The New Granite is…Siding! Really?

My friends in energy efficiency have been patiently waiting for granite to fall out of favor as the sexiest way to improve your home, and add value when you sell.

So the good news is that the 2013 Realtor & Remodeling Magazine Cost vs. Value Report shows that the ol’ kitchen remodel (minor) is 6th overall, major kitchen remodel was 17th nationally and bath remodel was 19th.

The bad news is that it’s siding, doors and windows commanding this year’s Top 10.

1. Entry Door Replacement (steel)

2. Siding Replacement (fiber-cement)

4. Garage Door Replacement (mid-range)

5. Garage Door Replacement (upscale)

7. Window Replacement (wood, mid-range)

8. Siding Replacement (foam-backed vinyl, upscale)

9.  Window Replacement (vinyl, upscale)

10. Window Replacement (wood, upscale)

Ouch! But actually replacement projects like this year’s winners have been stronger than remodeling projects (the granite!) since the market started to turn in 2005.

http://www.remodeling.hw.net/2013/costvsvalue/article/trends.aspx

Cost vs. Value – Replacement Projects

For the efficiency contractor the silver lining has to be that if curb appeal can be sexy, the sexiness of the building science behind the best installs can’t be that far away!

 

 

 

 

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Oh No! Americans Go All “SnackWells” with Housing!

Nabisco SnackWell’s

Remember SnackWells?  Americans went crazy when these tasty low-fat products first came out.  But along came the SnackWell effect, which Wikipedia defines as:

A phenomenon that states that dieters will eat more low-calorie cookies, such as SnackWells, than they otherwise would for normal cookies.

And so it goes with housing.

The Energy Information Association (EIA) is out with its most recent Residential Energy Consumption Survey (RECS).  They brag,

U.S. homes built in 2000 and later consume ONLY (my emphasis) 2% more energy on average than homes built prior to 2000, despite being on average 30% larger.

The Business Insider reported housing-guru Robert Shiller’s response, saying:

…There’s technical progress in housing. So, new ones are better.

But the data that’s cited tells a tale of the SnackWell effect.  My takeaway from that same data is that new may not necessarily be better.

RECS Study 2013

When I do the scoring, seems like Existing Homes have more options and definitely come out ahead!

End Use
New Homes
Existing Homes
Advantage?
Space Heating
Use 21% less (Advances in space heating and building envelope)
Programs like Home Performance with ENERGY STAR often reduce total energy use by 15-20%
Tie
Water Heating
Use 3% more
Tie
Air Conditioning
Use 56% more More space to cool
Existing Homes
Appliances, Electronics, Lighting
Use 18% more (More/bigger appliances, electronics, lighting)
Option to install ENERGY STAR products
Existing Homes

Let’s talk again when the data on homes after 2010 is available. You’ll start to see carefully crafted homes that provide more quality and energy savings per square foot!

This information is also a sign why we need an alternative to the popular HERS Index for rating efficiency.  HERS does not account for square footage (which leads to the SnackWell effect you see in table above).  The rating system geared more towards existing homes is call Home Energy Score and takes square footage into account.  No SnackWell Effect there!

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Gen Y Buyers Coming – But Are We Ready?

This week RISMedia reported that this house-buying will be the first one where most buyers are from Gen Y.

Good news as this niche represents a very interesting pool of buyers for High Performance Homes (HPH) – either new or existing.

According to RISMedia, Gen Y has sat on the sidelines of the housing crisis, picking up lessons along the way.  They are determined not to make the same mistakes as their parents, the they are tired of either living with mom and dad again, or blowing money on rent.  They are looking for cool technology to make the buying process easier.

Despite what they have witnessed, Prudential Real Estate study also found that Gen Y has more positive views on home ownership than other generations. For example, 77% of potential home buyers aged 25-34 say homeownership is “very important.  Only 72% of buyers age 55-64 say the same.

