As recent as 2006 builders could not produce homes fast enough, and they were able to experience unit profits of 100% in some cases.
Today, the profit margins are much slimmer, and sales of new homes have slowed by more than 80% in some markets.

Many conversations surrounding ways to improve the housing market buzz with redundant ideas. The most common pleads are for the loosening of credit so builders can build again and consumers can buy. Others discuss the hardships builders face because they are unable to attain appraisals.

The traditional business model of build it and it will sell or attain financing is long gone. Today, in order to compete, a project must meet the demands of the consumer. There is a lot of opportunity for those who are willing to put more effort forward and provide a product that is in demand.

Even in the most challenged markets, there is a lot of opportunity for building professionals. The path to profits is not as easy as it was during the days of sub-prime or heartbeat lending. But, by executing a business model that meets the demands of the market, including affordability, professional design, conveniently located, energy and water efficiency, and comfort of the remodel or new construction, then one does not have to wait for the loosening of credit or the blessing of an appraiser to create a thriving business.

In fact, if the above strategies are implemented then the appraiser will need no justification for higher appraised values and may assign the label of ‘unique property’ as is done with every G Home.

No longer is it possible to build or remodel a structure without it being the best, and expect the market results of 2006. But, by planning and designing according to market drivers one does not have to worry about appraisals or buyers. The buyers will follow, as will the higher appraised values.

This difficult economy maybe the best test for ones product or business model. Last week, a major production builder reported losses of 3.4M. Maybe the problem does not lie in the economy but rather in an outdated product or business model that has lost touch with the market.

If one is willing to put a little more effort into a project, then the result will be a lot more in return, including a higher appraisal.

size matters

Price per square foot has long been equated with defining a home’s value or degree of luxury. Pre-2008, many luxury communities experienced sales of more than $800 per square foot, while tract homes, or houses in so-called less desired areas, would sell for less than $80 per square foot.

Usually, higher square foot values are tied to the level of finish work, zip codes, materials, an 8+ car garage, a clothes washer in the master closet, a master closet larger than most living rooms, and an 8000 square foot or more structure placed on a 1 or 2 acre lot.
Although not always the case, these homes also come with enough space to fit the egos of the occupants, and sometimes a monthly electric bill of five figures.

Now more than ever, and in light of the struggling housing market, the value of a home relies not on what someone is willing to pay, but on the appraisal. Unless, someone is paying cash.

An interesting shift is occurring in communities that were previously labeled luxury, such as zip codes 33109, 92657, 92067, 90210, or 85253. Many of these communities are showing that they are not immune to the struggles that were previously reserved for tract homes, some inner cities, and suburbs that were the first to experience the waves of distress in early 2007. Such distress is signaled by plummeting values, foreclosures, default notices, a decline in permits of 70% or more, and empty houses.

For example, in the perceived luxury community of Paradise Valley or zip code 85253, nestled between the boundaries of Scottsdale and Phoenix, AZ, single-family building permits have plummeted from 139 in 2006, to 25 in 2010, or a decline of 82%. As of September of this year, this trend is not improving, with only 15 single-family building permits recorded.

In the twelve-month period between October 2007 and October 2008, Paradise Valley had twelve homes sell in excess of 5M dollars. In the past 12 months, there has been only one. Many of the 10,000 square foot homes intended to sell for 5M+, are now selling in the 2M range, and in some cases for less than $200 a sf.

Square foot cost has long defined a homes value or level of luxury.

Last month, a newly remodeled G Home by Firefly sold for $180 a square foot, which is comparable to recent transactions in the zip code of 85253 or Paradise Valley.
The G Home is located in the heart of Phoenix, and is just a short distance from Biltmore Fashion Park and downtown Phoenix, and features a $36 a month electric bill, professional design, no-VOC materials, JELD-WEN windows and doors, a 15 SEER HVAC, BOSCH appliances, real time energy use monitoring, a medicinal and herb garden, non-invasive landscape design, reused materials, and soy stained concrete.
And maybe most significant, the remodel transformed a $60 a square foot bank owned house into a $177 per square home, resulting in improved neighborhood values and one less unoccupied structure. And in fact, the post remodel home appraised for nearly triple the bank owned price.

