Build a realistic project budget
A budget is not a number. It is a list of categories, each with a figure and an honest label for how sure you are of it: known, estimated, an allowance, or unknown. A budget written that way tells you where the money is at risk before the risk arrives. This module teaches the categories, the vocabulary money uses as it moves from an estimate to a payment, how allowances and contingency are sized and protected, how changes are priced, and the ways budgets go wrong. It ends with a fictional kitchen budget shown three times: before bids, after bids, and after two changes.
- Understand: what a budget is for
- Cost categories: soft and hard
- The money vocabulary
- How money moves: schedules of values, draws, retainage, waivers
- Allowances and contingency
- Changes, markup and margin, and how budgets go wrong
- See it: the Alder Street budget, three times
- Practice: build your category budget
- Your project
- Check your work
- Knowledge check and scenario
1. What a budget is for Understand
People build budgets to answer "can we afford it." That is the least useful thing a budget does, because the answer changes every time a bid arrives or a wall is opened. The useful things a budget does are these: it lists every category of cost so that none is forgotten; it records how certain each figure is, so that you know which ones to chase; it separates the money you have committed from the money you have merely planned; and it holds a reserve, with written reasoning, for what nobody can price yet.
The course's budget therefore has four columns that most spreadsheets lack: a status for each line (known, estimated, allowance, unknown), a note on where the figure came from, a committed amount once a contract or order exists, and a paid amount once money moves. The total at the bottom is labelled a working total, not a cost, because a column of estimates added to a column of allowances is not a cost. It is a plan with a stated uncertainty.
A budget that looks precise is more dangerous than one that looks rough, because precision invites you to stop asking questions. "$87,450" with every line labelled is a better budget than "$87,450" with none, even though the number is the same, because the first one tells you that $52,000 of it is a designer's rule of thumb and $7,500 of it is a reserve you have decided not to touch. The skill is not arithmetic. It is keeping the labels honest as the numbers harden.
This module teaches how to structure and track a budget. It does not tell you what your project will cost, what contract terms you should accept, or what deposit, payment or lien rules apply where you live. Cost comes from bids against your scope; terms and rules come from your attorney, your lender and the authorities named in Module 4. Where the course gives a figure from another place, it is an example of how such rules are written, not a rule for you.
2. Cost categories: soft and hard
Costs divide into two families. Hard costs become part of the physical building. Soft costs are everything you pay for that does not: the drawings, the fees, the insurance, the tests, the loan. First-time budgets commonly miss several lines of the soft-cost list, and soft costs are usually due early, before any work can start.
| Soft costs (do not become part of the building) | Hard costs (the building) |
|---|---|
|
|
Which family a line belongs to matters less than whether it is on the list. Go through both columns against your own project and write a line for everything that applies, with "unknown" as the status where you have no figure yet. An unknown on the list is a question with an owner; an unknown off the list is a surprise.
A national average, with its own warning
The National Association of Home Builders (NAHB) surveys its members on the cost of building a new single-family home for sale. For 2024, the survey put the sales price of such a home at 64.4 percent construction cost, 13.7 percent finished lot, 11.0 percent builder profit, 5.7 percent overhead and general expenses, 2.8 percent sales commission, 1.5 percent financing and 0.8 percent marketing. Within construction cost: interior finishes 24.1 percent, major-system rough-ins 19.2 percent, framing 16.6 percent, exterior finishes 13.4 percent, foundations 10.5 percent, site work 7.6 percent (a line that, as NAHB classifies it, includes permits, water and sewer inspection fees, architecture and engineering, and impact fees), final steps 6.5 percent and other 2.1 percent.
NAHB's own caveat applies: the survey is a national average and, in its words, "not a perfect tool for estimating costs for a particular house in a particular location." It describes production homes built for sale, not a renovation and not an owner's custom project. Two uses are legitimate. First, as a sanity check on proportions: if your new-home budget has framing at a third of construction cost, something is unusual and worth a question. Second, as a plain statement of what "the builder's fee" is: the overhead and profit lines together are about 17 percent of sales price in that survey, and they are what buys the builder's supervision, insurance, warranty service and purchasing power. An owner who takes on the builder's role takes on providing those things or going without them, which is why this course never says owner-building saves money.
