Is a down real estate market the best time to remodel?

MorrowduringSeveral readers have asked lately whether or not now — while the building, buying and selling of homes has slowed to a crawl — is the best time to do a remodel. I asked four prominent SoCal remodeling contractors for their perspective.

These contractors — Matt Plaskoff, John Sofio, Bob Sturgeon and Alon Toker — have all been around long enough to have experienced both peaks and valleys in the construction business.

The consensus is that now is a good time to remodel, with a caveat.

The benefits to remodeling when construction work is slow is that contractors and subcontractors tend to lower prices in order to get more work and keep their crews busy. In a frenetic market, like we’ve seen in past few years, those crews have swelled, and they need work.

Also, material prices may be lower (though a lot depends on global factors), and shops that make cabinets and factories that make other supplies may not be operating at full capacity, so there may be more attention to quality.

However, the caveat is that while there may be a glut of construction workers, not all of them have experience with the practicalities of remodeling. Those who have come from the production home arena, for instance, are not trained to deal with dust mitigation, daily clean up, noise issues, working hours, working around a family, protection of pets and children, and so on.

My advice: Be extra diligent when selecting the people who will be working inside your home, and let the glut of low-ball bids become a secondary consideration.

Read contractors' full comments

Here is what the contractors said:

Matt Plaskoff, Plaskoff Construction, Tarzana

Typically, a down real estate market is characterized by a lack of new home building and buying. Consumers are typically going down the path of “We might as well hang tight and remodel our kitchens and baths and wait until the market gets better before we sell and move up or away.”

The issue is that oftentimes a loss of equity in the home stifles their ability to pull money out to do these projects. Consumers with savings or smaller projects that can be put on credit cards will be able to undertake projects.

The good news is that in a down real estate market, there is a glut of qualified workers and individuals who can perform the high quality work. This glut creates a more competitive environment and all of the savings from the bottom up are passed to the consumer resulting in more attention and more value for the dollar. Bottom line: If you have the available funds, now IS the time to remodel.

John Sofio, Built, Los Angeles

A down market is a great time to remodel. Today’s down market has caused numerous subcontractors to lower their pricing structure to secure continued work with us, and that has allowed us to pass the savings to our clients. This keeps the work flowing when capital is tight. Homeowners appreciate the lower pricing, and usually engage in larger projects, realizing a net benefit overall.

There is a time value to money, and accomplishing a project in a lower cost market ensures a better investment for the homeowner. A project that costs “X” today will inevitably cost “X+” a year from now due to normal inflation of the economy. So if one can take advantage of a lower market now, the savings in the future will be exponential.

Bob Sturgeon, Westside Remodeling, Westlake Village

In a down real estate market, several things can happen which actually make it a good time to remodel.

Moving can become less appealing when you’re not getting top dollar for your home, and there is short term uncertainty where home values are headed. Also, home improvements are a good way to maintain the value of your home, even in a down market. We find a lot of people decide to remodel and make their existing house a more comfortable and relaxing environment, rather than move.

You have a general slow down in the demand for remodeling which means less work for contractors, therefore they are more likely to give even more competitive pricing.
With some of our subcontractors, we have the opportunity to negotiate the price more than during the peak busy times.

The cost of lumber has come down quite a bit as the new housing market has slowed.
Another benefit is that factories and shops (like those that make cabinets) are not operating at full capacity. Thus, more attention to detail is possible, you’re less likely to see a “just get it out” attitude, which results in higher-quality products.

A word of caution: The slow down has meant the new-construction contractors are trying to become remodeling contractors. The complexity of remodeling takes a lot more knowledge, planning and expertise vs. new construction. New-construction contractors, their employees and subcontractors are not accustomed to working inside a person’s home while they are living there. Oftentimes you have a “bull in a China shop” type of scenario. Dust protection, noise mitigation, working hours, daily clean up, protecting kids and pets from work area hazards are just some of the things professional remodelers are trained to deal with that new-construction guys never have to think about.

Due diligence is always necessary, and perhaps even more so in a down market. Homeowners are cautioned about choosing the right contractor. Look for referrals to licensed and bonded professional remodeling contractors from family, friends, and other people they trust who recently completed a successful remodeling project.

Alon Toker, Mega Builders, Chatsworth

There is no clear answer in my opinion.

On the plus side of remodeling in a down real estate market, we find the following:

1. Potentially lower material prices: as most construction materials are commodities, lower demand often translates into lower prices. Exceptions are not uncommon, however, with trade agreements, global demand, weather/natural disasters, etc. sometimes playing a role that more than offsets the easing of prices due to the slow down.

2. More competition: With a cooling real estate market, many small builders make the switch to remodeling, creating excessive supply, which in turn tends to create down pressure on prices.

3. Need to keep busy: many remodelers feeling the pinch are under pressure to lower prices to keep their crews busy.

On the negative of remodeling during a down real estate market, we find the following:

1. Shrinking equities: with real estate trending lower, home values do the same. As available equity shrinks so do available funds for remodeling.

2. Rising interest rates: a tighter credit market and rising interest rates almost always go hand-in-hand with a real estate down-market. Higher interest rates mean homeowners would get less in borrowed funds for a given monthly payment. In other words, all things being equal, homeowners could afford less.

3. Perceived value and return-on-investment: perception plays a big part in consumers’ spending. With home values trending lower the perception is that it is less worthwhile to invest in the house. Homeowners who could readily justify and afford to invest a certain amount in their homes in an up market would be very reluctant to invest the same or even a lesser amount in a down market, although in absolute terms their financials did not change.

4. Higher risk of hiring the wrong contractor: As noted above, builders with little or no remodeling experience offer remodeling services. Additionally, poor and mediocre contractors who find themselves out of work (before legitimate well-reputed remodelers do) lower their prices and are bound to lure in even more homeowners looking to capitalize on a “deal” than usual.

Summing up, it should be evident that there is not a clear answer and while some homeowners might benefit from a slow-down in real estate when they remodel, just as likely, others stand to lose.

The correct answer, I believe, is that when the need exists and the financials permit — that is the correct time to remodel. Life is simply too short to wait for a needed room or an inviting kitchen until such time that the real estate market would be up or down. Homeowners should remodel on their own terms in their own time. As long as they exercise due diligence in their hiring and do their homework with regard to their options, upgrading one’s home when it is actually needed and desired is the correct time to do so.

1 Comment on Is a down real estate market the best time to remodel?

  1. DanO

    I’d echo the contractors above in recommending that people ask for references from the potential builder/contractors, and follow up by calling the references. Try to get several references too, so that you’re not just getting a few friends and family of the contractor. My contractor friend even gives addresses (with permissions) for potential clients to drive out and look at his work. It doesn’t hurt to ask for this. One can also ask for pictures.
    One point I didn’t see in the contractors’ comments is that with much less building going on and contractors and their crews being more available, this means that those crews won’t be spread so thin and should be able to keep to the required timelines. Putting timelines into the contract – with rewards or penalties for beating or missing – can be useful as well.