Nothing is more of a budget-buster on a remodeling project than a so-called “change order.” Sometimes, if the job is not well planned and properly bid, there might be several change orders, all adding up to financial disaster.
A change order is exactly what it sounds like: any deviation from the original plan. For example, as a project progresses, you might decide you want the more expensive cabinets. You request that with a change order.
According to Kevin Casey of New Avenue Homes – an Emeryville, California-based remodeling company with an online platform to help clients through the potentially harrowing remodel experience -- one of the root causes of “change-order-itis” and the resulting blown budget is unscrupulous contractors.
Not all contractors fall into this category, of course. In fact, most don’t. But the occasional bad apple uses change orders in what Casey calls a “strategic and deceitful way” to offer low bids and then work you over for additional payments above and beyond the quoted price.
Recently, Casey reviewed more than 120 New Avenue projects and all of the projects’ submitted change orders. The result was a list of the 18 most common ones, and paying attention to them is a good idea. That way, you can be ready to review any bid you receive to make sure as much as possible is included.
Interestingly, Casey found that 13 of the 18 most expensive were discretionary, meaning they were requested by the customer.
“They often pop up as a project is progressing on budget because the customer had a little reserve socked away for overages that never came,” the New Avenue founder says. “The good news is that a perfect project can have 20-plus changes that you willingly choose to make and still complete the work on budget.”
Among the most costly change orders according to experts:
Excavating an addition two feet of foundation ($6,042).
Fireproofing the laundry area ($2,151).
Adding a new water line ($5,505).
Sometimes, the cause is something beyond anyone’s control, such as an unreasonable building inspector. But other times, the architect, engineer or contractor dropped the ball or overlooked something.
“In a complex project, this happens, and a little leeway is fair,” says Casey. “But if it happens too often, it becomes a real question of competence. Many professionals are quite adept at shirking responsibility.”
Generally, if the non-discretionary change orders are 2 t0 4 percent of the initial bid, Casey says it is a well-run project. But going to 25 percent, 50 percent or even 100 percent over budget is obviously worrisome.
His advice: “Any contractor heading down that path with his first invoice should be offered two options: Eat the cost or walk away so a better contractor can do the job.”
Lew Sichelman has been covering real estate for more than 30 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.