Source: the NAHB Eye on Housing post on the cost of constructing a home in 2024 gives the full breakdown by stage and the survey's caveats.
3. The money vocabulary
Money has a different name at each step from a guess to a cleared check. Using the names precisely is how you keep the status column honest.
| Word | What it is | What it is not | Status in your budget |
|---|---|---|---|
| Estimate | A professional's approximation of probable cost, with or without line items. | An offer to do the work at that price. | Estimated |
| Bid, quote, proposal | A priced offer against a described scope under stated conditions, usually with an expiry date because material prices move. A proposal adds terms (Module 7). | Binding, until accepted in a signed contract. | Estimated (a firm one) until signed |
| Allowance | A placeholder sum inside a price for something not yet selected: tile, fixtures, lighting, countertops. The eventual cost is the selection's cost, with the difference charged or credited. | A promise that the item will cost that much. Ask whether it includes tax, delivery, labor, accessories and markup, and whether it is based on the contractor's cost or retail. | Allowance |
| Commitment | A signed contract, subcontract or purchase order. Money is legally spoken for, whether or not it has been paid. | A payment. A commitment can exist with nothing paid, and a budget line can be fully committed and still contain allowances. | Known (with allowances inside it still marked allowance) |
| Invoice or pay application | The contractor's request for payment for work done or materials delivered, often on a schedule-of-values form. | Proof that the work is done. It is a claim to be checked. | Moves the line toward paid |
| Payment | Cash actually transferred, ideally against a lien waiver. | Acceptance of the work (Module 10 and Module 11). | Paid |
| Change order | A signed amendment to the contract that changes scope, price or time, priced before the work when possible. | A verbal agreement, a text message, or a surprise on the final invoice. | Adjusts the committed amount; funded from contingency or from a scope decision |
| Contingency | A reserve for what cannot be priced yet, held outside the contract by the owner, with written reasoning for its size. | A slush fund for upgrades. See section 5. | Its own line, spent only by decision |
Two of these are often confused in ways that cost money. A commitment is not a payment: when your contract is signed, $63,400 is spoken for and $0 has moved, and your budget should show both facts. And an allowance is not a cost: a contract can be fully committed and still hold $11,900 of allowances whose real cost will only be known when you choose the tile.
4. How money moves: schedules of values, draws, retainage, waivers
Schedule of values and progress billing
A schedule of values (SOV) is the contract price broken into line items whose total equals the contract sum: demolition $4,000, framing $6,500, electrical $9,800, and so on. Each pay application then states a percentage complete for each line, and you pay the difference between what that percentage is worth and what you have already paid. The SOV is the most useful document in a construction contract for an owner, because it turns "how far along are we" into a line-by-line question. Its known abuse is front-loading: putting too much value in the early lines so that the contractor is paid ahead of progress. If demolition is 15 percent of the contract on the SOV, ask why.
Many small residential contracts use a simpler structure: a deposit, then progress payments at milestones (foundation complete, framing inspection passed, drywall complete, substantial completion), then a final payment. Milestones tied to passed inspections are easy for an owner to verify; percentages are not, unless someone qualified is assessing them (Module 7).
Lender draws
If a construction loan is involved, the lender adds a layer. As lender practice is commonly described: the lender disburses against an approved budget after a draw inspection, for work in place, and lenders differ on whether they will fund deposits or stored materials; many hold back a percentage of each draw as retainage until completion; interest is charged only on what has been disbursed; and construction loan terms are finite, often in the range of a year to a year and a half. The practical consequences: a contractor's milestone schedule and the lender's draw schedule must be reconciled before signing, or the contractor may be billing for money the lender will not release yet; a late draw can mean a late payment to a trade, which means a delayed trade; and overruns beyond the approved budget are the borrower's to fund. Module 4 lists the questions to ask your lender in writing.
Retainage
Retainage is a percentage held back from each progress payment and released at completion. Five to ten percent is common in commercial and lender-financed work; in small residential contracts it is negotiated or absent, and worth asking for. It is one of the owner's few forms of leverage for the punch list. Whether any law limits retainage on private residential work is a verification item the course did not research; in residential work, retainage is commonly whatever the contract says.
