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Home Money Pits: Protect Yourself From Unexpected Expenses

Alexandra Macqueen, CFP

When major household repairs and projects go awry, the unexpected expenses can place a tremendous strain on your home life. Here’s an overview of the most common ways in which these costs can spin out of control. We’ve also included a project management approach to help keep headaches to a minimum.

The Many Faces of Potential Money Pits: Know Your Foe

Unexpected expenses for home repairs and renovations can arise whether you’re a current owner or a new home buyer. It’s important to watch out for these whether your home is new or older. The cost of house repairs, retrofits and renovations can grow when:

  • Basic upkeep is ignored.
  • A house is purchased with unforeseen or unanticipated problems.
  • You’re working on home renovations.

Costly home repairs can also arise suddenly, like a tree falling onto your roof or an unexpected flood. Although the costs of these kinds of disasters are typically covered by your home insurance, you’ll still be dealing with the repairs as they take place. We’ll address each of these situations in turn.

Maintaining a Good State of Repair

The plot of the popular 1986 movie “The Money Pit” revolves around the challenges a couple (played by Tom Hanks and Shelly Long) faces in renovating a home that has been allowed to gradually fall into a state of disrepair.

Homeowners are commonly advised to maintain their home using an annual allocated reserve of up to one to three percent of the home’s value. This amount may not be called for in any given year, but repairs, maintenance and other proactive work need to be planned for financially. See our list below for guidance. A single large product purchase such as roofing can consume many years’ worth of the annual allocated reserve. If you’ve saved over time, these unexpected expenses won’t be so hard on your wallet.

Avoiding Unexpected Expenses When Purchasing a Home

Sometimes when you purchase a home, it appears to be in move-in condition. How do you make sure you aren’t surprised by unanticipated costs and repairs?

Home inspections are key and may be required by your insurance company in order for you to obtain homeowners insurance coverage. Keep in mind that your insurance company may undertake their own inspection in addition to any inspection you have carried out as the owner. With an older home, previous work and upkeep on the property might not be to a standard that people today would agree is acceptable. The most common renovation projects for older homes include upgrades like:

  • Improved electrical systems
  • Better insulation
  • Climate control like air conditioning
  • Window replacement
  • Overhauling or brightening of prime spaces such as the kitchen or bathroom

The Biggest House Repair Budget-Busters

No matter the age of your home or how long you’ve owned it, the renovation and repair projects with the greatest chance of exceeding a planned budget include:

  • Roofs
  • Plumbing
  • Electrical systems
  • Asbestos remediation
  • Basement jobs

Replacing a Roof

Industry standards for house toppers vary between 10 to 25 years, but even a single harsh weather season can raise issues. The materials used for roofing are subjected to the full range of weather conditions, like:

  • Harsh heat
  • Extreme cold
  • Hail
  • Severe winds
  • Heavy rain

Many roof systems are tar-based, which can soften in high heat and become brittle during colder weather. Both issues will weaken the ability to hold your roof in place –meaning that during high winds, shingles can crack or even blow off, leaving you with a repair job. Note that not just the roofing materials, but the trim and eaves also need to withstand wildlife nibbling around the edges while trying to gain access to dry and comfortable spaces.

One theme you’ll note in renovation and repair is that water can be the enemy. Given sufficient time and volume, water can warp, degrade or render useless much of the materials or structure of a home. To avoid costly repairs, homeowners need to keep a very steady eye on water and where it goes.

Plumbing Problems

Imagine that you want to install a new sink, toilet or shower fixture. Perhaps they’re showing wear, or you want to install a new water-saving feature. Once the piece is removed, suddenly the state of the invisible systems of your home come into view. At that point, you should be able to see any pre-existing damage or issues that should be remedied before they become severe. These might include:

  • Water leakage
  • Previous repairs completed in non-expert ways
  • Structural damage that indicates a compromised structure (such as long-term, previously hidden water damage to an exterior wall)

This type of situation could trigger a budget hit. For example, say you’re replacing a new shower head. You realize the shower wall has a bit of give and needs replacing. You’ll need to replace soaked insulation and drywall in the shower stall and rebuild with a proper moisture barrier. This costs significantly more than just a new nozzle. Having a repair reserve eases the pain of such discoveries.

Electrical Systems

Electrical supply and switching systems usually function unattended with little need for maintenance. But modifications can reveal surprises that may have considerable costs attached.

