How much of a contingency fund should I plan on?
If you have never done a remodeling project before you may not have figured a contingency fund into your budget yet.
A contingency fund is an amount of money you set aside to cover any unexpected costs that can arise during the project. This money is on reserve and is not allocated to any specific area of work. It acts as your “insurance” in case anything unexpected comes up or you want to add or change the project scope or selections.
Depending on the type of contract you have with your contractor you might have a Contractor Contingency or and Owner Contingency.
In our experience in residential remodeling we typically tell clients they should plan to have a 5-12% contingency fund (of the contract amount) set aside for upgrades, additions, changes that they or the town require once the project starts. This is not held by us but kept by the owner. If any changes or upgrades occur a written Change Order is executed which becomes part of the contract and added to the existing payment schedule.
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Often you will see when you have a Bank or Construction Loan the bank will include a line item for Contingencies. This line item is typically established above and beyond the expected cost of construction in order to cover unanticipated costs.
Examples of times when we have seen homeowners need to use their contingency funds when they themselves haven’t decided to upgrade or add onto the scope of work include hidden rot, electrical or plumbing upgrades needed, additional work required by the town.
Things are going to come up, it is the nature of Remodeling, so being prepared for the “What If” will help you enjoy the process and the project more.
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Almar Building & Remodeling Co (Hanover Ma). As a third-generation family owned and operated company for over 60 years Almar Building has all the benefits of a small company with the options of a larger company. From Additions, Kitchens, Bathroom, Basement Renovations, Siding, Windows, to Doors Almar services the entire South Shore of Massachusetts. How much of a contingency fund should I plan on?