Lien waivers
In many places, a subcontractor or supplier who is not paid by your contractor can claim against your property even though you paid the contractor in full. A lien waiver (or release) is the document each of them signs giving up that right for a stated payment. There are four kinds, made from two choices; the cells describe when each is commonly collected in practice, not a rule:
| Progress (covers one payment period) | Final (covers the whole job) | |
|---|---|---|
| Conditional (effective only when the named payment actually clears) | Collected with each progress payment, before the check is handed over. | Collected with the final payment, before it clears. |
| Unconditional (effective on signing, regardless of payment) | Collected after the prior progress payment has cleared, before the next one is made. | Collected from the contractor and every sub and supplier after the final payment clears. The closeout documents that most directly protect the property from the signers' claims. |
The practice the course teaches, as common practice rather than a rule: collect a conditional waiver with each progress payment; before the next payment, confirm the prior check cleared and collect the unconditional waiver for it; at the end, collect unconditional final waivers from everyone who could lien. Some states prescribe the waiver forms (California, for example, has four statutory forms matching the grid above, published by its contractors' licensing board); some states let an owner demand waivers at each payment; the rules on preliminary notices, on who may lien, and on what form is valid are state-specific. Your attorney and your state's licensing board are the sources; Module 4 put the question on your list.
Deposits: two examples of how a rule is written
Some states limit the deposit a home-improvement contractor may take; many do not, and the course did not survey every state. Two examples, presented as examples of how such a rule reads, not as rules for you:
- California: the state's Contractors State License Board (CSLB) states that on a home-improvement contract the down payment may not exceed $1,000 or 10 percent of the contract price, whichever is less, with an exception the board describes for contractors holding a blanket performance and payment bond; the board's bulletins add that there is no special-order-materials exception to the cap and that progress payments may not exceed the value of work performed or materials delivered. The board's page on what a home-improvement contract must contain explains the requirements as the board presents them.
- Massachusetts: the home-improvement contractor law states that a deposit "shall not exceed the greater of one-third of the total contract price" or the actual cost of any special-order or custom materials that must be ordered in advance; it also bars demanding final payment before the work is completed to the parties' satisfaction, and requires contracts over $1,000 to be written with start and substantial-completion dates, a payment schedule and permit information. The statute is General Laws chapter 142A, section 2, on the Legislature's site.
- Pennsylvania also regulates deposits on home-improvement contracts above a threshold; the course's research could not confirm the threshold from the statute or the attorney general's page, so no figure is given here. If you are there, ask the attorney general's consumer office.
The lesson is not the figures. It is that a 50 percent deposit (Proposal A in Module 7) is not merely aggressive; in the two states above it would exceed the stated cap, and anywhere it moves risk to you before any work exists. Whether a cap applies where you live, and what it is, is a verification item.
5. Allowances and contingency
Sizing an allowance: price three real options first
An allowance set by the contractor is often, as one long-running consumer column puts it, an average or an arbitrary number. An allowance set by you, after you have priced three real options you would actually choose, is a budget line. The method: before the bid package goes out, visit the showroom or the supplier for each allowance item (countertops, tile, flooring, plumbing fixtures, lighting, appliances, hardware), pick three options you would be content with, get each priced on the same basis (installed or material only; with or without tax and delivery), and set the allowance at or near the middle one. Then write the basis into the bid package so every bidder carries the same allowance with the same definition (Module 7).
Three things to settle for every allowance: what it includes (material, labor, tax, delivery, accessories); whether it is based on the contractor's cost or on retail (a $6,500 allowance at contractor cost buys more than $6,500 at retail); and what happens on an overage or an underage (overages are often charged with markup; credits are often returned without it). Module 8 turns allowances into selections with dates.
Contingency: a reserve with reasons
A contingency is money set aside for costs that cannot be priced yet: what is behind the wall, what the soil is like, what the inspector asks for, what the market does to a price between bid and order. The size is a judgment, and the published guidance is a set of ranges, not a rule. Guides from contractors and design firms commonly suggest, for new construction with complete drawings and a known site, somewhere around 5 to 10 percent; for renovation of existing homes, 10 to 20 percent; for older homes (one guide draws the line at 1940), 15 to 20 percent as a floor, with some contractors suggesting more; and one design-build firm frames it by design completeness, around 5 percent when the design process has been thorough and closer to 15 percent when it has not. None of these sources is official. They agree on the direction: older, less documented, and less designed means more reserve.