For example, older electrical systems may use aluminum wiring. When aluminum wiring was first used in homes, it was prized for its lower cost and the ability to use modern connectors with no messy solder. These desirable characteristics, however, have been overshadowed by the realization that aluminum is brittle and can develop cracks, creating potential fire hazards in places it is very difficult or even impossible to access.

An even older system, dating back to the first electrification of homes, is called knob and tube wiring. In principle, knob and tube wiring can be safe in a house, as long as the materials remain in good repair. However, some homeowners have taken it on themselves to DIY repairs and modifications to knob and tube systems, sometimes splicing onto newer wiring for the proliferation of electrical gadgets that didn’t exist when the homes were built.

Addressing Asbestos

Another source of potentially large home repair bills is the cost to resolve issues associated with asbestos. Asbestos is an effective insulating material that was later determined to be a health threat worldwide for lung damage. From the 1940s to the 1970s, asbestos was commonly used in a variety of household applications, from insulation to floor tiles to roofing. So, if a part of your house (such as a wall or ceiling) is opened up and asbestos is discovered, hazardous-material removal could eat up your maintenance budget for years to come. Whether or not you discover asbestos during a home renovation project is largely a function of your home’s age. If you encounter this material, you’ll want to have a professional check it out to provide expert guidance.

Living With Lead

Another issue that homeowners may want to address is the use of lead in household applications. This is typically found in the form of lead pipes delivering water and lead in paint used in a house. If you’re concerned about the presence of lead in drinking water, you’ll want to seek professional input. Lead pipes in a home can be replaced with more modern materials including copper and, more frequently, plastic piping.

In an older home (built prior to 1978), paint jobs may have used lead-based paint. If you’re disturbing a painted surface, you could expose family members to lead as that paint chips, flakes or is removed. The Environmental Protection Agency (EPA) has issued guidelines which can help homeowners decide how to scan for and address any concerns about household lead exposure.

Basement Rebuilds

Digging out a basement to lower the floor is one project people consider when they want to create an additional usable room in an existing house. Sometimes a sealing of the foundation from inside or out is accomplished at the same time. Both are major tasks, especially compared to a basement refinishing job, which is largely decorative as it principally addresses finishes, not the overall structure of your dwelling.

Major work of this nature should never be undertaken without engineering sign-off and any required government permits. Foundations support the structure of the entire home, and any sloppiness or problems could have a negative impact on the entire house, or neighboring homes. For example, if you are digging a basement deeper and proper care is not taken, this can cause adjacent houses to settle making floors slope and doors no longer close properly. You’ll want to ensure your home insurance policy will fully cover you in the event of a high-cost mishap. It’s important to have work properly planned, inspected and built to code.

The Homeowner as Project Manager

When you decide to take on a renovation project or repairs for your own home, it’s a little like taking on a short-term, part-time job as a project manager. The good news is that common sense, more than specialized skills, is mostly what’s required to fulfill the role.

Project management is usually made up of the following six steps:

  1. Research
  2. Planning
  3. Determining costs and timelines
  4. Overseeing work
  5. Determining if any revisions can be accommodated, as necessary
  6. Controlling costs and timelines

Step 1: Research

In this phase, you can benefit from gathering the wealth of knowledge accumulated by the people you already know, such as friends and neighbors who have similar houses or have completed similar projects. You should also talk to those you’re considering working with. Take care to ask lots of questions about your project, so that you can develop a clear picture about what is reasonable (and unreasonable) to expect for your project and budget. The questions you might ask include:

  • What went well with your renovation project, and what went wrong?
  • How long did your project take, and was it longer than you expected?
  • Did your project come in under your budget, or did it cost more than you planned? What were the unexpected expenses?

For a large job, getting opinions from outside professional help, like an architect, interior designer or engineer may be a good idea. These experienced professionals can confirm a good idea, or caution against a risky plan based on their depth of experience. Large jobs are defined as:

  • Involving more than one room
  • Modifying a whole-house system, like the roof, plumbing or electrical wiring
  • Involving changes to the overall structure of the house, like modifying a load-bearing wall

Step 2: Planning

Once you’ve researched the scope of your intended project, you can start to develop a detailed plan that will underpin the actual work. Each home renovation project has phases, requirements, timing, people, materials, possibly permits, and certainly dollars – and the more you can break down a project into smaller planning steps, the better you are able to manage it. This planning phase epitomizes a project management mindset, as it is the process of breaking down the intended task into many small steps that will allow you to effectively manage the project and meet your intended outcomes.

