Keith Negley/Munro Campagna

Millions of U.S. homes are worth less than their owners owe on them. Let’s say your client’s mortgage is not underwater, but a number of his or her neighbors’ mortgages are. How can (and should) this affect your client’s remodeling decisions?

Emotionally, your client is right to be concerned about the remodeling return on investment, especially if many neighbors have either lost their homes to foreclosure or listed them as short sales. “The first thing that usually goes in these cases is the maintenance of the property,” appraiser Jim Amorin says. Technically, troubled mortgages shouldn’t do much to the value of your client’s home, especially if those homes have not sold below market value. The reality, of course, is that an abundance of for-sale signs and neglected or vacant homes can affect a neighborhood’s desirability.

On the bright side, many buyers of discounted homes have no choice but to remodel them, thereby increasing their value. More importantly, “the market will come back,” says appraiser John Bredemeyer. “Ask how long they’re going to be there.” If the horizon is long, they can remodel with some assurance. Plus, “the worst thing you can do, even in a soft market, is to allow anything on your property to deteriorate,” he says.

—Leah Thayer, senior editor, REMODELING.