For home performance contractors and programs, Gen Y represents a group of buyers where the total price picture on their next home is very important. Mortgage costs simply will not be enough. They will be expecting information on utility costs too.  The benefits of good home performance will matter, as long as there are data points to back it up.

We may finally be seeing a generation of buyers where efficiency really matters as part of the home buying process!

 

 

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Commit to advance the “State of the Union for Green Value”!

It’s State of the Union time, and another union worth looking at is the state of value for high performance homes (HPH).  The image below shows how value comes only through a union of some unlikely stakeholders!

So how is this precarious union working anyway? First the good news.

  • Step 3 above – Green MLS.  Green MLS activity seemed to have peaked in 2010. But there are bright spots ahead.  The MLS’s Real Estate Transaction Standard includes a core set of 10 fields.  As a result, their data dictionary creates a path for the dozen or MLS software vendors to implement a standard set of green fields.  Then,  the approximately 600 or so MLS yet to turn on green fields will have a much easier and consistent path to activate them.
  • Step 4, Part A – Appraisers.  The Appraisal Institute’s Green & Energy Efficiency Addendum was released with many accolades in late 2011. The latest version is expect Q2 of this year.  For now, this is THE workaround that holds everything together.  This form is packed with the power of information – to bridge what the builder, contractor or homeowner knows about high performance improvements – and allow the appraiser to assess the value.
  • Last Step – Fair Value at Closing.  As inventory of HPH grows more researchers are able to study premiums.  A UCLA study of homes in California found that a green premium does exist.  This is consistent with stats and studies from other parts of the country.

And now the obstacles.

  • Step 1 – Builders/Contractors/Home Owners.  The very folks who can unlock the value for HPH don’t realize they have the power. If a high performance home falls in the woods, and no one is there to know it performs better, it doesn’t have value!!!  The process to value starts with builder/contractor/home owner explaining to listing agent, lender and appraiser about the features, technologies and performance that sets their home apart. See why below.  
  • Step 2 – Real Estate Agents.  Programs like NAR Green and EcoBroker are key to educating agents.  I estimate that nationally only about 2% of agents and appraisers have received a green designation to date.
  • Step 4 B – Appraisal Management Companies.  The system today holds back the right appraisers from being assigned to HPH jobs.  Most appraisers earn their assignments in a pool that rewards lowest bids and quickest turnaround times with more work.  While appraisals are supposed to be assigned based on competency, that doesn’t often happen for HPH today.  And, any request for a certain competency has to be known around the time of contract.  If you realize the appraiser wasn’t matched on competency for the job until after he/she gets on site it is very often too late!
  • Step 4 C – Government-Sponsored Entities.  Today, Fannie Mae and Freddie Mac are struggling.  FHA loans are the best option for many buyers today.   In many ways the underwriting guidelines of these GSE lenders set the stage of all underwriting.  And their guidelines either ignore or don’t address HPH.  In some cases they restrict the tools appraisers have to value these properties. In many cases, using an approach appraisers believe is a fair way to assess value is actually kicked out for review once it gets to an underwriter.  Appraisers are highly restricted in that they must find comparable matches when assessing HPH – otherwise the underwriting guidelines in practice today essentially means no comps and the value disappears!

So as I take the podium, here’s the challenge I put forth to all the professionals who are tied into this unlikely union toward value for High Performance Homes:

  • All utility, local, state or non-profit efficiency programs, as well as high performance builders issue a completed Green & Energy Efficiency Addendum when work is complete.
  • Real estate professionals addend the Green & Energy Efficiency Addendum to the purchase contract to increase the likelihood that a competent appraiser will be assigned to the job.
  • All communities looking to encourage green MLS in their area do so by embracing the standard green fields already defined in the Real Estate Transaction Standard to increase likelihood of implementation, and shorten time to develop.

And the biggest single action the high performance industry can do to impact value - give us more supply of great homes, and report how those numbers are growing!  