Why older homes warrant more: concealed conditions (rot, outdated wiring and plumbing, undocumented alterations), hazardous materials whose handling is regulated once disturbed (Module 4), and the simple fact that nobody has drawings of what was done in 1958 and 1979 and 1994. Each of those can turn into a change order with a markup on it.
Owner's contingency versus contractor's contingency
A fixed-price contractor commonly carries a reserve of their own inside the price, for their own estimating risk. That is theirs; if they do not need it, it is their margin. Your owner's contingency is separate, held outside the contract, under your control, spent only by your written decision. Do not let the two be confused: a contractor who says "the price includes contingency" has told you about their reserve, not yours.
A common way a contingency disappears is not a surprise behind the wall. It is a nicer faucet in week two, a bigger window in week three, and a tile upgrade in week four, each justified as "we have contingency." Then the rot appears in week six. The rule the course teaches: contingency is for unknowns, upgrades are scope decisions funded by scope decisions, and no upgrade is approved before the last inspection that could reveal a concealed condition (usually the rough-in or framing inspection, after demolition and before closing walls). Write the rule into your binder before the project starts, when it is easy to agree with.
6. Changes, markup and margin, and how budgets go wrong
How a change is priced
A change order can be priced four ways: lump sum (a fixed price for the change, best when the scope of the change is clear); time and materials (actual labor, materials and equipment plus an agreed markup, suited to unknowns such as what demolition reveals; some contracts cap or prohibit it); time and materials with a not-to-exceed; and unit price (rare in residential work). The build-up is the same in each case: the direct cost of the added work, plus the markup stated in the contract, plus any schedule or disruption impact priced separately, in a change order signed by both sides before the work begins. A contractor who sets the labor rate and the markup in the contract, in advance, has made change pricing predictable, which is worth asking for in Module 7.
Markup and margin are different numbers
Markup is added to cost. Margin is measured against price. A $5,000 cost billed at $5,500 is a 10 percent markup and a 9.09 percent margin (500 divided by 5,500). A contractor who wants a 20 percent margin needs a 25 percent markup (cost 1,000, price 1,250, margin 250 of 1,250). Neither is wrong; they are just different denominators, and a change order that says "cost plus 15 percent" is a markup, while a contractor who tells you their "margin is 15 percent" is describing something that will look like a 17.6 percent markup on your invoice. Ask which word the contract uses and do the arithmetic once, so you are not surprised by it later. Trade press reports a wide range of practice: historically remodelers added half or more to job cost; a 20 percent margin is often described as typical for residential builders; there is no fixed rule.
How budgets go wrong
| Failure | How it looks | The protection |
|---|---|---|
| Allowances set low | The total looks good at signing; the cost arrives later as "overages" at markup. | Price three real options and set the allowance yourself (section 5); level allowances across bids (Module 7). |
| Exclusions | The low bid omitted permits, testing, protection, cleanup, patching or disposal; each becomes your cost or a change order. | The "not mentioned" column in the levelling worksheet; an exclusions list in the bid package. |
| Unforeseen conditions | Rot, undocumented alterations, hazardous materials, poor soil. | Owner's contingency sized for the age and documentation of the house; testing before demolition. |
| Scope creep | Owner-initiated changes, each small, compounding at full markup plus disruption days. | A change log with a running total; the rule against early upgrades; a decision deadline discipline (Module 8). |
| Delayed selections | Late choices force reorders, idle trades and expedite fees; builders rank this among the top causes of slippage. | A selection schedule built backward from install dates (Module 8). |
| Cost-plus without controls | A cost-plus contract may have no restriction on excess cost unless you negotiate one. | A cap or guaranteed maximum, open-book invoices, and regular cost reports written into the contract (adviser's question). |
| Lender timing | Draws paid only for work in place; a late draw means a missed trade payment. | Reconcile the contractor's milestones with the lender's draw schedule before signing; keep a week or two of float in your own account. |
| Confusing committed with paid, or allowance with cost | The budget "balances" because the contract is signed, while $11,900 of allowances and $5,000 of contingency are still unresolved. | The status column, kept honest (section 7). |
7. See it: the Alder Street budget, three times See it
The Alder Street kitchen, its owner Dana Pellingham, the contractors and every number below are invented for teaching and continue the example from Module 7. The ceiling, the estimates and the changes are realistic; the arithmetic is internally consistent; none of it is a cost for any real kitchen.
