Designing to budget

Much like most people’s eyes become bigger than their stomachs when plating a Thanksgiving feast, most people’s eyes are bigger than their pocketbooks when it comes to remodeling their homes, according to an online survey Qualified Remodeler conducted. In fact, 93 percent of remodelers surveyed indicated a client’s vision exceeds the budget half the time, most of the time or every time.

Investment levels

Before the first wall is knocked down, the first nail hammered or the first brush of paint applied, a remodeler must work with his or her client to establish a detailed budget so there are no surprises along the way or at the end. “We stay on target by starting with a very straightforward discussion with the potential client,” explains Bill Simone, president of El Segundo, Calif.-based Custom Design and Construction. “For us, it really doesn’t matter what the budget is because anything, within reason, can be designed. It’s just a question of what level of investment the client is interested in.” In fact, Simone doesn’t even use the term budget with clients; he prefers the term “investment level.”

Simone continues to discuss how remodeling is based on a partnership with the client. “Partners need to be able to communicate and get along, and they need a mechanism in place to facilitate that communication,” he says. “If you can have that discussion, not only do you have the opportunity for a very beautiful outcome, but also a process that everyone can live through and still be friends.”

During the initial meeting with a client, Howard Chermak, CGR, CAPS, president of Edmonds, Wash.-based Chermak Construction immediately tries to steer the conversation to what a realistic budget range is. “The negotiation starts at the point of what their number is versus what is realistic [for the work they want to have done],” he says. “We don’t care how unrealistic the number is; we just need to know what they’re thinking so we can adjust our pricing and product to be in the range they want to be.” If there is a large difference, Chermak notes this is the appropriate time to see if there is any leeway to increase the budget and decrease the scope of work.

“Remodeling is a compromise,” Chermak says. “If you get one thing it likely means you won’t get something else. It’s really a matter of discovery. That’s what design is doing — discovering.”

Setting priorities

Some budget vs. design discrepancies arise because clients don’t understand the amount of money necessary to achieve their remodel visions, and they need to decide where to make sacrifices. “The question to the client becomes ‘What if you can’t accomplish everything you’d like to for the desired investment level?’” Simone says. “We’ll let them answer it. Maybe they’ll scale back on things, ask for help in selecting more cost-effective materials, phase the project where they do a portion now and a portion down the road, or maybe they’ll go somewhere else.”

Using its trademarked Design2Completion system, Simone and his company embark on what he says is a slower design process than most, but one that is “extremely thorough and has no hidden upcharges to the client,” he says. “For us, the end of the design process is very anticlimactic,” he says, referring to having no surprise costs. “Nobody likes a surprise at the end or through construction.”

Chermak notes clients often will phase their scope of work into what he refers to as a master plan. For example, if clients want $7,000 of granite countertop but money is tight, they might choose to install $1,000 of countertop made from another material and upgrade later. A larger master plan example is if clients want to remodel their kitchen and two bathrooms. In that case, the client may choose to remodel the kitchen and one bathroom and leave the other bathroom until funds surface down the road.

Simone also stages multi-phased projects. “We’ll do the overall design for the entire project so they know what the whole concept is. We’ll probably even make most of the finish selections,” he says. “Then, down the road when they want to execute it, it’s just a matter of updating costs and scheduling the project because all of the major decisions have been made.”

Remodelers walk a fine line when advising against client-driven changes. The remodeler understands each design decision best, but the clients need to be happy with the finished result and get the home and features they’re looking for. “If the client absolutely insists on something, there’s a good chance that’s what is driving the project, so by all means you should incorporate their idea,” Simone says. “There might be a couple different ways to execute on that concept, though.”

Simone relies on 3-D renderings to show the client what various design options look like. “We look at 2-D drawings all day and understand what it will look like in 3-D, but most clients don’t have that skill set. We want to give the client all of the information we can and let them make an intelligent decision,” Simone says.

Chermak has been in remodeling for approximately 40 years, 34 of which have been in his own business. He sometimes will recommend against doing work if he feels the time and cost will not yield the sought-after result. “Does it really provide what the customer believes it will?” he sometimes questions. “Most people are receptive to recommendations. The success comes from the knowledge base and lifelong learning.”

Client financing

Chermak offers two forms of financing. One is through a regional bank that offers a loan based on the appraisal of what the completed value will be, rather than based on the value of what exists. “It’s a sweetheart deal because they can get more money to upgrade their home since the bank is going to loan based on the finished product, not what is there now,” Chermak explains. His company also offers loans for projects less than $20,000 through GE Money. Most clients take advantage of one or the other. “Probably less than 20 percent self-finance or just pay cash,” he estimates.

Custom Design and Construction is 28 years old and operates with the business philosophy of reinvesting profits back into the company. As such, the company offers its financing in-house. “Since it’s our money, we can do with it whatever we want,” Simone says. The application process is a one-page document that asks for an applicant’s name, address, occupation, income level and social security number so Simone can check credit reports.

In the boom times of 2006-08, Simone estimates the company carried financing for more than 70 percent of its projects. During the economic meltdown, the number was tiny; presently, he’s seeing the pendulum swinging back. “Now we’re involved with the financing for 40 to 45 percent of the projects we’re doing. It’s not what it used to be, but it is coming back.” QR