The new owner of the remodeled G Home, Christine Fisk, is an advocate of a healthy lifestyle, drives a hybrid, and left a 2800 square foot home in the suburbs in exchange for her newly remodeled 900 square foot home, which she says, aligns with her lifestyle. Ms. Fisk says less can be more and that, “the biggest luxury might be the 9 hours a week I save in commuting to work and now dedicate to visiting with friends or taking a couple extra yoga classes a week.”

The time to redefine luxury is now. Maybe the idea that a 10,000 square foot home for two adults and one or two children, is less a symbol of success and more a statement of excess. During a tough economy, lower electric bills, less fuel consumed during ones commute, more time with family and friends and less time on freeways, a backyard garden, environmental responsibility, improving neighborhood values, job creation through renovation, and rebuilding communities and walkable neighborhoods, maybe the best luxury of all.

Watch for upcoming G Street blogs:

• An Energy Efficient Home Means Fewer Trips to the Doctor
• How to Choose an HVAC Contractor
• All Homes Are Net-Zero
• The Importance of The Landscape Designer/Architect
• No Such Thing as a Green Contractor
• Beware of Green Titles and Self-Appointed Green Experts

Despite claims by green rating systems such as LEED and Earth Advantage, green homes do not sell for more.
On the other hand, well-located, green-certified homes that implement the recommendations of a good, licensed Interior Design professional sell for more (assuming a good Landscape Designer or Architect is also implemented).

Ultimately, the consumer defines a home’s value. A home is worth what someone is willing to pay, assuming the appraisal supports the purchase price.

There has been much discussion about green certified homes selling for more. The fact is, if a home is not aesthetically pleasing inside and out, well designed, and livable, then it will most likely not demand a premium. A qualified Interior Design professional is the one who is best qualified to maximize the above.

The majority of green rating systems encourage or require a pre-construction design meeting that recommend a Landscape Designer, Mechanical Specialist, Architect, Contractor, Framer, Plumber, and Electrician; this meeting could be considered the most important strategy to a remodel that maximizes return on investment. However, often missing from the pre-construction meeting or team Charrette is the Interior Designer.

A qualified Interior Design Professional is the most important team member in creating a well-designed remodel that is aesthetically pleasing, comfortable, and adds value to the sales price. In a tough market, if one intends to sell his or her remodel, then it is important to make the best choice of materials based on budget, along with attaining a nationally recognized green certificate.

The majority of consumers desire an efficient home that costs less to live in, but typically buyers are not going to sacrifice design, aesthetics, or comfort.
A LEED-certified Platinum home with bad choice in paint colors, countertops, cabinets, design, and finishes will not meet the demands of the market or a premium in sales price if it cannot attract a buyer who is willing to pay more compared to a traditional listing.

Green certification is not enough to make the claim that a home sells for more. The more accurate claim is, if a green-certified home follows the recommendations of a qualified Interior Design professional early in the project, then it will most likely demand a higher purchase price compared to a home that does not make the best choice of materials, space design, or staging.

Watch for upcoming G Street blogs:

• The New Luxury Home, Small and Well Located
• An Energy Efficient Home Can Mean Fewer Trips to the Doctor
• How to Choose an HVAC Contractor
• All homes are net-zero
• The importance of the Landscape Designer/Architect

Since 2009, the G Home has consistently outperformed traditional remodels, appraising for higher values, experiencing fewer days on market, and improving neighborhoods with appraisals that reset most recent square foot values.

The buyers of G Homes report back that the reason they were willing to pay more for their newly remodeled home was due, in order, to aesthetics and comfort, location and perceived value, and efficiency.

When interviewing G Home buyers, the overwhelming response to the reason they made their purchase was aesthetics and comfort. Michelle Gibbons, a recent G Home buyer says, “the G Home looked so much better than anything else on the market in my price range, that it made the buying decision easy.”