Dana's ceiling is $95,000, established: savings plus an approved home-equity line. The scope is the one described in Module 7: a 1958 single-story house, kitchen to the studs, a nine-foot section of non-bearing wall removed, sink moved four feet, owner-supplied cabinets and appliances, new countertops, tile and flooring not yet selected. Three stages follow. Watch the status column more than the totals.
Stage 1: the first category budget, before bids
| Category | Figure | Status | Where it came from |
|---|---|---|---|
| Soft costs | |||
| Designer (plan, elevations, finish schedule) | 3,200 | Known | Invoice, paid |
| Engineer's letter (wall non-bearing) | 650 | Known | Invoice |
| Permit and plan-check fees (building, electrical, plumbing) | 700 | Estimated | Department's published fee schedule, applied to a guessed valuation |
| Lead and asbestos testing before demolition | 450 | Estimated | Lab quote by phone, 2026-03-10 |
| Temporary kitchen (shelving, hot plate, microwave relocation) | 350 | Estimated | Dana's list |
| Soft subtotal | 5,350 | ||
| Hard costs | |||
| Contractor's scope (demolition, wall, framing, drywall, paint, electrical, plumbing, cabinet install, countertops, tile, flooring) | 52,000 | Estimated | Designer: "fifty to sixty for this scope around here"; low end used, which is a choice worth noticing |
| Cabinets, owner-supplied (semi-custom) | 14,800 | Estimated | Dealer quote valid 30 days, delivery included, not yet ordered |
| Appliances, owner-supplied | 6,900 | Estimated | Three packages priced: 5,600 / 6,900 / 9,400; middle carried |
| Sink and faucet | 900 | Estimated | Showroom, three options priced |
| Electrical panel upgrade | 0 (2,500 to 3,500 if required) | Unknown | Electrician's load calculation not yet done; carried at zero and listed |
| Hard subtotal | 74,600 | ||
| Owner's contingency | 7,500 | Reserve | About 10% of hard costs: house is from 1958, drawings are complete, but the contractor figure is a rule of thumb, not a bid |
| Working total | 87,450 | Of which known: 3,850. Estimated: 76,100. Unknown and listed: the panel. Headroom to the $95,000 ceiling: 7,550, of which the panel alone could take up to 3,500. | |
What this stage is good for: it says what the project is made of, it shows that almost everything is an estimate, and it has already found that a $95,000 ceiling with a possible $3,000 panel and a $52,000 guess is tighter than it looked. The next step is not to refine the estimate; it is to get bids.
Stage 2: after bids, Hale & Daughters signed at $63,400
Dana levelled the three proposals from Module 7 and chose B. Before signing, Dana asked B the levelling questions: B confirmed in writing that the sink and faucet are owner-supplied, that permit fees are inside the price at cost (estimated at $650), and that the panel upgrade stays an alternate at $2,900 pending the electrician's load calculation. The lab results came back: no asbestos in the floor tile or mastic; lead present in the paint on the old window casing, which B, a certified firm, confirmed in writing it handles within the price. Dana also chose the lower appliance package after seeing the bid total.
