly advised to maintain their home in a state of good repair using an annual allocated reserve of up to one to three percent of the home’s valueThis particular amount may not be called for in any given year, but repairs, maintenance and other proactive work need to be planned for financially (see our list below). A single large product purchase such as roofing can consume many years’ worth of the annual allocated reserve.

Avoiding Unexpected Expenses when Purchasing a Home

Sometimes when you purchase a home, it appears to be in move-in condition. How do you make sure you aren’t surprised by unanticipated costs and repairs?

Home inspections are key, and may be required by your insurance company in order for you to obtain homeowner’s insurance coverage. (Keep in mind that your insurance company may undertake their own inspection in addition to any inspection you have carried out as the owner.) With an older home, previous work and upkeep on the property might not be to a standard that people today would agree is acceptable. The most common renovation projects for older homes include upgrades like improved electrical systems, better insulation, climate control (such as air conditioning) and window replacement, and overhaul or brightening of prime spaces such as the kitchen or bath.

The Biggest House Repair Budget-Busters

No matter the age of your home and whether it is newly yours or you are a long-time owner, the renovation and repair projects with the greatest chance of exceeding a planned budget include roofs, plumbing, electrical systems, asbestos remediation, and basement jobs.

Replacing a roof: Industry standards for house toppers vary between 10 to 25 years, but even a single harsh weather season can raise issues. The materials used for roofing are subjected to the full range of weather conditions: harsh heat, extreme cold, hail, severe winds and heavy rain. Many roof systems are tar-based, and tar can soften in high heat and become brittle during colder weather, both of which will weaken its ability to hold your roof in place –meaning that during high winds, shingles can crack or even blow off, leaving you with a repair job. Note that not just the roofing materials, but the trim and eaves also need to withstand wildlife nibbling around the edges, trying to gain access to dry and comfortable spaces.

One theme you’ll note in renovation and repair is that water can be the enemy. Given sufficient time and volume, water can warp, degrade or render useless much of the materials or structure of a home. To avoid costly repairs, homeowners need to keep a very steady eye on water and where it goes.

Plumbing Problems: Imagine that you want to install a new sink, a new toilet or new shower fixtures. Perhaps they’re showing wear, or there’s a new water-saving feature. Once the piece is removed, suddenly the state of the invisible systems of your home can come into view. At that point, you should be able to see any pre-existing damage, or issues that should be remedied before they become severe. These might include water leakage, previous repairs completed in non-expert ways, or even structural damage that indicates a compromised structure (such as long-term, previously-hidden water damage to an exterior wall).

This type of situation could trigger a budget hit. For example, say you’re replacing a new shower head, and you realize the shower wall has a bit of give, and needs replacing. You’ll need to replace soaked insulation and drywall in the shower stall, and rebuild with a proper moisture barrier. That costs significantly more than just a new nozzle. Having a repair reserve eases the pain of such discoveries.

Electrical Systems: Electrical supply and switching systems usually function unattended with little need for maintenance. But modifications can reveal surprises that may have considerable costs attached.

For example, older electrical systems may use aluminum wiring. When aluminum wiring was first used in homes, it was prized for its relative low cost and the ability to use modern connectors with no messy solder. These desirable characteristics, however, have been overshadowed by the realization that aluminum is brittle and can develop cracks, creating potential fire hazards in places it is very difficult or even impossible to access.

An even older system, dating back to the first electrification of homes, is called knob and tube”wiring. In principle, knob and tube wiring can be safe in a house, so long the materials remain in good repair. In practice, however, often generations of homeowners have taken it on themselves to DIY repairs and modifications to knob and tube systems, sometimes splicing onto newer wiring for the proliferation of electrical gadgets that didn’t exist when the homes were built.

Addressing Asbestos: Another source of potentially large home repair bills is the cost to resolve issues associated with asbestos – an effective insulating material that was later determined to be a health threat worldwide for lung damage. From the 1940s to the 1970s, asbestos was commonly used in a variety of household applications, from insulation to floor tiles to roofing. So if a part of your house (such as a wall or ceiling) is opened up and asbestos is discovered, hazardous-material removal could eat up your maintenance budget for years to come. Whether you discover asbestos during a home renovation project is largely a function of your home’s age, but if you encounter this material, you may want to have a professional check it out to provide expert guidance.

Living with Lead: Another issue that homeowners may want to address is the use of lead in household applications, typically in the form of lead pipes delivering water and lead in paint used in a house. If you’re concerned about the presence of lead in drinking water, as with asbestos you may want to seek professional input. Lead pipes in a home can be replaced with more modern materials including copper and, more frequently, plastic piping.

In an older home (built prior to 1978), paint jobs may have used lead-based paint; and if you’re disturbing a painted surface, you may expose family members to lead as that paint chips, flakes or is removed. The Environmental Protection Agency has issued guidelines which can help homeowners decide how to scan for and address any concerns about household lead exposure.

Basement Rebuilds: Digging out a basement to lower the floor is one project people consider to create additional usable room in an existing house. Sometimes a sealing of the foundation from inside or out is accomplished at the same time. Both are major tasks, especially compared to a basement refinishing job, which is largely decorative as it principally addresses finishes, not the overall structure of your dwelling.

Major work of this nature should never be undertaken without engineering sign-off and any required government permits. Foundations support the structure of the entire home, and any sloppiness or problems could have a negative impact on the entire house, or neighboring homes. For example, if you are digging a basement deeper and proper care is not taken, this can cause adjacent houses to settle such that floors slope and doors no longer close properly. You’ll want to ensure your home insurance policy will fully cover you in the event of a high-cost mishap, so it pays to have work properly planned, inspected and built to code.