Note that the common theme in root cause for lack of progress above has to do with lack of supply:

  • MLS not adopting green fields – If they upgrade these fields they need to know at least 10% of the market is green, and number is growing. Think about it – only 3-5% of any market comes up for sale in a year.  That’s not a big pool to invest in a special set of fields.
  • Agent Education – There still is not enough supply of HPH to motivate agents to invest in this education.
  • GSE’s – They require comps, and if the comps are not there, neither is the value!

So please share this post and join me in the easy action steps above. And, keep sharing the good news about growing supply.  Once that happens, value will be the power for the demand engine!

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MPG No Silver Bullet for Cars

How often do I hear folks envision a “MPG sticker for homes” to drive demand in energy efficiency?  But my friend and colleague Mike Rogers points out what’s been plaguing me – that Americans just love their pickup trucks, despite the very MPG sticker on the window.

He makes excellent points, not to criticize, but to highlight that it’s features and benefits that drive action, not information simply on its own.

While I don’t think an MPG when a homes sells is the right tool or time, I do firmly believe that the better the efficiency world gets at calculating projected and actual savings, the more the market will respond with demand.  So MPG or not – we still need those numbers!

Posted in Market Transformation, Total Cost of Ownership/Affordability | Leave a comment

Mapping the Market Triggers for an Efficiency Tipping Point

We’ve been talking about Market Transformation of energy efficiency for a long time.  And the home sale transaction has been long viewed as a lever that can create a tipping point.  Last week I attended a meeting focused solely on the High Performance Home (HPH) transaction.  Last year I delivered a keynote address for a builders’ conference entitled Seeking the Holy Grail (aka Resale Premium) in a Turbulent Market.

In the interest of a tipping point, many envision a time when every home that’s sold includes a disclosure of its energy efficiency.

Malcolm Gladwell is the king of the Tipping Point.  His book is about how change happens.  Much of the book is connected to what we know about adoption of change.    There are always Innovators and Early Adopters. At the end are the Laggards. And in the middle is the Majority.

Before any discussion of mandated efficiency is even constructive, you have to understand what’s happening within the adoption curve.  You need the right tactics at the right point on the curve to create change.  This is important because adoption of efficiency is tied to home values. And in addition to the adoption curve, there is a predictable curve in valuation.

Today we have a market that accepts inefficiency in homes.  The handful of HPHs that are superior because of better efficiency get slightly rewarded (they sell for more, they sell faster, or today – they sell at all!).  As adoption grows and HPHs become the majority, we will see market acceptance of efficient homes.   The premium will become more pronounced, eventually shifting to a penalty for the inefficient home, rather than a premium for the efficient.  This leads to the final phase of the adoption curve where the Laggards find that their inefficient homes are functionally obsolete and they must sell at a discount to address the deficiency.  The image below demonstrates the overlay.

market trans map

What does this have to do with the discussion of mandated energy disclosure?  It creates a framework for which levers will work best to drive demand at different phases.

  • Innovators & Early Adopters/Market Acceptance of Inefficient Homes. Best Levers - Incentives, rebates, education and tools that inspire investment despite efficiency being an untested risk.  Mandatory Disclosure - Too premature.  Mass majority of homes will do poorly, therefore market will reject the information.
  • Early Majority/Early Acceptance of Efficient Homes.  Best Levers – Market tools like Green MLS and green valuation techniques.  Standard tools to signal superior homes to the market.  (Good news is that we can and are making progress here prematurely!)
  • Late Majority/Full Acceptance of Efficient Homes.  Best Levers - Valuation (market penalty for inefficiency begins).  Mandatory Disclosure - Could be effective to distinguish the near split between inefficient and efficient homes.
  • Laggards.  Best Levers – Valuation (penalty for inefficiency).  Mandatory Disclosure - Redundant (Market has adjusted to incorporate efficiency.)

Bottom line:  This is a classic chicken and egg. Although mandatory disclosure could be a tipping point, we need supply before it would create demand.  Mandatory disclosure also has a very short window where it makes a difference.

Instead, now is the time to talk about building the supply of High Performance Homes where the early adopters live. Incentives and education is needed most!