The key to creating a better remodel is the team. The instrumental players include the Project Owner, Real Estate Professional, Green Consultant, Energy Rater, Mechanical Specialist, Interior Designer, Landscape Designer, Manufacturers Representative, third-party Verifier, and Contractor. The above team is implemented on every single G Home remodel.

During a traditional remodel, a Contractor may be assigned to make all of the remodel decisions. Many Contractors are capable of remodeling a home and attaining good results, but the best results are reserved for those remodels that implement the team approach.

Implementing a team approach may seem like a lot of work, however, in a tough market it is necessary to distinguish one’s remodel from the competition if achieving maximum value.

The first step to executing a remodel team is to have a Project Owner who is progressive and understands the value of working with a remodel team of professionals, and that investing a little more will result in a better return. The Project Owner will rely on a savvy Real Estate Professional to acquire the best properties, assess exit price, and to create a marketing plan.

Once the house is acquired and ready for the remodel, executing a team meeting is an effective strategy in attaining the most informed decisions and design. Those present will include the Energy Rater, HVAC Specialist, Green Consultant, Interior Designer, Real Estate Professional, Contractor, and Landscape Designer. This team will assess the best improvements to make based on the remodel budget.

The team approach may seem like too much work for a single remodel, but the end result is guaranteed to be better than remodeling in the traditional manner, including financially and environmentally.

Watch for upcoming G Street blogs:

• Green Homes Do Not Sell for More
• The New Luxury Home, Small and Well Located
• An Energy Efficient Home Can Mean Fewer Trips to the Doctor
• How to Choose an HVAC Contractor

The G Home program is a comprehensive tool for agencies and investors, and is intended to improve the remodel process and market performance.

The most recent remodel to complete the G Home program is owned by Rocking Horse Redevelopment and is located in Phoenix, at 1722 W Heatherbrae Drive. The remodel achieved Emerald certification, which is the highest green rating a home can receive. The Emerald rating was accomplished by reducing energy and water use by over 50%, and installing features that improve indoor air quality. The house is also centrally located, and will be listed for an affordable price, less than $160,000.

“When done right, green can be affordable,” says Rob Anderson of Rocking Horse Redevelopment. “We have renovated over twenty homes in the Phoenix and Denver markets, and making them green is something we are passionate about. Experience has taught us that the key to a successful project is delivering a reasonably priced home that performs and looks better than its counterparts.”

A first look of 1722 W Heatherbrae and catered reception, will take place on September 8, 2011 from 5 – 7pm. RSVP to rob@rhredevelopment.com

Defining a green material maybe the most confusing endeavor related to green building. Many times, one might say a product is green because it earns LEED points. Sometimes this claim is exaggerated by wrongly stating a material can contribute to a high number of LEED points, as in the case of this link. This link is over stating the LEED value for their product of reused carpet, which results in a case of green washing. The claim that their flooring product contributes to 13 LEED points is as valid as stating a microphone will earn a Grammy Award.

Claims of 13 LEED points for reused carpet, only adds to consumer confusion as related to assessing a material’s green value. A Google search of ‘LEED carpet’ will result in many violators making similar false claims.

The LEED for Homes rating system, states the maximum number of points dedicated to flooring is one; with the exception being, if the entire home is hard surface then an additional point is awarded. Otherwise, LEED-H assigns only one point per material including paint, trim, countertops, cabinets, or flooring.

The LEED rating system assigns one half point to a material based on conforming to the categories of emissions, being environmentally preferred, and/or local production. In simple terms, LEED encourages the use of materials that have less chemical content, contain greater recycled or reclaimed material, or are manufactured within 500 miles of the project location.

This blog is not intended to be a lesson or critique of the LEED rating system. Rather, this blog is about bringing awareness to the fact that three key material attributes are missing from the above when assessing a material’s green value.

Although improved emission standards, recycled and reclaimed content, and local production are important, maybe more important when assessing a material’s green value are, durability, cost, and aesthetic appeal.

No matter how green a material is based on the LEED parameters, the majority of consumers will make selection based on budget and aesthetic appeal.

There will always be a select few who have an endless budget or are willing to sacrifice aesthetic appeal for recycled or reclaimed content. But, for the majority of
us, cost and aesthetics will always win out when purchasing materials.