The Home Owner as Project Manager

When you decide to take on a renovation project or repairs for your own home, it’s a little like taking on a short-term, part-time job as a project manager. The good news is that common sense, more than specialized skills, is mostly what’s required to fulfill the role.

Project management is usually made up of the following six steps:

  1. Research
  2. Planning
  3. Determining costs and timelines
  4. Overseeing work
  5. Determining if any revisions can be accommodated, as necessary
  6. Controlling costs and timelines

Step 1: Research

In this phase, you can benefit from gathering the wealth of knowledge accumulated by the people you already know, such as friends and neighbors who have similar houses or have completed similar projects, and those you’re considering working with. Take care to ask lots of questions about your project, so that you can develop a clear picture about what is reasonable (and unreasonable) to expect for your project and budget. The questions you might ask include: what went well with your renovation project, and what went wrong? How long did your project take, and was it longer than you expected? Did your project come in under your budget, or did it cost more than you planned?

For a large job — one that involves more than one room, modifying a whole-house system (such as the roof, plumbing or electrical systems), or involves changes to the overall structure of the house (such as changes to a load-bearing wall) — getting opinions from outside professional help, such as an architect, interior designer or engineer, may be a good idea. These experienced professionals can confirm a good idea, or caution against a risky plan based on their depth of experience.

Step 2: Planning

Once you’ve researched the scope of your intended project, you can start to develop a detailed plan that will underpin the actual work. Each home renovation project has phases, requirements, timing, people, materials, possibly permits, and certainly dollars – and the more you can break down a project into smaller planning steps, the better you are able to manage it. This planning phase epitomizes a project management mindset, as it is the process of breaking down the intended task into many small steps that will allow you to effectively manage the project and meet your intended outcomes.

In this phase, it can be helpful to specify each step, layout the timeline, and detail the expenses and dependencies (which tasks must be completed before others can start) as closely as possible for cost and time. Consider documenting your plans in a spreadsheet that you can update as you go. For each task, your spreadsheet can set out the timeline, the responsible party, the budget, and any dependencies which will show how the overall project timeline shifts if one task is not completed on schedule.

Step 3: Determining Costs and Timelines

After you’ve gathered the details about what’s necessary for your project, you can develop a strategy for costs and timing. For project costs, you will want to estimate the two main components for each task: materials and labor. To develop those estimates, you’ll need to research the costs involved for each component, by choosing materials and verifying their cost, and asking tradespeople for time and labor quotes, including hourly rates. Keep in mind that your plan is highly likely to change as your project is executed – but planning in advance can help you avoid unnecessary overlap and costly gaps in preparation.

Step 4: Overseeing Work

Now that you have your plan that specifies the actual work to be undertaken complete, together with the project timelines and cost estimates, the next step is to find the people who will do the work. If this is a do-it-yourself project, you’ll be the point person, but for larger projects, you’ll want to engage with a contractor or contractors for this part.

With larger projects, you’ll usually have a general contractor who oversees the overall project, as well as supervises labor and trades. As the overall project manager (and home owner), you’ll want regular reporting from the general contractor on progress and how it matches the plan. Before starting the work, it’s useful to develop an agreement with your general contractor about how communication and reporting will take place. For example, are they available via email or text, or is voice-only communication the best solution? Are they available in an emergency, or do they have a service standard for returning calls?

Alternately, you might act as your own general contractor, overseeing different specialists who carry out parts of the plan. Whether you hire an outsider or take this job on yourself will depend on your own confidence in your ability to understand and manage all phases of a project of this nature, and your availability and willingness to undertake the required tasks.

Step 5: Accommodating Revisions

In many projects, revisions will be required based on numerous factors such as unanticipated delays in the availability of labor or materials, unexpected costs for work or supplies, or tasks that take longer to achieve or require alterations from the original plan. Unexpected costs may arise if, for example, a specified material is unavailable or unsuitable, or has higher-than-planned delivery costs — or perhaps you simply need more of the material than foreseen. Project timelines may go off-course due to weather delays, a shortage of labor, a delay in obtaining required permits or a requirement to obtain more or different permits than expected.

When revisions occur, if you’re working with an outside contractor, you’ll want to ensure a good line of communication concerning changes. This can help ensure there is always agreement and sign-off if the change has a significant impact to the contract, whether it is to the time or overall budget. Again, the need for good communication underscores the benefit of developing an agreement about how reporting will take place in advance of the project kickoff.

Step 6: Controlling Costs and Timeline

If you are successful in implementing steps one through five, step six will be well under control. Conversely, if you forego any of the preceding steps, it can be very difficult to accomplish the goal of controlling costs and the timeline for your project.

It is unusual for a project to unfold exactly as set out in the project plan, no matter how experienced all of the involved parties might be: there are simply too many factors and random variables that can influence the progress of even a seemingly simple project. Step 6, controlling costs and timeline, is perhaps best understood as the overall goal of successful project management. If your project deviates from its plan, as is likely, you will need to take steps to control the cost and timeline of the project as it unfolds. Practically speaking, this means returning all the way to Step 1 and implementing each of the steps, but applying them to your revised project, not the original project plan.

Use Project Management Steps to Increase Chances of Success

When you’re planning a major project, whether replacing or updating key features of your home or responding to weather disasters, it’s easy for your careful plans to fall by the wayside. But how do you keep your head on your shoulders when your plan is veering off course? Following the steps for effective project management can help ensure you keep your wits about you — and that your project doesn’t turn your place into a money pit, and instead elevates it to a home sweet home.

READ MORE: The Ultimate Guide to Home Maintenance and Safety

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