MORTGAGE INDUSTRY IS WORST

There are special “energy efficient” mortgages out there, in theory. This link will give you some background information about these programs (http://resnet.us/mortgages). Also you could read my past posts called “Energy Efficient Mortgages”. It is a five part post that details out the challenges and products out there.  The links in those posts are out of date, but the information in the post is still fairly current.

My frustration as a green builder, is I still have not found anyone willing to underwrite these mortgages. An even bigger problem, is obtaining construction loans, period. If new green home construction received construction loan backing similar to the SBA does for small business, I believe you would see a boom in green building activity. Optionally, we need is a single-close “green” mortgage product offered by the FHA or Fannie.  My belief is that construction loans are a major problem for all builders and would be a major carrot for builder to change over their practices.

THE FALLLOUT

What is the fallout of all this? If the appraisal comes in low, the buyer automatically thinks they are paying too much and that is hard to argue with. Unless the consumer can make up the difference with a larger down payment (unlikely), the appraisal MUST support the cost of the project.  Because Amaris approaches green building from a price performance perspective, we have been able to by-pass this problem, but it has been challenging.  If we were to ignore the value equation and just follow green specifications blindly, we wouldn’t be building any “green” homes.

THE APPRAISAL INDUSTRY NOT UP TO SPEED:

One of the major challenges to obtaining a mortgage these days is obtaining an appraisal supporting the purchase price. In general, Appraisers are not trained in “green” and from what I have been able to glean from my industry friends, there are no industry standards or places on the appraisal forms for checking or indicating the home is “green” and assigning a value to those improvements.  It is my understanding that an appraiser can increase the quality of the construction from “average” to “above average”, etc which has nothing to do with anything.

The second issue with the appraisal industry, as it relates to appraisals on “green” homes, is similar to the building departments / inspectors. Appraisers are trained to appraise homes that are more or less built to code (at the date of construction) and they do not know the value / cost of green improvements and may not have access to the tools to get the proper information. In the appraisers defense, they are generally only getting paid $200-$400 for an average appraisal and they are under tremendous scrutiny.  As a result, they are not very  motivated to do anything that would be questioned because it could easily cost them a banks appraisal business.

Even if they wanted to support the value, they might not be able to and stay with all the guidelines. What I have been told is that, if I build for example, a five bedroom home and the are market comps to support a higher price by say $20,000, that does no mean the home will appraise for $20,000 more.  The actual number of five bedrooms homes sold and the projected demand for five bedrooms affects the appraisers valuation. It could actually happen that the appraiser could comp a five bedroom for less than a four bedroom based on what they are seeing in terms of the number of sold comps, demand, listings, etc.  I have always struggled to understand this issue, but I believe the same problem is true for “green” building.  If there is no definable market for “green” (e.g. in most markets), the appraiser is handicapped.  In essence, the “green” improvements may have no resale / market value and therefore cannot be supported in the appraisal value.

We do provide detailed specifications and drawings to the lender we hope gets to the appraiser, which would at least alert the appraiser to the fact the home is “green” and will undergo significant construction techniques and improvements.

The latest news, on June 02, 2010, the Appraisal Institute released a new book teaching appraisers how to appraise ”green” homes. I have also noticed they are beginning to offer seminars too. This is all very good, but there is much work to be done. Until there are standards for appraisers with FHA, Fannie and Freddie appraisal forms  and guidance for appraisers to follow, appraising ”green” homes will remain a hit an miss situation.

GREEN WASHING BY COMPETITORS:

There is a lot of attention being given to the word “green” these days. Green can mean a lot of things to a lot of people and it is becoming a very subjective word. Any seller of products can slap a “green” label on their marketing and call it “green”. The same is true in the building business.

There are green programs surfacing that are nothing more than code built homes with a few minor changes.  Consumers are beginning to be a bit cynical of the word “green” and they should be. How do we know a product is “green” and how “green” is it? I can assure, you building to the MINIMUM state building codes is NOT green.

IT GETS WORSE:

A few years ago, Amaris was building a house kitty-corner from another house being built by another local builder. The buyer of that other house, I will call her Amy,  kept watching our house go up.  One day Amy comes over and commented that she had been watching the construction of our house and that there was literally nothing the same between her house and ours (no surprise to us). She noted things like the closed cell insulation instead of the standard R-19 fiberglass batts, metal strapping,  storm shelter, and the structural insulated sheathing (SIS) instead of OSB.  Amy told us she had asked her builder if he was going to be using closed cell insulation on her house. Like most home buyers, Amy didn’t know what she was getting (“ingredients”) ahead of time.  The builders response was he was using “foam” to spray the electrical boxes closed. Of course, this is part of the state building code to close all air passages with “foam” for fire retardation purposes and has nothing to do with insulation.  When I heard this, it was hard for me not to laugh out loud, but sadly this is what we have to compete against everyday, which is not easy. Builders cut corners wherever they can, put in sexy finishes and consumers don’t know how to sort out the difference.

