FROM THESTREET.COM: The current housing downturn provides opportunity in at least one area–a home renovation–thanks to good deals from contractors and builders.

Homebuilders are feeling the pinch these days. Even the biggest firms, such as Toll Brothers (TOL), D.R. Horton (DHI) and Lennar (LEN), are hurting.

Many builders are turning to home renovations to keep their businesses out of the red, creating competition that is lowering prices in some regions. These factors mean it's a great time to renovate, even if the slumping market has reduced the impact some renovations have on a home's resale value.

Which Renovations to Do

To ensure that your renovation will pay off, make improvements that others will appreciate as much as you do. Kitchen and bathroom renovations still carry some of the highest returns on investment—you'll typically increase the selling price of your home by 80% to 90% of what you spend on the renovation. If you have three or more bedrooms and only one bathroom, adding an extra full or half bath especially should boost the resale value of your home.

But don't install brightly colored backsplashes, or change your bathtub to a shower stall. These projects and others like them are a matter of personal taste, and they may not add value in the eyes of a future buyer.

Also, don't compromise long-term value for short-term convenience. With the kids gone, tearing down a wall to convert half of the second bedroom into your walk-in closet may seem like a good idea -- but it isn't.

Check out Remodeling magazine's 2007 Cost Versus Value report to learn how much money you stand to recoup from the renovation project you're planning.

You don't need to restrict yourself to beige carpets and white tiles. A renovation should be personally satisfying as well as financially viable. But before you indulge your wildest dreams, remember that they could be a prospective buyer's nightmare.

Finding a Contractor

The best way to find a contractor is word of mouth. Ask your friends and coworkers for the names of contractors they'd recommend.

If you're looking for additional names, search online professional databases, such as the U.S. Green Building Council Web site or Contractors.com. Your local hardware store may also be able to recommend dependable local contractors.

Once you have a list of contractors, interview each of them over the phone, then choose three or four contractors to investigate further.

Ask candidates the following set of questions:

      And always ask for references--from both recent and older projects. You should ask:  


Making the Choice

Your final candidates should provide a detailed breakdown of costs, along with a copy of the contract that you would sign if you were to hire them.

The contract should include the following provisions:

Check Contractors.com for more detailed information about items that should be included in the contract.

Compare the estimates you receive, but don't simply jump at the lowest one. A contractor who offers significantly lower costs on materials or time may do shoddy work or make unrealistic estimates. Instead, select a reasonable estimate from a contractor who is likely to be reliable and dependable.

Finally, negotiate with the contractor you've selected to see if there is any flexibility in the estimate he or she provided. For example, you might offer to do some of the finish work, such as painting the room or putting up the molding, on your own. Scheduling the work to avoid peak renovation season—April to November—may cut the price as well.

Once you're satisfied with the contractor and your agreement, sign the contract and wait for the work to begin.