Sales of LEED homes
I am in the throws of obtaining long term financing for my recently completed LEED platinum, NAHB Emerald, PassiHaus, Net Zero home. The appraisal has come back but the biggest struggle is, as always, comps. The Green Build movement is just getting going here in Utah and there an no comps , as all the homes built to any of these standards have been custom built for an interested home owner. My appraiser went so far as to say the he could not find any sales in the entire USA of any home that met any of these standards. It is indeed very difficult to find, and so far I have only been able to find just one, built by MeditchMurphey Architects and sold within the last year in the Bethesda area. Sure there have to be others in such early adopter states as California, Oregon, Washington. I have talked with the folks at Earth Advantage Institute, and they are attempting to help, so is NAHB. LEED wasn’t terribly interested in helping.
It has become apparent that a centralized listing of such sales would be beneficial, aiding prospective home builders and appraisers alike to find such information much easier. I would entertain suggestions as how to organize such a website, luckily my wife is rather handy at website creation, so the technical issues wouldn’t be an obstacle. Thanks for any feed back or suggestions, or better yet any known sales! Kevin O’Meara
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If you mind me asking. Please share the numbers. I'm interested to know how big the differences are in these situations.
-Rob
There was a spec LEED platinum house that sold recently here in Portland, ME. http://www.redfernhomes.com/
You might take a look at this website:
http://www.greenhomesforsale.com
It's a hodge-podge of houses. Some are for sale by owner, others are listed with local realtors and have MLS numbers (the website allows individuals to tap into a different market than realtors). I don't think the site has access to selling prices, but perhaps it will give you an idea of what's available in your region. It shows only four in Utah, but Colorado shows 59, Arizona 55.
I would think it difficult to mine the data for your proposed website. Have you thought about working with your local MLS company? If realtors were required to check specific boxes (say LEED or Passivhaus or Energy Star) when listing a property, then it would be easy to filter the sales data for comparable "green homes." But someone in the MLS system has to create those categories in their database. Until then, appraisers are likely stuck with property descriptions and keyword searches . . . or Google.
Kevin,
You'll find a handful of LEED Platinum and NAHB Emerald homes that have been sold -- perhaps.
But Passivhaus homes? I'd be very surprised in any Passivhaus homes in the U.S. have been sold yet. They've been custom built for their current owners -- but not sold.
Why would this being a LEED or even a Passivhaus make that much of a difference in cost or establishing value for an appraisal? Also, comps that are used have to be from your local market, I’ve even seen appraisers require them to be from the same neighborhood. No way can you use sales from other cities or states. And as Martin points out, most of these type homes are built custom, not spec, so the sales record may not be available through MLS and other sources for appraisers.
Finally, I would bet the problem you’re having is systematic of the entire housing market, not necessarily it being a high performance home. None of my homes appraise these days, the very first thing I tell a potential client or buyer is “your house will not appraise, so be prepared financially to make up the difference”. I confront this head on, because appraisals have been a problem for a while. And they are only supposed to use recent (6 months or less) sales, as we know there just haven’t been many sales in the last year or so.
passivhaus spec homes: i think there are a few - i heard the corehaus in pdx recently sold...
Mike,
I'm not sure what pdx means.
But I did find this Web site:
http://corehauspdx.com/
The Web site is frustratingly empty of geographical information -- but there are various clues leading me to think the house is somewhere in Oregon ...
Martin, allow me to shed some light on this PDX mystery. PDX is the airport code for Portland OR, and is used as a shorthand referring to this city.
Hmmm -- "Portland" is two syllables, while "PDX" is three. But I guess you save a few keystrokes if you are typing with your thumbs. The only loss is clarity.
@Allan Edwards - I think you're right. Which is why I asked to please share some numbers.
I have run into that a lot with customers of mine. Personally, I am trying to sell a home we inherited. I built it in 2002 and have $580k in receipts. Aside from being extremely energy efficient, it is also grossly overimproved for the neighborhood. No hits yet at $385k.
With the economy the way it is, it's hard to blame housing value woes on the energy efficient portion of the package.
-Rob
Kevin,
I understand your frustration. We are currently planning a Passive/Net Zero House in the D.C. area on spec and this issue is always on my mind. I have a realtor's license and I use it mainly to access the more accurate sale data in my area. If you have a trusted realtor friend, have him/her do some comps for you.
As a spec builder/investor, I always take the conservative approach whether dealing with a conventional home or a green home. Real estate is really really local, in urban settings, there may be a few micro markets within each zip code. I do not buy the property unless I feel confident that in that specific micro market, I can build a home, pricing it correctly (preferably undercutting everyone else) and still make a modest percentage. I do have a very simple mathematical formula for this but I think each market may demand a different one.
