Contingency Funds 101: How Much Extra Should You Set Aside for a Renovation?
Most homeowners go into a renovation with a budget in mind and a plan to stick to it. What they do not always plan for is when that budget runs into the unexpected, and in renovations, it usually does.
A contingency fund is a reserved amount set aside for these unplanned expenses. These aren’t overruns caused by poor planning on the contractor’s part, but rather things that genuinely could not be seen coming. The knob-and-tube wiring behind an old plaster wall, the plumbing that does not meet current code or the structural issue that only shows up once demolition starts.
No matter how thorough the pre-project assessment, renovations involve opening up spaces that have not been touched in decades. A thorough contractor will look ahead and draw on previous projects to anticipate what might come up. But the possibility of something unexpected behind the walls is always there.
How much should you set aside in your contingency fund?
The standard recommendation is 10 to 20 percent of your total project budget. The lower end applies to newer homes with less history behind the walls. The higher end is warranted for older properties, particularly homes built in the early-to-mid 1900s, where outdated wiring and aging foundations are common realities.
The age of the home is a starting point, not the only factor. A newer build does not always mean lower risk. It may still carry surprises depending on who constructed it and how.
For a $100,000 renovation, keeping $10,000 to $20,000 in reserve is the practical guideline. It is not money expected to be spent; it is money that needs to be available if something comes up that cannot be deferred.
When should you plan for more?
The 10 to 20 percent range is a starting point, not a fixed answer. Certain properties and project scenarios carry a higher likelihood of uncovering something unexpected. In those cases, planning toward the higher end of that range, or beyond it, is the more realistic approach.
Older home
The older the property, the more likely the renovation will surface something that needs to be addressed. In homes built before the mid-1900s, common discoveries include knob-and-tube wiring that no longer meets electrical code, lath and plaster walls concealing moisture damage, asbestos in insulation or flooring materials, and foundations that have cracked or shifted over time. When these things surface, they have to be dealt with before the rest of the project can continue. They are not surprises that can be deferred.
Previous DIY or substandard work
If the home was renovated before by a previous owner or a contractor who cut corners, there is a real possibility that the work created problems now hidden behind finished surfaces. This includes improper structural modifications, plumbing that was rerouted without permits, or electrical work that does not meet code. Opening those areas can reveal damage that goes well beyond what the current scope anticipated, and addressing it properly takes both time and budget.
Mid-project scope changes
Scope changes cost more once work is underway than they do before it starts. For example, changing tile selections or adding fixtures after framing is complete carries a premium compared to locking those decisions in before the project begins. If a homeowner tends to adjust plans as the project takes shape, or is likely to see something mid-renovation and want to incorporate it, building that flexibility into the contingency from the start is the practical approach.
What the contingency process looks like
The contingency fund belongs to the homeowner, not the contractor. A reputable contractor does not collect it upfront or hold it in reserve.
When something unexpected comes up on site, a reputable contractor should follow a clear process:
- Stop work in the affected area.
- Document what was found and present it to the homeowner.
- Walk through the options, including what happens if the issue goes unaddressed.
- Get the homeowner's approval before any additional work proceeds.
- Formalize the cost as a change order with a clear scope before work continues.
Some issues are non-negotiable, especially if they’re structural, plumbing, or electrical. While others are judgment calls. In either case, the decision belongs to the homeowner. Nothing should proceed on the assumption that the client will simply agree.
At Davies General Contracting, this is how we handle every unexpected finding. When something comes up on site, we document it, present the options and wait for your decision before any additional work begins. Any additional costs are formalized as a change order before we proceed.
Some contractors in the industry build a contingency line directly into the project quote. A reserved percentage is held and drawn against only if needed. If nothing is used, the client receives a credit on the final invoice. This approach is not universal, but it is worth asking about when evaluating contractors for a larger project. Either way, the process should be transparent, and the approval should always sit with the homeowner.
The most common mistake
The most common contingency mistake is not having one at all.
When a homeowner spends their entire budget without a reserve, there is no room left for the unexpected. When something surfaces mid-project that cannot be skipped structurally or mechanically, the project stalls. The work has to happen, and the budget is already exhausted. That is a difficult position for everyone, and it is avoidable.
A 10 to 20 percent reserve means that when something comes up, the homeowner is making a decision rather than facing a crisis.
For homeowners working within a fixed budget, Davies General Contracting recommends having this conversation before the project begins. That might mean adjusting the scope or making finish selections that leave more in reserve. Knowing where the flexibility is before work starts puts the project in a stronger position from day one.
If you are planning a renovation and want to work through your budget and contingency before getting started, contact Davies General Contracting for a consultation.
