Repairs on a budget.

If you're struggling to see a silver lining in the beaten-down real estate market, consider this one: It may be a rotten moment to sell your house, but if you've postponed a much needed renovation project on your home - replacing a rotting deck, repairing a leaky roof or updating an antiquated bathroom - now just might be the best time in years to tackle that task.

The reason: Costs are starting to drop - in some cases, sharply - on everything from building materials to contractors' fees as the economy weakens and housing prices tumble.

"It's hard for homeowners to think about spending on their houses when real estate values are falling," says Kermit Baker, a senior research fellow at Harvard who tracks remodeling trends. "But with contractors hungrier for business, you'll be able to negotiate better prices, win other concessions and hire better-quality contractors than you could a year or two ago."

Overall, experts say, you can expect to save at least 10% on the cost of a renovation and possibly a lot more, depending on where you live and the project you choose. And if prices on many remodeling materials continue to decline as projected over the next few months, the cost of home improvements should fall even further. Of course, not all renovations are created equal. Adding a home office or a swimming pool might be on your wish list, but these days neither is likely to give you much of a return on your investment.

With home prices still in a free fall, it's more critical than ever to understand which projects will return the most on your investment and how to negotiate the best deal with the pros you hire to do the job. The following strategies should help.

Cherry-pick your project

Understand this from the outset: No matter what kind of repair or renovation you undertake, you can't count on the payback you'd have gotten a few years ago when home prices were rising steadily.

According to a new study by Remodeling magazine, these days you can expect to recoup about two-thirds of your costs on a typical home improvement if you sell your home within a year after completing the job, compared with 87% in 2005, when home values were at their peak.

That means you have to be especially careful in choosing which jobs to do, considering the urgency of the need (if that roof is leaking, you really have to fix it now) as well as what you'll pay in material costs, how much of the total bill you may recover and any extra benefits you may get.

To the extent you have a choice, focus on projects with better-than-average returns that may yield additional savings in other ways. For example, installing new windows will cost $10,000 to $20,000 on average but return 75% to 80% of your investment

And those improvements have the added benefit of making your home more energy-efficient, so you'll also save on your electricity and heating bills. Plus, you may qualify for tax credits that will further offset the cost of making the changes. A host of home improvement tax credits for windows, doors, insulation and roofing were added or extended in the recent bailout bill; for the complete list, go to energystar.gov.

Some exterior improvements also make a lot of sense right now thanks to sharply lower oil prices. That's because many petroleum-based products, such as asphalt and vinyl, are the core material in these renovations.

The costs of these products had soared recently along with the price of oil but have started to drop, making this the best time in a while to replace your aging roof, repave your driveway or redo your vinyl siding. Also think about limiting the scope of the project, since minor upgrades rather than major additions give you more bang for your buck today. For instance, if you modernize your bathroom, you can expect to recover about 75% of what you spent, but adding an entirely new bathroom will pay back only 64% of the cost of the job.
Press for a price break...

These days you'll find a glut of construction professionals vying for your business - a far cry from the situation a few years ago when it was impossible to get a reputable contractor to return your call and a six-month wait to start a kitchen remodel was the norm.

Get bids from at least three remodelers, and insist that their quotes spell out all costs, including labor as well as materials (brand-name products where possible).

Let each pro know up front that you are comparison shopping and that price, in addition to quality craftsmanship, will play a key role in deciding whom you will work with. With the bids in hand, you can then compare prices and start negotiating.

Shopping around really paid off for Nancy Boris, who saved $2,800 on the cost of replacing the back patio of her 2,400-square-foot, three-bedroom home in Roseville, Calif.

Boris, a nurse case manager, got bids ranging from $2,400 (from a contractor who didn't have insurance or references) to $5,800. The highest bidder eventually came down $2,000 in price to $3,800, but Boris ended up going with a pro who had better references for $3,000.
...but be wary of super-low bids

As Boris discovered, it doesn't always pay to just reflexively choose the contractor who comes in with the lowest quote.

In their eagerness (or perhaps desperation) to win business in these tight economic times, some less than scrupulous remodelers may cut corners to come up with that low bid or else leave off charges that they may tack on later, making the actual cost of the project higher than it seemed initially.

Carefully scrutinize any bid that comes in significantly lower than the rest. Ask the contractor, politely but point-blank, how he manages to undercut his competition.

In addition to price breaks, ask for other perks while you're negotiating, like a faster completion or a more convenient schedule for work to be done.

Remember, homeowners nowadays are in the driver's seat. With contractors working on fewer projects, you can expect better service. Even if in the end you don't get a significantly better price on your project, you should at least get better work done.