Home remodeling during Covid-19—'expect it to cost 50% more and take 50% longer,' says finance expert

Bill Reitzel | Getty Images

So you're thinking about doing a major home renovation. You've been stuck indoors since the pandemic — and you plan to be for a while longer. So why not put some money into making it look nicer?

If you've never remodeled your home before, getting through the process can be a complete nightmare. I've been through four projects, and none of them were pleasant. But, after the first two, I finally wisened up to the game that some general contractors play to extract as much money from homeowners as possible.

Here's what I learned from all my painful, exhausting and costly experiences:

1. It will cost more than expected.

Competition is fierce, so a contractor might initially offer an attractive price just to beat out all the other bids. Their goal is to get you to sign the contract. Once you're locked in, they can upsell you with add-ons.

If you're already $100,000 deep and three months into bathroom and kitchen work, you probably won't balk at a $3,000 recessed lighting project. And since the walls are now open, what's another $2,000 for an electric car charger?

To protect your mental health, expect everything to cost 50% more and take 50% longer.

Also, as your contractor gets further into the project, he or she might point out "unforeseen" problems that require more work. The additional fees may be legit, but some unscrupulous contractors will often find excuses to jack up the price.

Don't rush into anything. Do your research, get multiple bids, and be willing to walk away. Be as detailed as possible when drawing up the contract regarding costs, time, materials and work.

2. It will take longer than expected.

Two classic lines you may hear from your contractor if they're lagging on time: "This project is costing me money." "I'm practically working for free."

The best way to make sure your contractor is honest about timing is to include a late fee agreement. Come up with a conservative finish date that you're both comfortable with.

The clause should state that for each day the contractor is late, there will be a credit or reduction in price. Not only will this protect your finances, it will significantly reduce all the stress you'll ultimately feel.

3. Don't let emotions get in the way.

Emotions are a homeowner's worst enemy. The more emotional you are around your contractor, the more they know they can take advantage of you.

Let's say you just bought your dream home. "We love it so much, and it's in the perfect location," you tell your contractor. You also let it slip that you overbid by $65,000. That's a lot. In such a scenario, your contractor might think: With the kind of money this couple has, what's the harm in charging an extra $10,000?

Keep things strictly business and leave your emotions at the door.

4. Spend within the scope of your property value.

A few years ago, my wife and I downsized to a less expensive home that needed some work.

One of the upgrades was building a deck in our master bedroom. We initially struggled with which sliding doors to choose, and at what price range. The low grade doors cost $8,000, with the middle grade around $15,000, and the high grade at about $25,000.

Before: Building a deck in the master bedroom
Sam Dogen

To make sure we were spending within the scope of the home value, we toured some open houses in the neighborhood, specifically the ones that went through a one-year renovation. 

After: A 300 square feet west-facing deck to help shelter-in-place
Sam Dogen

We stumbled across a three-bedroom, three-bathroom house with 1,800 square feet of living space. The property had middle grade sliding doors leading to the backyard. Since the listing price was comparable to the value of our home, we knew which sliding doors to use and how much to spend.

5. Always think in percentages.

Your renovation budget should be based on the percentage value of your property. If you end up overspending, you may never recoup costs, let alone make a return.

If your house is worth $1 million, for example, I highly suggest keeping the budget at most 10% of your home value ($100,000).

For those who are easily stressed by the renovation process, buying an already-remodeled may be the better option.

The final elements are timing and purpose. If economic conditions are right, the best time to list your property is as soon renovations are compete. That's when your home will look and smell the best.

If you're simply renovating your forever home to enjoy, then none of this really matters (until it does).

6. Beware of pricing discrimination by neighborhood.

Although input and labor costs are largely independent of your home's value, some contractors may charge more based on where you live.

A contractor I hired once confessed that if he ever did a project in the Pacific Heights neighborhood, he'd increase his price by "100% more" — just because it's in one of the most expensive areas in San Francisco. "Rich homeowners are more likely to accept higher charges because their homes have larger price buffers to absorb renovation costs," he told me.

A house priced at $1,500 per square feet, for example, has a much higher renovation buffer than a house that sells for $500 per square feet. 

Always go through the contract details with a fine-tooth comb and look for any unnecessary features your contractor may have added to inflate the price. Once the project has started, keep track of all the receipts and invoices to make sure you were charged the correct amount.

7. Lower your expectations.

Unfortunately, no matter how optimistic you are about home remodeling, you'll likely have a miserable experience.

To protect your mental health, expect everything to cost 50% more and take 50% longer — especially during a pandemic, when home remodeling is booming. If the project beats your expectations, you'll feel great. If not, your expectations have been set.

For those who are easily stressed by the process, buying an already-remodeled home may be the better option. The older (and wealthier) you get, the less you'll want to spend time and money on renovations. Instead of building sweat equity, you could consider building passive real estate equity through crowdfunding.

Good luck with your home remodeling project. May you come out on the other side with all your relationships intact and the home of your dreams!

Sam Dogen worked in investment banking for 13 years before starting Financial Samurai, a personal finance website. He has been featured in Forbes, The Wall Street Journal, The Chicago Tribune and The L.A.Times. Sign up for his free weekly newsletter here.

Don't miss:

Millionaire: Your home is NOT an asset — it could be a trap
Millionaire: Your home is NOT an asset — it could be a trap