blog

Archive for November, 2010

Was President Obama On Target About Sexy Insulation?

Thursday, November 25th, 2010

For those of us in the construction industry we know it can be hard to get consumers excited about increasing a homes energy performance. Investing money on insulation versus new granite counter-tops can be a tough sell.  President Obama thinks differently.  President Obama says “insulation is sexy because it saves money”.  If that were true, Walmart would be sexy too.

In 2009, President Obama was quoted as saying he hoped the $8 billion in stimulus funds targeted to save energy and reduce energy bills would boost hiring in construction and and manufacturing to help stimulate the economy but it hasn’t worked out that way. With home prices still declining nationally and many people under water in their homes value, getting homeowners to upgrade insulation doesn’t sound too sexy.

Recently, Vice President Biden joined U.S. Department of Energy Steven Chu to introduce a program called the Home Energy pilot program aimed at retrofitting existing housing stock. I hate to be hard on Washington, but the issue is not another program from Washington. In my opinion, people are more concerned about keeping their jobs and a roof over their heads at the moment. When they are not concerned about such things, the fact remains.. insulation is NOT very sexy.

Still, upgrading the energy performance of your home IS a good idea if your financial situation allows for it.  One of the easiest places to start is by improving the exterior envelope of your home. This includes the exterior walls, windows and doors, foundation and roof/attic.  Start by first caulking and weather stripping your home. Air penetrations can significantly increase your yearly energy bills. On older homes, caulking and weather stripping is often overlooked and one of the lowest hanging fruit in terms of improvement cost versus energy savings. If your home is caulked well, the next place to look is your attic.  Adding fiberglass insulation to the attic is fairly inexpensive and also a fairly quick return. Of course the older the house, the more these things make sense.

There can be a reasonable payback, but be very careful of unscrupulous contractor’s who will overstate energy savings.  Do your homework and check out the contractor thoroughly.

Ten Tips to Help Screen Contractors

Monday, November 8th, 2010

Hiring a contractor is much more than getting and estimate and hiring the lowest price. The sweetness of a low price is always offset by the bitterness of poor quality.

I run into so many situations where consumers hire the cheapest contractor thinking they are saving money and being financially prudent only to discover the hard way that it doesn’t always work out that way. In some cases, the story can be fairly ugly. Here is one example that I ran into this week.

I met a new client recently who wants to build a major “green” addition on a home they purchased out of foreclosure in July. It is a fantastic lot in a great location and it wasn’t hard to see why they bought it. The dream is to design and build a passive solar addition that is “green” built over the next few years, but before that can happen a number of repairs needed to occur to get the existing house rented. Once the house rented, we can begin to work on designing the addition and turn the dream into a reality.

Unfortunately, the City red tagged the home when the bank owned it and prepared an entire repair list.  Because the repairs to the existing structure were only for rental purposes and because it was not yet clear if the existing home will be torn down or not, the client felt they could save some money by hiring a handy-man type person they had worked with before rather that hiring Amaris to make the repairs.  That was back in August.

Turn the clock forward to now. The handy-man person the client hired took nine weeks and still had not completed the work and at some point it became obvious to the client that the contractor was clearly in over his head. In addition to such poor quality workmanship on the interior that the client will just have to live with, the City red tagged the new metal roof they handy-man just installed. Believe it or not, now the client has a list of 8 more problems to resolve!

In the end, the client had to fire the handy-man and hired Amaris to fix the problems.  Last week we met with the manufactures rep of the roof materials and carefully went through what we need to do to make it right. The new metal roof is so poorly installed that every single metal roof panel needs to be deinstalled, repositioned and reinstalled.  Some of the problems include, improperly flashed roof penetrations, roof panels cut too short, roof panels installed upside down, ridge vent not added, missing screws, rakes on gables installed wrong, etc. I could go on.   The labor and materials estimated to fix this problem is going to run 3-5,000. Can you imagine?  To make matters worse, after basically paying for the roof twice, it will have no warranty and will not last to the design life.

The moral of the story? The sweetness of a low price is always offset by the bitterness of poor quality.

Before you hire a contractor do your homework. Below are ten tips to help you screen contractors.

