Work & Finance

How to Survive a Home Renovation

The housing meltdown’s silver lining: For the first time in years, contractors need your business. Here’s how to get top-quality work without undermining your financial security.

When Jack Mahoney, a 43-year-old senior manager in a financial technology firm, embarked on a major remodel of his family’s two-bedroom 1880s Connecticut vacation house last year, doubling its size, he was prepared for the worst. The word renovation, it seems, is always preceded by the word nightmare. Web sites such as contractorsfromhell.com warn that embarking on a home-remodeling project will end life as we know it. Mahoney, in fact, had a friend in Manhattan who had fired a contractor a year into a massive apartment renovation after learning that the guy was taking his payments and using the money to fund another project. “I’d heard just terrible stories,” says Mahoney.

There was no such bad luck for the Mahoneys. The project breezed by, with the construction progressing like clockwork and the quality of the work top-notch. The contractor was not only on site every day to supervise his crew, but actually got out there to swing a hammer himself now and again to make sure the work was done properly. Though the job was tricky, involving a substantial addition to an historic house, Mahoney says the transition from old to new was seamless. Now the family spends cold winter nights around their new colonial-style Rumford fireplace—a brick-faced, wood-paneled beauty that fits right in with the older part of the home.

A hassle-free renovation? What’s going on here? Next thing you know Rudy and Hillary will be sharing a ticket. Gisele Bündchen will start dating 40-year-old guys from accounting. No, this is not a sign that the end of the world is nigh. It just means that the bursting of the real-estate bubble has an upside. Back in the go-go days, getting your contractor to call back—never mind finish the job on time—was considered a major victory. But now, suddenly, contractors need work, and homeowners like the Mahoneys can get through renovations without Zoloft. Plus, you have leverage when it comes to negotiating price. One architectural designer in Portland, Maine, recalls exactly what tipped him off that the pendulum had swung back toward the homeowner: His phone started ringing. “Within the last year,” says Martin Moore, “I’ve had contractors—good ones—calling me and saying, ‘Marty, what do you have on the drawing board?’ That was a turning point.”

Overall remodeling spending in 2007 was expected to fall 2.3 percent from 2006, the first drop since 2003, according to preliminary numbers from Harvard’s Joint Center for Housing Studies. The slide is expected to continue into this year, with remodeling spending falling 4.5 percent in the first half of 2008 compared with the first half of 2007. After years of double-digit growth, it’s a dramatic reversal. Some contractors are actually relieved by the slower pace. “When the housing market was going so strongly, we were in a frenzied mood, trying to keep up with everything,” says Larry Murr, president of Lawrence Murr Remodeling, in Jacksonville, Florida. “It’s nice not to have to wait a week for electricians because their crews are all tied up.”

The only drawback to the current environment is that tighter lending standards can make it tougher to get financing. But if you have good credit, you can still get the money (find out How to Pay for It). One thing to keep in mind: It’s a mistake to think of a renovation as an investment that will pay off in full when you sell your house. You may boost the value somewhat, but “it’s very difficult to make money remodeling,” says Lou Barnes, a partner with mortgage banking and brokerage firm Boulder West, in Colorado. “The reward for doing the work is the enjoyment of the space.”

And just because contractors will return your phone calls doesn’t mean you can go into the process without knowing the rules of the game. To capitalize on the buyer’s market, you’ll need to know how to negotiate and what steps you can take to protect yourself from unscrupulous operators. (Find out how to Translate Contractor-Speak so that you can interpret their language before you sign the contract.) Here’s our five-step plan for surviving a home renovation.


Hire Locally
As tempting as it is to look far and wide to find the cheapest contractor, you’re usually better off with a firm based in your town, says John Allee, an architect based in Salisbury, Connecticut. The local shop has a big incentive to do the job right. “Word-of-mouth is everything, and one bad job can really hurt someone’s reputation,” says Allee.