 

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High Performance Home Simple to Buy – Like a Latte???!

A group of industry visionaries has set out to make the home-buying process as simple as buying a latte! It’s an inspired vision of simplicity and data-sharing all built around the consumer. Latte Vision Video

According to their website, Inman News is the leading source of independent real estate news, information, advice, research, opinion and commentary for industry professionals and consumers alike.

Last month at their Real Estate Connect NYC 2013 they set out to redefine the real estate industry by calling for a fully digital transaction.

Nothing would help High Performance Homes more than a homes-like-a-latte experience!

Much of what is holding back value for High Performance Homes is that data sits in silos and is not shared with real estate agents and appraisers at critical points.

To track this important conversation, join the Latte Visionaries page on Facebook.

Posted in Green Real Estate Trends, GreenMLS 2.0, RETS Green | Leave a comment

Why Realtors & Appraisers are Last Place to Go for Green Value Progress

Last week I attended the Building America Transaction Process Summit, sponsored by the DOE.  It’s my fifth somewhat similar meeting in 16 months!

While I find it critically important to represent the perspective of a Realtor and MLS user in the conversation, I find it interesting and a bit frustrating that they are designed looking from the vantage point of upstream down.  These agendas are focused on problems happening downstream within the real estate transaction, without factoring in how that picture would look different (and some problems eliminated) if the problem-solving was focused upstream too.

Sandy Adomatis is an appraiser in Florida and active in leadership at the Appraisal Institute as well as their in-house expert on green valuation.  She’s also my favorite fellow change-maker on the green valuation topic!  She was instrumental in creating the Appraisal Institute’s Green & Energy Efficiency Addendum.

Her excellent summary of the Transaction Process Summit is worth a read.

She clearly captures the root causes in detail.

  • Fannie & Freddie are broken and do not recognize energy efficiency or high performance homes
  • Appraisers need direct access to builder/contractor HPH/EE data
  • As a work around to above, the Appraisal Institute Green Addendum is works – but builders and contractors need to initiate it for it to matter
  • Builders/contractors need to brag/price their HPH/EE upgrades
  • Appraisal Management Companies need to choose competent appraisers and pay them more for these more complex properties.
  • MLS fields need to standardize
  • Everyone needs more training on upstream/downstream details

There is some work happening/possible on the bottom 5 which to me represent work arounds. I’m proud to be involved in progress happening here.  But we need to join together as one industry, not fractured stakeholder industries, with a laser focus on improvements here.

The top 2 need to be solved first for any significant change, but are far more complex.

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Do Words Matter for High Performance Homes?

When people consider high performance homes the term “label” gets used most broadly – in both a positive or negative context.  In general, when people talk about distinguishing homes related to energy efficiency, or other greenness it is referred to a label.

Also, the available research on sales of high performance homes tends to use the presence of what is called a label as the means to distinguish one population of homes from another.

But in reality a label, or labeling is one of four core methods. The others are a rating, certificate and score. Their definitions, methodology and the information provided by each vary quite dramatically.

  • Label – Slip of paper marked or inscribed, for attachment to a home to indicate its manufacturer, nature, etc. Qualitative – Informative, factual, no value judgment.
  • Certification – Document which serves as written testimony of truth.  Confirms the achievement of a defined qualification. Qualitative – Informative, factual, with a value judgment.
  • Score – Performance of a home based on a test – expressed by a number, letter, or other symbol.  Quantitative – Finely grained.  Hierarchical, assigned based on a value judgment.
  • Rating – Classification according to grade or rank. A relational assignment.  Quantitative – Broadly grained.  Hierarchical, assigned based on a value judgment.

I asked a diverse group of 50 professionals who encounter labels, ratings, certificates or scores in their day-to-day work. I asked them to review four potential definitions and sort 11 possible programs/techniques into the four definitions.  Twelve people participated.  They were allowed to skip terms they did not know, or assign a term to more than one definition.

