Think of finally getting started on your kitchen remodel after months of planning. Everything is going as expected, and all is well until the contractor starts demolishing walls and uncovers some old wiring, old water damage, or plumbing that has been giving up on life for years. Now you suddenly find yourself faced with thousands of unexpected costs. This is precisely the type of situation where you need a remodeling contingency.

This is one of those terms that homeowners tend to hear once but never really understand until they absolutely have to know. Here’s a brief rundown of what it means, how much money you need to allocate, and why not having one is the worst thing you could possibly do.

So What Is It, Exactly?

The remodeling contingency is just a certain sum of money allocated for anything that may go wrong. It has nothing to do with your design budget, nor will it cover your chosen nice items such as the tile, cabinets, or light fixtures. This is your safety cushion, which is working behind the scenes to take care of any surprises.

This is like having an emergency fund but for your home rather than your car. It would be great if you never needed to use it. However, once something happens, you will be grateful to have it.

Why Renovations Rarely Go Exactly as Planned

Here is the plain and simple truth: virtually any remodeling project will run into at least one unexpected obstacle along the way. That doesn’t mean that your contractor is incompetent or that you made some mistake. It simply means that this is how remodeling goes, particularly in old buildings.

• Hidden problems. Plaster and hardwood floors conceal a lot. Once they get removed, it will become apparent that there is decay, mold, or broken piping.
• Building code updates. The existing structure may no longer be compliant with current building standards, and changes will be required.
• Changes in the design. Once you actually see the space open up, you will realize that you need to make some alterations. It’s perfectly natural, but there’s an additional fee for it.
• Delays in supplies and increases in prices. The supply chains may have been disrupted, and prices will fluctuate. A quote received three months ago will no longer be valid.

All of those things happen all the time. In fact, they are much more common than not.

How Much Should You Set Aside?

Ask ten contractors, and they’ll give you somewhat differing figures, but there are certain numbers that everyone in the field agrees on.

• A cosmetic touch-up (repainting, new fixtures): 10%
• Moderate remodel (kitchen or bathroom): 15%
• Structural or extensive work: 20%
• Older or historical property: 20%+

What’s important to note here is that the cushion comes on top of the figures. A good remodeling budget is not simply an aggregation of all of your estimates. It is all of your estimates plus a cushion you’ve deliberately allocated.

Contingency Money is Not Spending Money

That’s when many people get into trouble. They look at the additional funds available and start to think about what nice things they can do with them. Do your best to avoid doing that.

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Contingency is not “additional budget for better stuff.” As soon as you use it for purchasing a better stove or installing marble, it ceases to be a reserve fund, and just another cost element starts to appear on the list. Leave it alone. If the project is completed without using this amount, it will be fine; you’ll still have some money left for yourself.

The Two Kinds of Contingency

Before you sign anything, it helps to know there are actually two cushions in play.

• Contractor’s contingency. This is baked into your quote and covers the builder’s own risk. It is their buffer, not yours.
• Owner’s contingency. This is the one that belongs to you. It covers the surprises that land on your side of the table.

Being clear about which is which can save you a very awkward conversation later.

What Happens If You Skip It?

There is no money saved when skipping remodeling contingency because it merely shifts the burden to a time when you are less equipped to deal with the problem.

• Compromises. Midway through the project, you find yourself compromising on materials, which you will be unhappy about each time you enter the room.
• Additional debt. This includes using credit cards, taking out a loan, or even raiding the savings that you had put aside for other purposes.
• Delays. Construction could stall if you are unable to afford the next phase of the project.
• Tension. Arguments regarding money are not the most pleasant aspect of a renovation project.

How to Build a Contingency That Actually Works

• Establish your contingency amount before signing any agreements.
• Keep it in a separate, easily accessible account.
• Talk to your contractor about any surprises they see in houses like yours.
• Review it if your scope of work increases.
• Do not roll it into your finish choices, no matter how much you want to.

Where the Pros Come In

Some people handle every penny themselves, and that’s completely okay. Other homeowners would like a second set of eyes on things. A luxury home remodeling company generally builds in a contingency allowance right from the start, budgeting for it upfront rather than shoehorning it in after the fact. Professional contractors like Black Wall Builders, for instance, build in a contingency into their estimates for Los Angeles-area home remodeling projects.

The Final Word

A contingency is not being a pessimist; it is being a planner. It means the difference between riding out bumps in the road and falling flat because of them. Build your contingency, lock it away, and use it as insurance, not as a shopping spree. Future you, standing in your completed kitchen without surprise bills to pay, will thank you for it.

FAQs

1. What size should my contingency be?

A general rule of thumb is that you should allocate between 10% and 20% of your total cost of the project. Cosmetic projects may require a 10% contingency, whereas a substantial renovation of structures and older properties may require up to 20% or even more. The older and more complicated a property is, the larger contingency you have to include.

2. Is contingency the same as a contractor’s markup?

Absolutely not! While the former is allocated for potential risks, the latter is an overhead or profit of a contractor. There may be cases when a contractor’s contingency is included in the quotation price; however, this is another thing compared to an owner’s contingency.

3. What happens if I do not end up using my contingency?

In this case, you will have to keep it. If everything is done within the budget and the cushion remains unused, it will stay in your possession. Often, it will be used for another project, an emergency reserve, or something that has been intentionally delayed until the project is finished.

4. Can I just add the contingency during the process?

It is possible, but it hardly ever works. Finding thousands of dollars during the process is quite stressful, and it usually comes with debt, delays, or hasty decisions. It is better to plan a cushion beforehand so that you have no problems in case of unexpected events.

5. Is the contingency a sign that my contractor is trying to overcharge me?

Absolutely not. The professional contractor wants to prepare you and not to shock you. The existence of the contingency proves his honesty; it is good for both sides, because the homeowner who has a contingency has much fewer chances of postponing the process because of unexpected expenses.

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