I think the easiest way to look at it would be compare functionality v/s speed.
- Most custom device handlers add more functionality, ability to configure settings and access advanced features at the expense of speed because it runs in the cloud. Sometimes they also offer patches/fixes for firmware detects in devices (this happens more often than you’d think).
- Local device handlers offer basic functionality but they run faster because they are local.
A good test would be to list what functionality the custom device handler provides v/s the loss of that custom functionality in favor of a faster response.
As classic example: For a motion sensor which triggers your lighting automation, response time/speed is important (and you’re willing to forego the ability to configure the sensitivity of the sensor), local execution would be ideal. On the other hand, for a lock or thermostat, it may be more important to access those advanced features/settings and having it respond 1-2 seconds later is acceptable.