In this phase, it can be helpful to specify each step and layout the timeline. You’ll want to detail the expenses and dependencies (which tasks must be completed before others can start) as closely as possible for cost and time. Consider documenting your plans in a spreadsheet that you can update as you go. For each task, your spreadsheet can set out the:

  • Timeline
  • Responsible party
  • Budget
  • Dependencies, which will show how the overall project timeline shifts if one task is not completed on schedule.

Step 3: Determining Costs and Timelines

After you’ve gathered the details about what’s necessary for your project, you can develop a strategy for costs and timing. For project costs, you will want to estimate the two main components for each task: materials and labor. To develop those estimates, you’ll need to research the costs involved for each component, by choosing materials and verifying their cost. You’ll also need to ask tradespeople for time and labor quotes, including hourly rates. Keep in mind that your plan is highly likely to change as your project is executed – but planning can help you avoid unnecessary overlap, costly gaps in preparation and hopefully unexpected expenses.

Step 4: Overseeing Work

Now that you have your plan that specifies the actual work to be undertaken complete, together with the project timelines and cost estimates, the next step is to find the people who will do the work. If this is a do-it-yourself project, you’ll be the point person, but for larger projects, you’ll want to engage with a contractor or contractors for this part.

With larger projects, you’ll usually have a general contractor who oversees the overall project, as well as supervises labor and trades. As the overall project manager (and homeowner), you’ll want regular reporting from the general contractor on progress and how it matches the plan. Before starting the work, it’s useful to develop an agreement with your general contractor about how communication and reporting will take place. For example, are they available via email or text, or is voice-only communication the best solution? Are they available in an emergency, or do they have a service standard for returning calls?

Alternately, you might act as your own general contractor, overseeing different specialists who carry out parts of the plan. Whether you hire an outsider or take this job on yourself will depend on your own understanding of the project. It will also depend on your availability and willingness to undertake the required tasks.

Step 5: Accommodating Revisions

In many projects, revisions will be required because of things like unanticipated delays in the availability of labor or materials, unexpected expenses for work or supplies, or tasks that take longer to achieve or require alterations from the original plan. Unexpected expenses may arise if, for example, a specified material is unavailable or unsuitable, or has higher-than-planned delivery costs. Or perhaps you simply need more of the material than you thought. Project timelines may go off-course due to weather delays, a shortage of labor, a delay in obtaining required permits or a requirement to obtain more or different permits than expected.

When revisions occur, if you’re working with an outside contractor, you’ll want to ensure a good line of communication concerning changes. This can help ensure there is always agreement and sign-off if the change has a significant impact to the contract, whether it is to the time or overall budget. Again, the need for good communication underscores the benefit of developing an agreement about how reporting will take place in advance of the project kickoff.

Step 6: Controlling Costs and Timeline

If you are successful in implementing steps one through five, step six will be well under control. Conversely, if you forego any of the preceding steps, it can be very difficult to accomplish the goal of controlling costs and the timeline for your project.

It is unusual for a project to unfold exactly as set out in the project plan, no matter how experienced all the involved parties might be. There are simply too many factors and random variables that can influence the progress of even a seemingly simple project and cause unexpected expenses. Step six, controlling costs and the timeline, is perhaps best understood as the overall goal of successful project management. If your project deviates from its plan, as is likely, you’ll need to take steps to control the cost and timeline of the project as it unfolds. Practically speaking, this means returning all the way to Step one and implementing each of the steps, but applying them to your revised project, not the original project plan.

Use Project Management Steps to Increase Chances of Success

When you’re planning a major project, replacing or updating key features of your home, or responding to weather disasters, it’s easy for your careful plans to fall by the wayside and create unexpected expenses. But how do you keep your head on your shoulders when your plan is veering off course? Following the steps for effective project management can help ensure you keep your wits about you — and that your project doesn’t turn your place into a money pit, and instead elevates it to a home sweet home.

What other advice would you offer homeowners to help them avoid unexpected expenses?

12 Responses to "Home Money Pits: Protect Yourself From Unexpected Expenses"
    • Joe Nowasjoe01 | September 13, 2021 at 12:32 pm

      I am looking for home owners policy for 1 home now and 2 homes later

      • Extra Mile Staff | September 14, 2021 at 11:41 am

        Joe – Thanks for reading Extra Mile. To get a quote for homeowners insurance from The Hartford, please call one our representatives at 877-422-2345. They are available Monday through Friday from 7 a.m. to 11 p.m. ET and on the weekends from 8 a.m. to 6 p.m. ET.

