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.
What is a contingency Fund?
A contingency fund is an amount of money you set aside to cover any unexpected costs that can come up. 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.
How much to set aside?
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 held by you 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.
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.
What do people use the funds for?
Examples of times when homeowners have used a contingency funds when they haven’t decided to upgrade or add to the scope include:
- Hidden Rot
- Electrical Upgrades
- Plumbing Upgrades
- Additional work required by the Town
Things are going to come up, it is part of Remodeling. Being prepared for the “What If” will help you enjoy the process and the project more.
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