In the past years, many paint manufacturers have done a great job of making their interior products attractive, durable, contain fewer harmful chemicals, and
affordable. In light of innovation by these companies to produce products that have less environmental impact and have no additional costs, there is no excuse to use
traditional paint that can sometimes be more toxic.

For a material to gain acceptance as green or better for the environment, it must be affordable, durable, and aesthetically pleasing. If a material is not affordable to the majority, then its ‘green’ value should be questioned. This places the burden on the manufacturer to make their green materials according to the above definition, with an emphasis on affordability.

If a material is within budget and is aesthetically pleasing, then the consumer should be aware to weigh factors such as durability, chemical content, recycled and
reclaimed content, and local production. If all things are equal, one should always give preference to a locally produced green material as a means to supporting their local economy.

In order for a home to be green, it must address six key environmental impact areas. If a house does not address all six, then it is simply a house with green features.

The question becomes, what are the six categories a home must meet before qualifying as a green home.

Energy efficiency is the most obvious response when asked what makes a home green. Energy efficiency is simple to achieve, when done right. The first step is to hire a RESNET approved energy rater to do a simple analysis of the home, and asses the most practical improvements based on budget and necessity. Many utilities offer incentives, which allow a homeowner the benefit of a $99 evaluation. From there, decisions may be made in regard to tuning up or replacing the HVAC, tightening ducts, improving insulation, caulking and/or replacing windows, weather stripping, replacing the hot water heater, programmable thermostats, appliances, shading, daylighting, or lighting.
(Solar should not be considered until the energy analysis is addressed. And, a solar system should not be installed until a home is made energy efficient or achieves a HERS Index of 85 or better.)

When speaking about efficiency, energy is the obvious response, but often forgotten is water efficiency. Water efficiency is achieved with strategies that include non-invasive plants, drip irrigation, landscape timers, limited turf, WaterSense fixtures, and low flush toilets.
Additional water efficiency strategies include grey water or rain capture.

People like to see green features and often point to materials used. Materials are difficult to measure. LEED states that a material can be green if it meets certain requirements based on manufacturing location, environmentally preferred, or emission specs. But, a product must be market proven, meaning it must look good and fit ones budget. The latter will always win out over the former.
Lastly, the durability of a material must be considered.

A positive outcome of addressing energy efficiency, is improved indoor air quality. 50% of a homes energy consumption is related to mechanical. When improving the mechanical system, ventilation and filtration systems are also improved. When improving indoor air quality, special attention should be given to limiting formaldehyde in materials. lower VOC adhesives, and environmentally preferred cleaning products.

Design is a key area to consider when labeling a home green. The environmental impact of a large home usually means more materials used to build and more energy used to heat and cool. Smaller, well-designed spaces are ‘greener’ than large homes. People have different needs and desires. With that being said, whether smaller or larger spaces, the home needs to be as efficient as possible in order for the design to be considered green, with an environmental preference toward smaller well-designed spaces.

The final category that must be addressed before labeling a home green is, location. A home that is well-designed, energy and water efficient, has healthy indoor air quality, and good green materials, is not green if it is located miles from community services or ones workplace. A well located home is one that limits the need for the occupant to rely on driving or consuming petroleum.

If a home does not meet or exceed all of the above six environmental impact areas, then it is simply, ‘a home with green features,’ and not a green home. The term ‘green’ has been diluted by loosely labeling a home with green features as being ‘green.’

The only time a home should be truly labeled green, is when it is energy and water efficient, has healthy indoor quality, uses environmentally preferred materials, is well designed and preferably not with excessive square footage, and is centrally located.

Often, the public perception of energy efficiency is that it is too expensive, does not make sense, is not practical, or is political. None of which are true. The major obstacle in energy efficiency, or energy code adoption is education.

The benefits of energy efficiency are great, and equate to lower electric bills, meaning more money to reinvest in the community or an improvement to one’s budget.

What is the quickest path to gaining support for energy efficiency in homes and buildings?
One school of thought is to force change, and make it mandatory for municipalities to adopt energy codes. But, in States like Arizona, Arkansas, and North Dakota, which are ‘Home Rule States,’ industry and municipalities typically do not like to be told what to do.