    • Diana German | September 12, 2021 at 12:50 pm

      Thank you. This is helpful.

    • Jason Vogler | September 11, 2021 at 8:19 pm

      Nothing was mentioned about having a home maintenance policy. What happens when an item needs to be replaced and the vendor assigned doesn’t know the product to be replaced is available and the warranty co. agrees. In my case it was a garbage disposal that was hard wired and I was led to believe that model was no longer available. I was told that since it was not an electrical failure, the cost of putting in a recepticle was my expense. Needless to say, I went to a local supplier and got the item.

    • Matt Bezanson | September 11, 2021 at 4:50 pm

      A homeowner should always check the insurance coverage of any contractor they hire. They should be carrying general liability to cover damage that they may cause, and workmens comp to protect the homeowner if a worker gets injured or killed on the job. Without these, the homeowner may find themselves liable for huge expenses.

      Consider using a professional home inspector as a consultant before hiring contractors. An inspector is independent, has no interest in up-selling a job. Your roof may only need repair, for example, but if you call a roofer they are certain to tell you that you need a complete replacement. Your local public-agency inspector is concerned only with Code compliance, has no interest in protecting your wallet. To find an good independent inspector, start at http://www.ashi.org.

    • Gerardo Garcia | September 11, 2021 at 2:08 pm

      Great advise!! And if you want to stay married let the pros do the work 🙂

    • William Singleton | September 11, 2021 at 12:45 pm

      is there a contact number that I can call or some one that I can get in contact with for help

      • Extra Mile Staff | September 14, 2021 at 11:45 am

        William – If you’d like to speak with someone in customer service at The Hartford, please call 800-423-0567. Representatives are available Monday through Friday from 8 a.m. to 9 p.m. ET and on weekends from 8 a.m. to 6 p.m. ET.

    • Cordell Cowart | September 11, 2021 at 12:10 pm

      Do not leave all of the inspecting to the inspector. Always check for water damage (mold) any place there is water. Behind bathroom cabinets and especially behind the refrigerator if there is an ice maker.

    • M de Carvalho | September 11, 2021 at 10:49 am

      Excellent advice. Thank you.

    • Larry Dale Killion | September 11, 2021 at 9:54 am

      As a licensed engineer and licensed attorney, some other things to consider as the better practice habits:
      – For any project, have a reasonably detail written scope of work and schedule and budget, putting things in writing, clarifies what is expected for you and the contractor. You and contractor sign or initial the scope, schedule and budget.
      – Have the contractor explain in reasonable detail before they begin, what they plan to do…and ask them to list the most likely risks involved with the project not being completed on time/on budget
      – Confirm the contractor has relevant trade licenses (electrical, plumbing, HVAC, etc). Check on line licenses are current.
      – Ask the contractor if they are bonded and/or have liability insurance and ask for a copy of the policy. (More prudent contractors with a bond or insurance a much more likely to comply with what they say they will do.)
      – Ask the contractor what main building codes apply to the project and confirm that they are familiar with the code
      – Ask the contractor if a building permit is required, will one be obtained and by whom (permits are usually owned by the party who obtain ones, so if contractor walks on a job so does the permit, hence getting permit in owners name has advantages), and what happens if the building inspector does not approve the work.
      – Confirm with contractor you will have the right to periodically inspect the work and have any of your questions answered.
      – Have a friend or colleague who is knowledgeable about the project look over your shoulder and give guidance as part of your back up team. You can also pay for a final inspection by a professional of your choice.
      – Don’t ever pay full price up front. Make periodic payments as the work is completed and retain 10-15% of the contract price to be paid once the project is finalized and relevant inspections passed. Too often contractors having been paid up front, spend their time on other projects and neglects yours. By having periodic payments gives protection of proper work being done and an incentive for the contractor to stick with the schedule.
      – Does the contractor have a fixed place of business or works out of the back of their car. Gives an indication of the stability of the contractor.
      – Ask for at least three references, one of which is over two years old…to give a clue if project performance has long term success.
      – Ask contractor to advise what circumstances would cause the contractor to not work to your schedule.
      – As contractor how long they have been in business.
      – It is ok and I encourage DIY projects…just do your research, understand and comply with applicable codes, technical and safety precautions – its more than just going to your local Big Box hardware store, buying a product and install thinking you know what you are doing. The worst case situation is not knowing what you don’t know. If you are not comfortable with any of these, call in an ‘expert’.

    • Brian Wilson | September 11, 2021 at 9:12 am

      Clean your gutters.

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