Helping Clients Develop a Realistic Project Budget

Ever been asked by a client what they should expect to spend on a kitchen or bathroom remodel? If you are like me, the answer is a resounding yes! However, what a project costs is not actually relevant. What is relevant is what resources the client can allocate for a remodel project – with a few constructive parameters. The following are some tips to share with clients to help them establish a realistic project budget.

1.     Determine Their Discretionary Income. Most homeowners know what their financial resources are and their financial obligations (mortgage, school tuition, elder care, retirement savings, etc.). The difference between the two can be characterized as “discretionary” income that is available for renovation projects. There are some caveats to fine-tuning the discretionary income amount down to a realistic budget, and a discussion with a financial advisor may be their launching point.

2.     Determine the Market Value of Their Home. By averaging the assessed property value and the market value of their home using an established online real estate company (Compass, Redfin, Zillow, etc.), a reasonable market value can be determined. From this value, a few industry rules of thumb can be applied, ensuring the project investment is money well spent, by calculating a budget that is an appropriate percentage of the market value.

If the property has a water view (no dock), take 10% off the estimated value – regardless of the room under consideration – to reach the value used in this equation. The understanding is that 10% of the property value is attributable to the water view.
If there is a mountain view, take 5% off.