1 ) Is the contractor licensed? If you are hiring a non-licensed person you are taking a very big risk. Yes, a non licensed person can do the work cheaper, but many times you get what you pay for.  A licensed contractor is required to keep abreast of code changes and needs to keep their license in good standing with the state to do business. Therefore, licensed contractors are much more likely to follow sound construction practices and hire qualified people.

2 ) Is the contractor insured? If the contractor does not carry insurance stay away, end of story.

3 ) Is the contractor prepared to pull permits (if required)? Contractors that want to work under the radar typically will cut corners and many times don’t even know what the current building code requirements are. I would never recommend hiring a contractor that wants you to pull the permit or does not want to pull them at all.

4 ) Is the contractor competent in the area you need work done?  Recently I was asked to build a 3 million dollar home and immediately turned it down because I knew that this type of upper end construction is not consistent with the skills of our current team.  When contractors are hungry for work, they are more tempted to take on work they have little to no experience, which can turn ugly for consumers.

5 ) Does the contractor have references? References should be recent. If the references are for major work like additions or complete homes the references can be up to a few years old. For simple things like a deck for example, the references should be less then twelve months old.

6 ) Does the contractor have a web site? In today’s day and age if the contractor does not have a web site, I’d stay away. It is not that having a web site guarantees you good work, but legitimate contractors are going to have a web presence.

7 ) Check with the state to see if the company is still active.  I have run into contractors with a business name, but when you check with the state the Company is in inactive status or does not exist. If the company is inactive, that means they are not paying attention to important details and that attitude will probably be reflected in the work too. If it does not exist, that means they are comfortable with lying.

8 ) Check with the state to see if there are any pending complaints with regard to the license.

9 ) A referral from a friend can be good, especially if it is for the  same work. Ask your family and friends who they have used in the past.

10)  As a general rule don’t buy from the lowest bidder. Buy from the lowest “qualified” bidder. There is a big difference between the two. One has a value proposition and the other doesn’t.

Good Luck and Buyer Beware!

Home Buyers Get Screwed by Federal Tax Credit?

Monday, November 1st, 2010

Did home buyers get screwed with the Federal Home Buyer Tax Credit? You make the call.

During the time the period of time the tax credits were in place interest rates nationally hovered around 5.0-5.25%. Immediately and precipitously after the expiration of the home buyer tax credit in April 2010, mortgage interest rates began falling steadily.  As of November 1st, rates now sit at around 3.75% and are down overall 1.25-1.5% since the program expired April 30th. Based on a 1.25% interest rate spread on a mortgage amount of $200,000 the Federal Home Buyer Tax Credit is wiped out by additional interest payments in just 32 months and at a 1.5% interest rate spread the tax credit is wiped out in just 27 months.

Also, during the time period when the home buyer tax credits were available, the median sales price increased dramatically. For example, in the Twin Cities market the median sales price in April 2010 was 11 % higher than it was in April 2009 translating to over $16,000. The median sales price continued rising through June (another $10,000) until all the related pending sales were cleared through the system. Since then, the median sales price has fallen off the cliff by $14,250 (so far).  This means many of these home buyers may already be underwater on their new home purchase.

By contrast, if you were to purchase a home today with a $200,00 mortgage at todays’s current interest rates a home buyer would save $12,380 in interest in just five years based on a 1.25% better rate and $14,835 based on 1.50%.  Add these interest savings to a lower purchase price of say $14,250 and the $6,500/$8,000 credits are not looking so good. The tax credits also have strings attached requiring home owners to stay in the home a minimum of three years.

Did the Federal Tax Credit prop up residential real estate prices and interest rate artificially? The answer seems fairly obvious. Had congress not gotten involved with the home buyer tax credits residential home prices and interest rates would have most certainly been lower, which would have benefited home buyers instead of BIG banks. BIG banks were the main recipients of both the higher resale prices and the higher interest rates. Washington figured out yet another way to give billions more to BIG banks at the expense of consumers (e.g. tax payers).

So there you have it…BIG banks were the BIG winners while home buyers (and tax payers) got screwed again. What do you think?