What Happens If a Remodel Goes Over Budget?
On a well-run job, almost nothing happens by surprise - overruns arrive through one of three named mechanisms: a contingency being drawn down, an allowance being exceeded, or a change order being signed. Each should reach you in writing, with a number, before the work happens rather than on the final invoice. Across the whole-home projects in our own record, which have run $36k-$440k, the difference between a controlled overrun and a bad one is almost never the amount - it is whether the homeowner heard about it early.
The three mechanisms, and why naming them matters
Contingency is money you set aside for what nobody could see - what is behind the wall. Allowances are placeholders for items not yet chosen, such as tile or fittings, priced at an assumed level. Change orders are decisions: a scope change you asked for, or one that became necessary.
Almost every overrun is one of those three. A builder who can tell you which one you are looking at is running the job. One who cannot separate them is not, and that is worth noticing early.
The allowance trap
Allowances are the most common quiet overrun, because they look like a price when they are a placeholder. A quote carrying a tile allowance is not saying tile will cost that - it is saying that is the assumption until you choose.
The defence is to ask what each allowance actually buys, in the shop, at today prices. If the answer is a product you would not accept, the allowance is not a budget, it is a deferral - and it will surface as an overrun with your name on it.
What a change order should contain
A description of the change, why it is needed, the price, the effect on the schedule, and a signature - before the work is done. Not after. Not verbally on site.
The discipline protects both sides. It stops a homeowner being billed for something they did not agree to, and it stops a builder doing work nobody has approved. Where change orders are handled properly, an overrun is a series of decisions you made. Where they are not, it is a bill you are asked to explain to yourself.
Who actually pays
It depends on the cause, and this is where the contract earns its keep. Work you added is yours. A genuine unforeseen condition - the galvanised pipe nobody could see - is normally what the contingency exists for. Work that was in the original scope and was mispriced by the builder is a different conversation, and a fixed-price contract exists precisely so it is not automatically yours.
Which is why what a line-itemed quote includes matters so much at the start. You cannot argue about whether something was in scope if the quote never said what scope was.
How to make an overrun far less likely
Investigate before committing rather than after. Open up where you can, pull the permit history, and price a scope that reflects what is actually there. Hold a real contingency outside the build budget - 5-10 percent on a pre-1970 house, more where several rooms are opening.
Then ask for a running total rather than a final one. A builder who can tell you where you stand against budget at any point in the job is a builder who is not about to surprise you at the end.
Frequently asked follow-ups
Is a fixed-price contract really fixed? +
It fixes the price of the scope described in it. It does not fix the price of work you add later, or of conditions nobody could see before opening the walls. That is why the scope description matters more than the word "fixed" does.
How much overrun is normal? +
The more useful framing is that the contingency you set aside is what an ordinary amount looks like - 5-10 percent on a pre-1970 Los Angeles house, and 10-15 percent where walls are opening across several rooms. Consistently exceeding that points at the estimate rather than the house.
Can I refuse a change order? +
You can decline one for work you did not ask for and do not want. Where the change is necessary to complete the work safely or legally, declining it usually means changing the scope instead, so the real conversation is about alternatives rather than a straight yes or no.
What if the builder just presents a bigger bill at the end? +
That is the situation the change order process exists to prevent, and it is the point at which the paperwork you kept becomes the whole argument. Written approvals before work, a line-itemed quote and a running total against budget are what make an end-of-job surprise very difficult to construct.
Does a cheaper quote mean a bigger overrun? +
Not always, but a quote that is much cheaper than the others is usually cheaper for a reason, and the reasons are typically thinner allowances, a narrower scope or work left out. Comparing quotes line by line rather than by total is the only way to see which.
Want the same answer applied to your specific project? Onn personally reviews every inquiry.
Written by Onn Cohen-Meguri, founder and designer at Design Onn Point. Onn has spent 20+ years designing and building in Los Angeles. CSLB #1133368.
Published .