Green homes Q&A: Can high performance homes compete on price?
Photos courtesy of Garbett Homes.
As the residential housing market continues to recover, there remains a question of how much buyers are willing to pay for high performance homes in a price-conscious market place.
One award-winning builder that went all-in on green home is still tweaking its formula to appeal to family decision makers while not pricing itself out the market.
Salt Lake City-based Garbett Homes made the decision to concentrate on green residential construction in 2009, which resulted in increased revenues and helped it weather the downturn when buyers were more conscious of the total cost of ownership.
During the downturn, Garbett's production dropped to about 135 homes a year, from a peak of 300 to 400 homes a year, and the company is on track to regain most of its production. In addition to single-family homes Garbett also builds apartments, townhomes, twin homes, and condominiums.
Bruce Hanson, energy director, and multifamily director for Garbett Homes, discussed the ongoing challenges of designing high performance homes with features and price points.
Q: Did you find that buyers were reluctant to pay more for energy-efficient homes?
A: It does cost a little bit more to have better performance, and there is a market where the buyer will pay more and that's what we've been trying to fine tune over the last few years.
I believe we pushed maybe a little too far for a majority of the buyers, and there were some buyers that loved it and some we pushed away because of the cost.
Our market didn't understand the value, and we couldn't get the appraisals for financing.
High performance and lower utility costs brings people into our model, but they ask, why is your house $3,000 more than a similar home down the street?
Buyers don't want to give you the value for lower energy costs, but they recognize it. There are a few buyers who will say, that saves me $50 a month, in a few years I've paid off the difference. If we're extremely close on price, they will buy my home over other homes.
Q: How sensitive are buyers to pricing for high performance homes?
A: We analyzed our market and believe we can be about 5 percent, up to $10,000 higher on a $250,000 to $300,000 home.
When we were building homes in the $400,000 to $500,00 range and it was costing $20,000 more, then buyers wouldn't look at us. Even when $20,000 more was at most 5 percent, it still seemed to alienate buyers.
We had to look at the costs associated with going all the way to Net Zero, as you get progressively lower in your HERS score or energy rating and compare it with what the buyer is willing to pay.
People always ask about solar panels, but that's the least cost-efficient component there is. Now solar panels are optional, where it used to be standard.
We're finding that to put solar panels on even a small home cost us to 8 to 10 percent more than a traditional builder.
Q: How are you modifying your portfolio and building approach?
A: We have gone back to the drawing board and looked at what is ultra-critical and what the buyer wants, and which extra items can be options.
We have Premium package, which delivers a HERS score of about 70, that's our average home.
Then we have our Premier package, which costs about $10,000 more. That includes solar panels, tankless water heater and a lot of other things and takes the HERS score from the 50s to the 30s.
So we had to step back and we decided to do everything the homeowner probably doesn't understand and can't do without a major renovation. Then we let them pick the extra pieces they want to put on when and if they want to.
The first thing we do is tighten up the building envelope through air sealing, that's the cheapest way to go. It might cost $100 per energy percentage point of improvement. Solar could cost $1,000 an energy percentage point.
We can tighten up the building shell, add windows, add insulation and you can do that for the 4 percent to 5 percent window.
The costs got out of reach when you added the fluff, the solar panels and the tankless water heater, which are all critical and important pieces but from an efficiency standpoint on how they drive down the overall energy modeling, they're the most expensive.
You're competing for those dollars for the house against granite countertops and other options, and you have to make sense of how those dollars are spent.
Buyers were comparing us to the average home and we were losing sales because we couldn't get the appraisals up.
Q: Do buyers respond to green home certification labels?
A: Energy Star is recognized in our market, and since LEED was designed for commercial buildings, people have heard of it.
LEED definitely has zero draw. Even the DOE's Net Zero Energy Ready home has no buyer recognition. We build to that level, but we don't certify them because they have no buyer recognition.
In our market the word "green" has a semi-negative connotation to it. But energy efficiency, absolutely everyone wants that.
Q: How can homeowners spend their investment for better efficiency?
A: The buyer can't opt for a different wall assembly. We've already done all the staggered studs, we've pushed the insulation to the max, the only thing they can opt for is more insulation, solar panels, a tankless water heater, or a circulation pump for the water heater.
Everything in the wall we've taken to the level we believe will get them a HERS score of about 50.
At the Premier level we do a little more, we add more spray foam to lower the attic leakage. We're trying to get them to 30-40 percent better than code in our standard, and trying to get to 50-70 percent better with the Premier package.
Nothing that comes out of Garbett Homes is only standard code compliant.
Q: How do you educate buyers on the value proposition of energy efficiency?
A: The first thing they will ask is, does it have solar? With solar, you'll spend $4,000 to generate $8 worth of power. If you add $200 to $400 of air sealing sealant from Knauff or Owens Corning, you can save $12 a month with that.
We try to step back and teach folks that it's cheaper to conserve energy than it is to produce it. Let's get the home to conserve energy and once we've hit that maximum there, then let's get it to produce energy.
Pretty much everyone thinks that solar is the first thing they should do to their home, but we teach them the priority of how to be efficient.
Q: What's the most cost effective ways you've found to make performance improvements?
A: The three big steps are: air seal, add more insulation and better windows. Those three steps will take a home from HERS 100 to 75 or 70, and you've only spent about $3,000 more.
We have found using air-sealing products like Knauf's EcoSeal or Owens Corning Energy Complete will cost $400 to $500 per home, but it will bring your air changes per hour down from 5 or 6 to 3. The biggest air loss potential is the joint between the bottom plate and the floor.
We use thermal cameras and walk around our homes looking for air leakage and locate all the leaks. The first time we did it we were shocked and embarrassed.
We use drywall clips and eliminated 103 studs that create thermal bridging, and we could add 57 cubic feet of insulation to the house that there wasn't space for otherwise.
These are little tiny things that make a big difference in home performance. The critical thing is to get the buyer to understand it.
Q: How can homebuilders build green homes and yet be responsive to buyers?
A: From a green and buyer standpoint, the most critical thing to an energy-efficient home is not what you can see. It's hidden behind the walls and if the buyers can understand that we can move forward.
You can get an energy certified home for an additional $2,500 to $3,000 and that is a 15 percent to 20 percent energy savings over a code home every month. It's easy to build those homes, but it's hard to sell them.
I believe it is more important to make sure a home lives well for the selling market. The home has to live well; there are very few buyers that will sacrifice to have an energy-efficient home.
Read more about building green homes.