CONTINGENCY PLANNING
Hope is not a financial strategy. The 20% rule is a mandatory mathematical buffer.
The Unseen Threats
Until demolition occurs, every estimate is a hypothesis. Opening up walls reveals the true state of the asset: water damage, code violations from previous undocumented work, asbestos, and structural rot.
The 20% Margin
For standard renovations, allocate 20% of your total projected subtotal directly into a liquid contingency fund. For historic homes (pre-1950), this must be elevated to 30%. Do not communicate this reserve to your contractor. It is your defensive capital, not a slush fund to expand their margins.
Change Orders
When an unforeseen issue arises, the contractor issues a Change Order. Scrutinize these aggressively. Separate legitimate structural discoveries from errors made by the GC during their initial bidding process. You fund discoveries; you do not fund their miscalculations.