Managing the upward spiral of home project costs
The steep rise in the cost of home-improvement projects is no surprise to consumers.
Labor and material costs — fueled largely by double-digit increases in imported wood products — are chief factors behind the up, up, up spiral of construction costs.
According to Mike Turner, a home project management executive with The Home Service Store, materials, labor and contractor fees each account for roughly one-third of remodeling job expense. Although demand for most materials is flat, some sectors continue to rise. Wood products, plus petroleum-based material such as plastic pipes, vinyl siding or countertops, have seen steep increases. Rising fuel rates affect the transportation cost of the raw materials of heavy items such as concrete.
Contractor fees have remained largely stagnant except for one key component: skyrocketing insurance costs. Insurance was an afterthought in 1990 when contractors paid $400 to $600 annually for liability coverage. “Now the contractor pays $1,500 to $3,000 each year if they can even get insurance,” says Turner. Environmental issues of mold and mildew plus product warranty lawsuits have classified some jobs as high risk. It has caused some contractors to fudge insurance documentation. Consumers should demand original documents — not photocopies — as proof of insurance. Reputable contractors will readily show the paperwork, and they will also list the homeowner as a “certificate holder,” the ultimate proof that insurance is in place.
The lack of insurance coverage and fear of litigation have also contributed to a decline in the availability of skilled workers. Turner says if contractors do charge more for a job, it’s likely due to a premium they must pay for qualified subcontractors from a shrinking pool of candidates.
It all adds up to a 30 percent increase in the cost of a home-improvement project in the last 10 years, according to Turner.
And those price increases? It’s all passed along to consumers.
Yet homeowners who do a slow burn over the price of building projects can keep costs in check. “The solution lies in homeowner ability to get the most value for their dollar,” says Turner.
He suggests homeowners start by asking their contractor “What can we do to minimize cost on this job?” This is where the homeowner-contractor relationship is so critical. Most cost variance rests on the finish aspects: hardware, faucets, painting, etc. “Homeowners see the cosmetic side of the issue, about how the job will look,” says Turner, “while the contractor is concerned about what’s behind the walls and the durability of products the customer chooses. The customer and the contractor should communicate about what will look the best and last the longest within a budget the consumer can live with.”
With a price tag of $43,213 for the average kitchen makeover, consumers can’t afford to be indifferent to cost. “In the ’80s and ’90s, it was a wasteland of information,” says Turner. “Now there is a lot of good, consistent information.” Much of it is on the Internet. Turner suggests these sites for educated homeowners:
• The cost estimator at www.trusthss.com. Homeowners can estimate project costs based on prices in their area and learn how improvements can affect the value of their home.
• Click on www.remodeling.hw.net for a cost vs. value report that compares project costs on a city-by-city basis.