| Category | Figure | Status | Committed | Note |
|---|---|---|---|---|
| Soft costs | ||||
| Designer | 3,200 | Known | 3,200 (paid) | |
| Engineer's letter | 650 | Known | 650 (paid) | |
| Permit fees | 0 | Estimated (inside contract) | inside contract | Carried in B's price at B's estimate of 650, reconciled to the actual fees at cost; not settled until the receipts are in |
| Testing | 380 | Known | 380 (paid) | Lab invoice; asbestos negative, lead positive on casing |
| Temporary kitchen | 350 | Estimated | 0 | |
| Soft subtotal | 4,580 | |||
| Hard costs | ||||
| Contract: Hale & Daughters, lump sum | 63,400 | Known (commitment) | 63,400 | Includes the three allowances below; 10% at signing paid: 6,340 |
| of which countertop allowance, installed | 6,500 | Allowance | Three slabs priced: 5,900 / 6,400 / 8,200 installed | |
| of which tile allowance, material | 1,200 | Allowance | Labor included in price | |
| of which flooring allowance, installed | 4,200 | Allowance | Three options priced: 3,600 / 4,100 / 5,300 | |
| Cabinets, owner-supplied | 14,800 | Known (commitment) | 14,800 | Ordered 2026-04-02; 50% paid to dealer: 7,400; delivery week 4 |
| Appliances, owner-supplied | 5,600 | Estimated | 0 | Lower package chosen; models fixed for rough-in; not yet purchased |
| Sink and faucet | 900 | Estimated | 0 | B confirmed owner supplies |
| Electrical panel upgrade | 0 (2,900 if required) | Unknown | 0 | B's alternate price, held open until load calculation |
| Hard subtotal | 84,700 | |||
| Owner's contingency | 5,500 | Reserve | Dana's reasoning, written down: contract is lump sum with quantities stated, so estimating risk fell; concealed-condition risk in a 1958 house remains. About 8.7% of the contract. A judgment, not a formula. | |
| Working total | 94,780 | Known or committed: 82,430. Estimated: 6,850. Allowances inside the contract, unresolved: 11,900. Unknown: the panel. Headroom to ceiling: 220 without the panel; 2,680 over with it. | ||
Dana's written decision at this stage, from the binder: "If the panel is required we are over. The response is to hold countertop and flooring selections at or below allowance, and if still over, to defer the backsplash tile, which B priced as a separable line at $1,850 including labor; what B would actually credit for deferring it is a question for B, in a change order. The response is not to reduce contingency." That sentence is the whole point of section 5.
Stage 3: after two changes
Week one, before demolition: the electrician's load calculation showed the existing service could not carry the new circuits. Change order 1: panel upgrade at B's alternate price, $2,900, lump sum, signed before the work. Week three, during demolition: the subfloor under the old sink was rotted over about thirty square feet. Change order 2, time and materials per the contract: nine hours at $82 and $262 of material, $1,000 of cost, plus the contract's 15 percent, $1,150, signed the same day with photographs attached.
| Category | Figure | Status | Committed | Paid | Note |
|---|---|---|---|---|---|
| Soft costs (unchanged) | 4,580 | Known except temp. kitchen | 4,230 | 4,230 | |
| Contract, original | 63,400 | Known (commitment) | 63,400 | 18,640 | 6,340 deposit plus 12,300 at the demolition-complete milestone in B's payment schedule, each against a conditional waiver |
| Change order 1: panel upgrade | 2,900 | Known | 2,900 | 0 | Lump sum; was the listed unknown |
| Change order 2: subfloor repair | 1,150 | Known | 1,150 | 0 | T&M, cost 1,000 plus 15%; concealed condition |
| Allowances inside the contract, still unresolved | 11,900 | Allowance | Selections due before cabinets are set (Module 8) | ||
| Cabinets | 14,800 | Known | 14,800 | 7,400 | |
| Appliances | 5,600 | Known | 5,600 | 5,600 | Purchased; delivery scheduled to week 7 |
| Sink and faucet | 870 | Known | 870 | 870 | On site for templating |
| Owner's contingency, remaining | 1,450 | Reserve | 5,500 less 2,900 less 1,150 | ||
| Working total | 94,750 | Under the $95,000 ceiling by 250, with 1,450 of contingency left, rough-in inspections not yet passed, and 11,900 of allowances unresolved. | |||
Notice what happened to the total: it barely moved between stages 2 and 3, from 94,780 to 94,750, because the contingency did its job, absorbing $4,050 of changes and reporting $1,450 left. What changed is the status column: the panel moved from unknown to known, the appliances and sink from estimated to known and paid, and the reserve shrank in public. Dana's decision at this stage, written down: no selection above allowance until the rough-in inspections pass; the backsplash deferral (a credit of up to $1,850, which B would have to confirm) is the next move if anything else is found; and $250 of headroom plus $1,450 of reserve is the margin for the rest of the job, before any allowance credits. Still open at this stage: the permit fees carried at B's estimate, the temporary kitchen, and all three allowances. A budget under pressure, honestly labelled, is what a good budget looks like in week three. A budget that still said $87,450 would be a fiction.
