How Green?

The state association meetings certainly reinforced my belief that the organization is in climate change denial. Short term commission flow apparently takes precedence over all else. Any complication that would obstruct or complicate the business of selling houses is to be avoided at nearly any cost. Interestingly, the state association attorneys have created a set of "standard" forms that have done more to complicate and obstruct the flow of business than any point of sale provision, but that's a different story. Back on topic--forms are destined for another blog post.

One of the motions passed with no discussion on the floor, and very little in the Land Use and Environment or Legislative Committees, focused on creating a definition for "cost effective" energy efficiency improvements that is carefully devoid of any implication of societal benefits, i.e. requiring that costs of energy efficiency improvements, including maintenance costs, be less than the present total value of the energy saved during the useful life of the improvement.

That would take pressure off point of sale benefits--relatively few upgrades will qualify as cost effective and those will tend to be inexpensive. How does that philosophy match up with decisions by the public? Not that well. People buy hybrid cars that costs substantially more than those with gas engines, they put photovoltaics on their houses, they recycle--not because it's cost effective, but because they feel it has societal benefits. So should all matters green be purely personal choice?

While sitting listening to the "OMG, not point of sale" rhetoric, I had an idea for a green strategy that could be the best compromise, but would never happen because the state association lives in its own special world and will not change its doctrine for a mere global climatic event. One tends to forget that when the "no point of sale", never, no how doctrine was codified there was little understanding of global warming, green house gases etc. Scientific discoveries pale in comparison to national association doctrines in the world of real estate. Science sometimes requires thinking and that gets in the way of sales production.

Here's one of my WHAT IF scenarios. What if the ONLY point of sale requirement in the green realm the state association and national association would support is energy labeling. For example HERS II ratings on each residential 1-4 property. That's ALL. No upgrade requirements, just labeling. Buyers could see the rating before they reach a decision concerning which house to purchase. Just like they see the ocean views, the amount of living area, the color and all sorts of other attributes. Energy efficiency should be considered along with other characteristics that may or may not represent material facts in the purchase decision. Cost of a HERS II rating per property would probably drop below $300 due to inspection volume. The rest of the story would be written by free market factors. How much is a better HERS II rating worth? The market would determine that amount. It would take some time and it would vary by location, climate, etc. The HERS II reports also give some solid guidance about what upgrades are best (most cost effective--LOL) for each house--something many one size fits all point of sale upgrade programs don't.

The down side would be houses that are not very energy efficient would experience a loss in value, BUT why should they maintain a value level based on a suppression of information? Why should the state/national association support that lack of transparency? Because they believe it's good for business to keep Buyers uninformed about energy efficiency until AFTER they choose the house? Eventually, Buyers will learn more about typical HERS II ratings, but it sure isn't happening very fast. There are very few more ratings being performed now than there were two years ago.

What about societal impacts? Those aren't on the table. What if housing was a major contributor to GHG emissions and what if reducing those emissions was critical to prolonging the ability of the planet to support human life with reasonable quality into the next century? Both those "what ifs" are true, but the real estate industry is apparently more concerned about how many sides close next quarter than what happens to humankind in the next century.

There is always the argument that point of sale works very slowly and incentives are more effective, but there's not much traction with incentives either. Slowly is better than nothing when a global event is unfolding in which the tipping point has already come and gone. Incentives work pretty slowly too and they still require some participation from the property owner. Incentives and HERS II ratings would be a nice combination. Do the improvements and get a better HERS II rating, which raises the value of the property. What a concept!

A problem is that at present there is little incentive from the real estate industry to pursue outstanding energy efficiency--the treatment of green features and energy efficiency is not handled effectively or in a uniform manner in MLS data or by the national property resource. Is that intentional, or? Appraisers are all over the place in how they address energy efficient attributes. Finally, few brokers seek to get out front on climate change and the greening the industry. There are opportunities to differentiate marketing and promotion with little downside. Not many folks would exclude a brokerage from consideration because it espoused green consciousness.

The long term mismatch between brokers, agents and the public continues with the net result being that a Seller who expends an exceptional amount of time, planning and expense into creating an unusually energy efficient house probably will NOT receive the value he or she should get upon resale. The point of sale doctrine suggests that energy inefficient houses will loose value with labeling, but what about the highly energy efficient houses that will never reach their optimal value because of a lack of labeling. You probably guessed how this plays out--there are many more energy inefficient homes to sell than energy efficient ones. Follow the commission checks to discover the policy path.

Lots of lip service is paid to giving the public what they want, but does it really happen very often? There's a greater interest in giving the public more of what's easy to give them, just make sure it doesn't inhibit the smooth flow of transactions.

This returns us to the RIGHT HOUSE/RIGHT BUYER concept. Is there an energy efficiency component in defining the RIGHT HOUSE? The industry isn't making it very easy to incorporate that consideration into the decision process. I feel the demand is there, at least for a substantial number of Buyers.

The Buyers and Sellers can speed the process, if they become educated, but that education won't likely be coming from the real estate establishment.

This post is a little long--sorry. I'll try for shorter on the next few re the meetings.

Next post is related to this--regarding Climate Action Plans--mandated by AB 32 and coming to a California town near you very soon, if it's not already there.