The bottom line, is consumers are not educated and there is a ton of misinformation out there making it harder for quality conscience builders to be rewarded for their efforts.

CONSUMERS NOT INFORMED

A consumer can buy a box of animal crackers and read the ingredients label to know exactly what is inside that product. Conversely, when you buy a new home the consumer generally has no idea what they are buying.  What are the details of the building systems and will the consumer ultimately be satisfied purchasing a home that is built to the MINIMUM state building codes? There is no state law the requires builders to provide the full details (“ingredients”) of the building systems; all a builder is required to do is build to the MINIMUM state building codes.

LIPSTICK ON A PIG

Consumers know what the finishes of their home are going to be. These items are things like floor coverings, cabinets, granite counter-tops, doors & trim, paint colors, tile ,etc. Picking these items is a very exciting part of purchasing a new home.  The finishes are what are on the outside of the box so to speak, but what about the ingredients? Consumers have no idea how their home is being constructed; and they assume local building codes protect them.  Nothing could be further from the truth.

How durable will your new home be? Will it have mold in ten years or the day it is finished? Will it rot away from the inside because of poor building practices? Will it have water drainage problems? What is the air quality going to be like? Will it contribute to respiratory problems or not? Is it energy and water efficient? How much energy will it consume to keep you comfortable? Is the house safe from a high wind event?

Putting granite counter-tops on a poorly built home is like putting lipstick on a pig!

When those granite counter-tops are installed, did the builder add additional floor trusses to support the extra weight or will the floor sag in five years?  Did you know that a sagging floor caused by granite counter-tops is NOT a warranty item? There is a lot more to a home than the size of the box and the finishes. A scientifically built home looks are durability, water management, energy efficiency, air quality, impact on the environment, comfort and much, much more.

Unfortunately, consumers are focused on the finishes (“lipstick”) and not concerned about the ingredients. It is not all that dissimilar to the animal crackers. The vast majority of consumers don’t pay much attention what the ingredients are, so long as it tastes good. The difference is a home  is a long-term investment which will have long-term inpact on your safety, health, comfort and total cost of ownership.

BUILDERS ARE VERY SLOW TO CHANGE:

The vast majority of builders (99%+)  build to the MINIMUM state building codes even if it doesn’t cost any more to build to higher quality. Builders are generally a very reluctant group that resists most change.  Builders are generally afraid of implementing new products because it takes time and resources to do the homework and gain an understanding how the products will integrate into the building system.  Builders prefer to wait for someone else to figure things out.  At our office we call it the “builder mentality”. However, even with the mandate to change, I found employees resistant to change, especially when those changes are perceived as being more work.

SUB-CONTRACTORS ARE EVEN WORSE:

When we began improving our building practices, we gave every one of our sub-contractor the opportunity to change with us. We were patient and tried to implement change over the course of construction of a half dozen homes. In the end, we had to fire most sub-contractors because they simply would not change.  Maybe this is one of the reasons builders are slow to change too; even if a builder wants to change, they are fighting an up hill battle.

BUILDING INSPECTORS DON’T MAKE IT EASY:

Every time, we submit plans for a permit, we have to educate the local building department/inspector. Building departments and inspectors are used to seeing things built a certain way (minimum state code) and when things are significantly different, it slows down the building process.  We have experienced longer permitting times, multiple phone calls and meetings and longer inspection approvals.  Once, we were held up more than six weeks when we implemented a new sheathing product. Even though we had the required paperwork and the building inspector spoke several times with the product engineers, they simply did not want to accept the sheathing product, claiming it “might not” meet wind sheer requirements.  This is the reward of a builder implementing new products.

We finally gave up and laterally braced the exterior  walls with metal strapping and to this day use lateral metal strapping because it is the path of least resistance.

WARRANTIES ARE INCREASINGLY PUNITIVE:

The more States move towards a punitive posture against builders, the less Builders’ can take the risk of implementing new ideas. The downside is simply to great. For example, last year the State of Minnesota changed the building warranty from an “implied” warranty to a “specific” warranty. Bankruptcy of a building company no longer protects the builder from personal liability.  This does not encourage the implementation of new products and building practices.