8. Practice: build your category budget Practice
Time: about 90 minutes for the first pass. Open the budget, commitment, payment and change trackers. The budget sheet carries the categories from section 2 as starter rows with the Alder Street figures as an example; the change log and payment log are separate sheets. Then:
- Replace the example with your own lines. Go down both columns of section 2 and add a row for every category that applies, even if the figure is "unknown." Delete nothing until you have decided it truly does not apply, and write why in the note.
- Label every row known, estimated, allowance or unknown, and write where the figure came from. "Internet" is not a source; "designer's range, 2026-03-10" and "three slabs priced at Stoneworks, installed" are.
- For each allowance item, price three real options you would be content with, on the same basis, and set the allowance at or near the middle. Record the three prices in the note.
- Set the contingency with written reasoning: the age and documentation of the house, the completeness of the drawings, whether the main figure is a bid or a guess, and the known-size unknowns you are carrying at zero. Write the sentence, not just the percentage, and write the rule about upgrades next to it.
- Compare the working total with your ceiling or range, and write down what you would do if the gap is unfavorable: which scope would go first, which allowance would be held, what would not be touched. Decide this now, while it is hypothetical.
- If a lender is involved, add their draw schedule as a column or a note against the milestones, and mark any mismatch with the contractor's payment terms as an open question.
Then compare your sheet with the criteria in Check your work.
9. Your project Your project
10. Check your work Check your work
Criteria
- Every soft-cost category in section 2 has been considered, and the ones that apply have a row, even at "unknown."
- Every row has a status (known, estimated, allowance, unknown) and a source note. No row is blank in either.
- Allowances are stated with their basis (installed or material; tax and delivery; cost or retail) and are backed by three priced options.
- The contingency has a written reason and a written rule about upgrades, and it is held outside any contract.
- Known-size unknowns (a panel, a possible abatement, rock in the trench) are listed with a range, even if carried at zero.
- Committed and paid are tracked separately from the budget figure.
- The working total is compared with the ceiling, and the response to an unfavorable gap is written down in advance.
Worked example: one line done two ways
| Field | Weak | Strong |
|---|---|---|
| Category | Counters | Countertop allowance, installed (template, fabrication, install; owner selects material) |
| Figure | 5,000 | 6,500 |
| Status | (blank) | Allowance |
| Source | Contractor's number | Three slabs priced at the fabricator, installed, 2026-03-22: 5,900 / 6,400 / 8,200. Allowance set to cover the first two; the third would be a 1,700 overage plus 15% markup. |
| Committed / paid | (blank) | Inside the B contract (committed); 0 paid; selection due week 5, before cabinets are set. |
Common mistakes
- Building the budget from the contractor's number alone. The contractor's price is one line. The soft costs, the owner-supplied items, the living costs and the contingency are yours, and they are a quarter or more of the Alder Street total.
- Carrying the low end of a range. Dana carried $52,000 from a "fifty to sixty" range and the bid came in at $63,400. Carry the middle, or carry the low end and say so in the note.
- Treating a commitment as a cost. A signed $63,400 contract with $11,900 of allowances inside it is a $51,500 commitment and an $11,900 question, before any change orders.
- Cutting contingency to make the total fit. The total fits and the risk does not move. Cut scope, hold allowances, or raise the ceiling; write down which.
- Spending contingency on an upgrade before the walls are closed. Section 5.
- Losing track of the change log. Each change is small; the sum is where budgets die. Keep the running total visible.
- Not reconciling the lender's draws with the contractor's milestones. The mismatch surfaces as a trade who was not paid.
What is still unresolved after this exercise
- Every "estimated" line, until a bid or an order replaces it (Module 7).
- Every allowance, until a selection with a price replaces it (Module 8).
- Every known-size unknown, until the assessment is done (the electrician's load calculation, the soils report, the test results).
- The deposit, lien-waiver and retainage practice that applies where you live, and what your contract says about change pricing: questions for your attorney and your state's authorities (Module 4), with the examples in section 4 as context.
- Whether your lender's draw schedule and your contractor's payment schedule agree.