The results are not at all scientific. But they do point to a big problem in working with high-performance homes, especially when one is available for sale. The problem is that there is far more confusion than agreement among this group of professionals.  That does not bode well for how consumers make sense of any of this!

Scores Agreement Confused with?
Home Energy Score

100%

Blower Door Test

100%

WalkScore

73%

HERS

60%

Also – Rating
The results of the survey show there is greatest consistency when matching programs to scores.  In other words, people know a score when they see it.
Labels
WaterSense for New Homes

86%

Also – Certificate
IndoorAir Plus for New Homes

56%

Also – Certificate
ENERGY STAR for New Homes

50%

Also – Certificate
Inspection Checklist

50%

Also – Score, Rating
The next most consistent match is for labels.  But the techniques which came out high as a label also were defined by many as a certificate, by definition a step up from a label with a judgement call on qualifications   Likewise certificates were often also considered a label or a rating.  No technique came out most clearly defined as a rating.
Certificates
Home Performance with ENERGY STAR

67%

Also – Label
NAHB National Green Building Standard

58%

Also – Rating or Label
LEED

46%

Also – Rating or Label
As I understand Home Performance with ENERGY STAR it is a process and not a certificate, although there has been some early conversation about the ramifications of it being a certificate.  Nonetheless, it was identified as a certificate.
The other programs that were identified as certificates were also identified in large part at a Rating too.  So LEED and NAHB National Green Building Standard provide not just certification, but a rating as to delivery against building scope.

Implications for Program Administrators/Policy-Makers

In my experience the term “label” is a polarizing word, especially within the real estate industry.  But the definition of label is pretty innocuous in my opinion.  Programs that allow consumers to identify high-quality specialty building techniques are perceived as a label.

It is also interesting to note that something like an inspection checklist was highly perceived as a label. I believe this is where the polarization comes from!  An inspection at time-of-sale to confirm a home’s energy efficiency could be easily mandated in a city or state.  Such an inspection would clearly and almost instantaneously define the updated homes from those that are not.

On the other hand, confirming that a home has completed the building steps defined in a program like WaterSense is much different, and is simply a means for a homeowner or builder who has invested in such steps to signal they should be compared to a different peer group, and that a third-party has evaluated the work.

It would behoove program managers to consider shifting towards the definition of a certificate to step out of the controversy of a label. Likewise, those concerned within the real estate industry should clarify the difference between a peer label that signals an opt-in investment into a third-party program, versus a universal label that could be mandated and stigmatizing.

Finally, a note about Home Performance with ENERGY STAR.  In my opinion, there is nothing the existing home market needs more than a certificate for energy retrofits to do what LEED and NAHB National Green Building Standard has done to distinguish these properties with confidence and clarify value!

Would you like to join this conversation? Please leave your comments or participate in the survey online.

Posted in Green Financing/Valuation, GreenMLS 2.0, Market Transformation | Leave a comment

Do Appraisers Value Green Studies?

If I had a nickle for everyone who gleefully reported to me that every $1 of green investment yields a $20 increase in value…!

(Note that a published report of this does not seem to exist even though this famous quote lives on like an urban legend!)

While it would be easy if that exact correlation was out there – it is not.  For one, all real estate is about location. For high performance homes location also means consumer interest, building supply, climate, utility rates, etc.

Also, third-party verification programs are now available that protect the consumer and point towards quality.  More and more it’s becoming how well a home performs, based on a thorough verification process, and less about individual bells and whistles.

Today’s blog post from the Appraisal Institute includes their response to one of the most highly-touted recent studies on value for high performance homes.  While they applaud the UCLA research for correlating warmer climates to a higher premium, they are not ready to say the study’s 9% green premium is a defacto rate for value.

So, this is one more indicator that high performance homes have additional value, but any sort of factor is still elusive.  For a peek at other known studies of green premium (using differing methods and levels of rigor) check out the links on the NAR Green Resource Council website. Of note are studies in Atlanta, North Carolina, UCLA, New Jersey, and Earth Advantage.

 

 

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