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Those willing to spend can find great remodeling deals
Updated 5/21/2009 5:10 PM ET
ORINDA, Calif. — In this wooded, high-end suburb near San Francisco, Darien Destino isn't accustomed to getting deals from people who work on her house.

But the dour economy — which has hurt the home renovation business — has a silver lining for her and others with cash or strong home equity.

Destino and her husband, Don, recently had their 3,000-square-foot home painted by the same contractor who bid 40% more for the job two years ago. The pine trees crowding the front yard were removed for half the cost requested in 2007.

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The tree remover "knocked on our door," says Destino. The day after giving an estimate, he arrived with a crew. "Usually, we have to wait," says Destino.

The couple — confident that Don's financial services job is secure — are considering whether to landscape their yard. Previous estimates will be revisited, Destino says.

"We're going to see what companies can do," says the stay-at-home mom.

The Destinos are on the winning end of conditions that are wreaking havoc with home and landscape renovators nationwide. Rising unemployment, falling home values and diminished stock market portfolios have cut demand for home renovations, while many construction firms, idled by the collapse in new home building, look for work.

That's driven savings for those who renovate. Despite some signs of a bottoming in the housing market, contractors coast to coast say they're bidding jobs for less than they would have two years ago. Lower costs for material, such as lumber, help. But mostly, contractors are paying less for labor, or they're cutting their profits.

"There're a lot of hungry contractors out there," says Mark Scott, owner of Mark IV Builders in Bethesda, Md.

He estimates remodeling costs in his region are down 15% from two years ago. He's laid off 16 of 26 people.

Nationwide, the home improvement market is expected to shrink 12% this year to $217 billion for owner-occupied properties. That's after a 10% decline last year, says Harvard University's Joint Center for Housing Studies.

"This is a window for remodeling," says Jim Haughey, chief economist for market researcher Reed Construction Data. He just had his driveway repaved for 30% less than he would have paid three years ago, he says, and saved 25% off labor rates of 18 months ago to put tile in a kitchen. "It's a good time to do the work if you've got the money or the credit," he says.

Small jobs grow in importance

While homeowners get savings, contractors are adjusting to the new economics.

At Mark IV, the average-size job is now $125,000, down from $350,000 two years ago, Scott says. Homeowners still want new kitchens and bathrooms — often the safest remodeling investments — but second-floor additions and new master suites were the rage when housing was booming, Scott says. Mark IV also recently launched a division to upgrade homes on energy efficiency. It'll even take "handyman" jobs that it wouldn't have taken before, Scott says.

New Jersey-based G.M. Construction & Waterproofing is making similar choices. It recently renovated a single warehouse.

"Normally, we wouldn't do anything that small, but we have no choice," says co-owner Mehabub Bhuiyan.

G.M. Construction is also bidding on a 13-house remodel in Brooklyn. Bhuiyan says he's cut his bid 11% from last year's level. Since November, the company has laid off more than half its 470 workers.

Smaller contractors are also suffering. Claudiu Tegzes, owner of Claude Stone & Tile in Seattle, would normally employ two others. Now, he's working solo. Last year, he had one job that kept him busy for two months. This year, he's taking jobs down to $250 "just to get out of the house," he says.

"It's better to get some money than no money," he says.

Many consumers, fearful about the economy, aren't spending even if they have the money, Scott says. Others can't get the credit.

Craig Durosko, president of 50-employee SunDesign Remodeling Specialists in Burke, Va., had one client who needed to borrow $125,000 for a remodeling job. He could only get $100,000 because the house didn't appraise high enough. Sun Design tweaked the client's payment schedule so that the job could be done as planned.

Ben Templeton, of Templeton Building in Birmingham, Mich., got caught in the credit squeeze himself. He's attempting to borrow $100,000 to remodel a home he bought with 15% down in June 2008. He has good credit, he says, but banks won't make the loan because of falling home values.

"The credit just isn't available," Templeton says.

Low bid may not be best bid

Contractors' hunger has created opportunity for homeowners. But it can also pose added risks. So many contractors need work that they may bid jobs below cost. That could lead to shoddy work or unfinished jobs, contractors and remodel experts say.

"There are some real price wars out there with low-ball contractors," says Sal Alfano, editorial director of Remodeling Magazine.

Scott says he's getting more calls then ever from homeowners to fix work that other contractors bungled. New Jersey-based landscape architect Chris Cipriano, of Cipriano Landscape Design, says he recently bid on a pool job. The previous contractor was hired to put in a 700-square-foot pool but made it 550 square feet, Cipriano says.

Cipriano does landscaping and pools. Competition for jobs has led some landscapers to claim that they also do pools, "even if they've never built one," he says.

Randy Pennington saw the competitiveness of the market last December when he collected bids to recast an attic into a workout and audio/visual room.

The business consultant and author got bids ranging from $20,000 to $60,000 to redo the 276-square-foot space in his Addison, Texas, home.

"When I got the $20,000 bid, I thought, 'This is either a great deal, or this guy can't really do the job,' " says Pennington.

Having remodeled a kitchen and bathrooms before, Pennington has learned that the lowest price isn't always a winner. He and his wife selected a contractor whose bid was in the middle of the range.

Aaron and Maggie Wendel, of Wake Forest, N.C., also recently went with a higher-bidding contractor to convert an attic into a bedroom. Before they did so, the contractor lowered his price about 13%, Aaron says.

Even if consumers hire top contractors, they'll likely see savings, Cipriano says. While he hasn't slashed his prices, his clients are saving money on materials, especially plants, he says. Costs of other materials have dropped, too. Reed Construction Data says soft lumber prices are down 35% from three years ago. Plywood and wallboard cost 17% less, and copper piping is off 40%.

A limited time only?

Signs are building that the remodeling deals may not last beyond the next 12 months.

Durosko's firm won six design contracts in the first 12 days of May, Durosko says. It got only one in April. Templeton says inquiries to his suburban Detroit firm have also picked up, despite the woes of Chrysler and General Motors.

"People are starting to pull the trigger," Durosko says.

Home sales are also showing signs of life. In the first quarter, sales rose in 17 states from the previous quarter, largely driven by demand for foreclosed and distressed homes. When existing home sales rise, new construction typically follows.

The National Association of Home Builders said earlier this week that confidence is building among builders. It anticipates that housing starts, down 80% in April from their peak in January 2006, will pick up later this year, says NAHB chief economist Bernard Markstein. That will create jobs for builders, reducing the number seeking remodeling jobs.

More new construction will also drive demand for materials, and prices may rise, says Reed economist Haughey.

Still, Markstein says any recovery will be slow — preserving good remodeling deals and contractor availability for the next six months to a year.

"This really is a buyers' market," Markstein says.

Posted 5/20/2009 9:06 PM ET
Updated 5/21/2009 5:10 PM ET
 Jose Flores, left, and Jay Cody of Mark IV Builders work on a house in Olney, Md. Mark Scott, owner of Mark IV in Bethesda, Md., has laid off 16 of 26 people.
By H. Darr Beiser, USA TODAY
Jose Flores, left, and Jay Cody of Mark IV Builders work on a house in Olney, Md. Mark Scott, owner of Mark IV in Bethesda, Md., has laid off 16 of 26 people.