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  • Writer's pictureBob Barnett

Construction Costs of Home Remodeling & Additions

Updated: Sep 18, 2020

For a residential architect, one of the most challenging discussions to have with clients is the overall project budget. Architects are likely the first to discuss project budgets with homeowners. High construction estimates can come as a huge surprise to homeowners. Unfortunately, HGTV has set some unrealistic expectations for costs, particularly in high cost-of-living areas like Summit, Livingston and Westfield, NJ.

While the construction cost itself is generally the larger component of a project cost, there are three other cost categories to consider: owner-sourced products, design fees and permit. I'll discuss cost of construction first, then cover the other three in a future post.

Generally, the largest cost of a home remodel or addition is the construction cost itself. This is the contract amount that a general contractor (GC) charges to do the work and generally includes building materials and labor, windows & doors, hardwood flooring and other items. There are three main factors that influence this cost: 1) Scope of Project, 2) Geography, and 3) Level of Contractor

Scope of project. The only way to effectively describe and define the scope of a project is with a set of construction drawings (CDs), which lay out in detail the work to be done, the scale of the project and a description of the materials to be used. Unfortunately, this is only known after CDs are complete and a competitive bid or pricing by a GC is provided. Until that point, we have found it useful to use estimated costs-per-square foot for budgeting purposes. This at least gives us a starting point in educating our clients on general construction costs in order to try to keep the scope of design within budget. We break out our costs/sf by whether the space is a "wet-area" (bath, kitchen, or laundry room), or a dry area as well as whether the project is a remodel of an existing space or an addition. Currently, in our busier towns (Maplewood, South Orange, Summit and Livingston), we use Remodeling estimates of $250/sf for wet areas and $150/sf for dry areas. For additions, we would add $50/sf to these numbers if the construction was above an existing space (upper floor addition) and $100/sf if over a new foundation. A huge caveat with these numbers is that these are just ballpark numbers to initiate the design process. As more information is known, the costs/sf are adjusted.

Geography: While it can be a mere 45-minute train ride from Summit, NJ, to Penn Station, the difference in construction costs can vary widely between these two locations. While the economics of reservation price comes into play, there are real costs (parking, dumpster fees, trade unions, permitting processes, etc.) associated with some municipalities that make geography a huge factor in construction costs. At a national level, the difference is even greater, with some states and municipalities not even requiring permits or architectural seals and with labor costs varying widely. When comparing cost per square foot, the location must be factored in.

Level of contractor: As in any service, there is a wide range of (and high correlation between) quality and cost. The sticker-shock of construction costs drives many homeowners to lower-priced contractors. Some can be great and deliver a quality end result, but there are often reasons for lower costs and some of these can be red flags.

Licensing. The requirements for a contractors license vary by state and between commercial and residential projects. In New Jersey, the requirements are fairly minimal for a Home Improvement Contractor: an application, a fee, and proof of General Liability Insurance ($500K minimum). Unless it is the homeowner doing the actual work on their own single-family home, NJ municipalities require that a contractor be licensed in order to issue a building permit for the project. Given the minimal requirements for contractor licensing in NJ, the marketplace is full of contractors at every level of cost, quality and integrity.

Company size. The larger the company, the larger the company overhead costs. Larger companies generally benefit from having several crews, potentially better pricing with subcontractors (electricians, plumbers, and other trades), more established processes, better project management, and more financial stability. Smaller companies oftentimes consist of a primary general contractor who may also serve as the foreman. This may mean more attention paid to the client, but can also present risk given the outcome is so closely tied to an individual vs. a larger team.

Workman's Comprehensive Insurance. While General Liability insurance is a requirement of licensed contractors, workman's comprehensive insurance varies by business type. Sole proprietorships and LLCs are not required to carry Workman's Comp insurance for the owners or LLC members, but are required to carry Workman's Comp on their legal employees. With the dangers of construction sites (falls from ladders and roofs, power saws, nail guns, demolition, etc.) homeowners should inquire and understand the workman's comprehensive coverage for individuals working on their home and whether they are protected by their homeowner's policies.

History, portfolio and references. A contractor with a solid business history, strong portfolio of similar completed projects, and (most importantly) a strong track record of delighted customers is the best indication of a future successful project.

Quick Tips: Here are 4 quick tips to recognizing quality NJ contractors:

1) NJ Legal verbiage: Since 2006, New Jersey has required a block of legal verbiage. Not all contractor follow this. What other laws are they not following?

2) Lead-Safe Certification. The US Environmental Protection Agency requires firms doing work on homes built prior to 1978 have "Lead-Safe" Certification. Is your contractor certified?

3) Change Orders. Mutually signed change orders are the smartest way to avoid client-contractor conflicts. Contractors that require and specify the use of these in their contracts are wise.

4) Port-a-John: As petty as this may seem, inclusion of a provided, dedicated temporary toilet in a proposal is a good indicator that the contractor is mindful of their workplace activities and wants to limit their disruption to a home and a family.

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