This is the basic idea behind value investing: never pay more than the intrinsic value of the property. Realtors will tell you 90% of marketing is done with the listing price. So, it is extremely important that it is priced correctly. This does not mean you always seek to undercut everyone else (but I like to). Last year, we build a pretty conventional house with a number of green features in Arlington. At the planning stage, we thought we could sell it for a certain amount based on our market research. This amount was one which under cut the market and an amount that would move the house quickly and we would still make a modest profit. When the house was built, and we really had to set the listing price, we realized that there really was nothing on the market like it, so we determined that we might be able to get about 20% more on the price. In the dead of winter with the worst winter in decades, we put the house on market with our new price knowing that if we had to, we could've dropped the price by 20% and still not lose money.
Th house sold in 5 weeks at a price just under our listing. I believe the buyers feel they got a good deal because this was the nicest house in the neighborhood. To get this kind of house, they would've had to go to a much more expensive neighborhood but then, they would not have been able to afford it. I was anxious about putting it on market but in the back of my mind, I always knew that if I had to, I had about 25% of margin of safety.
I understand that these homes that we are building should command a higher price and they actually may. But safety is always important. Another point is that I always show up at the appraisal. Have your realtor friend prepare a list of comps that support your price and explain all the superior features that you have that the other "pretty" houses don't have. I think of this as a way to educate the appraiser.
Anonymous - Great post. Thank you for the insight.
What I would fear most is that there will not be an "educated customer" to go along with your "educated appraiser."
I have a bit more dim view I suppose. In our area the rural preservation people and habitat for humanity types are building homes that blow away 98% of the rest of the new builds in the market.
Our customers are very educated, but it works against them because they are always calculating cost psf and "payback." I've made some inroads in providing info for the payback part. But would still bet that two otherwise identical homes, side by side. One with granite counters and the other with a great energy package. The house with the counters will sell first. Unless the one with the energy package is cheaper.
-Rob
Thanks everyone for your thoughtful posts. I have been very fortunate with this house in too many ways to list, however one is worth singling out at the moment. My closet friend is a real appraiser, and smart enough to have forseen the housing bubble 4 years ago...2006. He has the challenge of appraising homes from modest weedend DIY cabins to 8 figure homes. He has in the past, when confronted with unique properties that there were not local or regional comps, gone to outside markets to better establish their market value. He has also noticed that remarkable properties hold their value even in a down market. The challenge is therefore to show that "high performance" homes are in fact valued by the market place, ie people are willing to pay a premium for them. Yes, it is rather much more complicated than knowing the sales price. Obvious other factors other than size and finish, are the typical price/sq ft in that local and how it compares.
I would love to believe that there are enough educated buyers out there, that if one could find sufficient sales, throught the country, that enough data points would exist to see some sort of trend. The difficult part is finding such sales, as almost all such homes are for already educated parties, especially in such challenging financial times. If I were a builder, I would certainly shy away from bulding such a home speculatively given the likelood that the potential buyer couldn't get it financed because the apprasal would justify the construction costs.
I am fortunate that my small local bank is willing to finance this undertaking even if the appraisal "doesn't come in". However making the case is a challenge, the same type of challenge that alot of understand when were are trying to change they way we build homes. I hope that my efforts will help others who have not been so fortunate given the current financial system. Wish me luck. Kevin
" show that "high performance" homes are in fact valued by the market place, ie people are willing to pay a premium for them." I think this really is the challenge, especially on the bank underwriter's end. Since the financial crisis, large banks have really retreated to a position where they don't really want to do anything unconventional. Like you said that your small local bank is willing to finance it. I think being able to find bankers who are open to green buildings is very important.
I think everyone is in the same boat here, the home owner who wants to build their dream home, the spec builder who is looking for funding for their next project, etc. It may be a worthwhile effort to figure out a concerted effort, working with realtors, appraisers to educate the bankers on green building and the added value in performance. In a way, these groups typically view the green building community as a band of treehuggers, though slightly greener building is becoming more mainstream, we are still considered people who don't understand finance, costs, etc. I really hope the changes we see will continue as we build/retrofit houses.
Educating appraisers is not really the answer. For starters homes that are not listed on the open market are not comarables. So a home that is custom built is not a comparable sale. It might provide cost data but not comparable sales data.
For anyone considering an energy efficficienct home you have to get away from cost =value. Cost does not equal value in a lot of cases. In my market you would not reocover the cost of a pool because the resale market does not place as much value as it costs to build.
Since most super energy efficienct homes have not been listed and sold on the open makret they are of no real value to an appraiser or a lender.
In order for sales data to be meaningful there have to be enough of it and it has to be local. 1 or 2 sales does not sohw that maket haveaccepted it.