Another avenue to promoting energy efficiency and simultaneously increasing energy efficiency awareness, is to start with the prospective home buyer, renter, or tenant. And, the perfect one to educate these people is the Real Estate Professional.

The Real Estate Professional can share the ‘actual’ cost of a home or office space by requesting an energy audit or copies of previous months electric bills. Many prospective home buyers are not calculating energy bills into the monthly costs of their home purchase.
If home buyers are better informed, then they are in a position to drive the home seller to be competitive in regard to the efficiency of their home.

There are efforts by the Government to encourage energy efficient buildings, such as the ‘Better Buildings’ campaign which aims to make buildings 20% more energy efficient by 2020. But, it is not only Government that has the power to encourage energy efficient buildings and homes.

Ultimately, the market will demand energy efficiency. But first, better education is needed, along with good tools and resources. The Real Estate Professional or Broker, is in the perfect position to educate clients on whether a home or building is energy efficient, and translate the efficiency into bottom line savings. All things being equal, would one rather live in a 1600 sf home with average monthly electric bills of $200 a month, or $400 a month?
The Real Estate Professional is in the perfect position to raise awareness, and assist the consumer in demanding energy efficient homes and buildings, and eventually energy efficiency will no longer be an option.

As marketers and companies use the word loosely, the true meaning of “green” has become cloudy. The public has become skeptical of green marketing claims, and rightfully so.

In order to give the public a different understanding of the meaning of green certified homes by GreenStreet, we provide the prospective buyer with a quantitative Home Performance Report. Listed on the Performance Report, is the pre and post HERS index. The computer generated HERS index is a number given a home based on its energy efficient features; a lower number being better. From this, we are able to provide estimated annual energy savings.

By implementing improvements such as a new HVAC, improved insulation, new windows, cfl lighting, shading, and Energy Star appliances, we are able to improve the HERS index by 50 – 80%. This equates to an estimated annual utility savings of $1200 – $2000 for a 1500 sf home.

The approximate costs of the improvements:
HVAC – $3000
Windows (installed) $2000
Insulation – $350
Lighting – $50
Shading (plants) – $250
Appliances – $1500
Total – $7000

Although labeled “green,” we are going to implement these improvements regardless. Over a period of 10 years, the above improvements will impact the utility savings dramatically, costing the homeowner only $7000 (for ten years). If we do nothing to improve the energy efficiency of the same home, the estimated utility costs over a ten year period will be $27,000. This is a difference of $13,000 after deducting the cost of improvements.

Listed on the GreenStreet Performance Report along with the estimated annual energy savings and HERS report, is the estimated water savings, which are typically 50 – 70%. We accomplish this by using Water Sense fixtures, native landscaping, and a drip irrigation system.

The third category on our Performance Report is indoor air quality, which highlights improved ventilation and filtration strategies, along with low VOC materials. Whereas the debate about the costs for green continue, there is no debating financial savings.

When buying a car, the biggest label displayed is the gas mileage. Why is this not the same for a home?

A Performance Report should be mandatory when selling a home. The consumer should be given this information, and know the real costs of operating their dwelling. And, just like the ingredients found on a box of cereal, the homebuyer should be provided a list of the materials and finishes used in a home.

If a homebuyer is saving $2000 annually in utilities, this equates to approximately $150 a month, or the same as the cost of a $25,000 mortgage payment at current market rates. This means, by living in a high performance home the homebuyer can either afford more, or use the savings for something like their children’s college tuition.

The word “green” has become misused and overused in today’s marketplace. We need to start holding the green claims accountable, and to offer greater description.

In the case of GreenStreet homes we are providing a Performance Report listing estimated annual energy, water, and financial savings.

Why would you not want to live in a home that saves you money, aka a green home?

If you want to make your neighbors green with envy – and make Mother Nature blush red with affection – don’t just settle for building green, aim for the Emerald, as in a home that’s been certified as Emerald status according to the National Association of Home Builders’ National Green Building Standard.

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