Environmentally friendly housing features have been hawked as a value add for builders and sellers. Buyers simply do not agree. So far, the green movement in housing has been a bust.
Irvine Home Address … 20 JULIAN 1 Irvine, CA 92602
Resale Home Price …… $639,000
"Break the bough and strip all of it.
Fell this forest, make a profit!"
"Are there more so brave and honest;
Who would die to save my forest?"
Skyclad — The Disenchanted Forest
Builders hate green building
I am going to let you in on a little secret: homebuilders hate the new trend toward Green Building. A homebuilder's motivations are pretty basic. They will provide anything a buyer is willing to pay for. If buyers want granite countertops, and if buyers are willing to pay the builder more than what it costs, then the builder will provide plenty of granite countertops.
Builders do not like to be forced to provide those items that buyers are not willing to pay for. Have you noticed that builders don't provide back yard landscaping? That is no accident. Study after study has shown that landscaping adds about $0.50 for every dollar spent. When a builder puts in back yard landscaping, they lose money, so they don't do it. The same is true of solar panels, low-flow toilets, and a number of other environmentally friendly items. Buyers give lip service to wanting these items, but they won't put enough dollars to green products to make it worthwhile for the builder to provide them.
Builders are being forced to put in Green Building features by local municipalities, but they resist this strongly because buyers won't pay for it. These environmentally friendly features become a cost to the builder with no increase in revenue. Like any wise business people, builders resist throwing away money.
The Green Building movement has a long way to go.
Big Green Home Bust
By Ernest Beck Sep 16th 2010
A well-appointed green home outfitted with energy-saving appliances and other eco-friendly features might save money on utility bills and ease your conscience, but it won't always help close a sale in a tough real estate market, a California homeowner has learned.
The warning sign for the green residential market: A house for sale in Costa Mesa that was the first in Orange County to receive a coveted LEED Platinum certification (green building's Good Housekeeping Seal) had its price slashed by half a million.
The seven-bedroom, 4,900-square foot Craftsman-style house is the ultimate green showcase, boasting everything from low-flow faucets to solar panels (see "Home Energy Saving Projects for Every Budget"). But even those hallmarks of sustainable design were no match, it seems, for the crappy economy and skittish buyers. According to the Orange County Register, the green home's list price recently dropped from $299,000 to $2,499,999.
The hefty drop underscores the continuing debate about the resale value of green homes. Many have believed that green would command a premium among buyers who aspire to a sustainable lifestyle, but now it appears that green might not be as big a selling point in a market that has gone off the rails.
The only people who ever believed green homes would command a premium are those vendors pushing green products and a few tree huggers. If there was real demand for these products, homebuilders would provide them in limitless quantities. There is no demand, so builders stay away.
So how green do prospective buyers want to go?
There's not much hard evidence to go by. Anecdotes suggest that sustainable homes can sometimes sell faster than conventional ones, especially if energy-efficiency is the main marketing theme, according to the National Association of Home Builders. On the other hand, some green condo buildings in urban markets like New York, that were expected to fly off the market in the boom, have had a rough ride.
Green or not, buyers are still constrained by the market's current tight financial conditions, the NAHB says, and even the prospect of lower monthly energy bills "has not gained the attention of the lending community."
Lenders don't really care how much a homeowner spends on utilities. Perhaps they should, but the DTI parameters don't include utility costs, and until they do, green products that tout energy savings will not get any financing dollars put toward them.
One problem is that most people are in the dark about what green building really means, and more importantly, if it's worth paying for. Green can also be confusing: Quick, what's the difference between LED and LEED? (Answer: LED is energy-efficient light emitting diodes, used in lighting and LEED is Leadership in Energy and Environmental Design, the much touted green certification program that includes a checklist of environmental standards).
Although the price gap between green and standard housing is reportedly closing, buyers aren't always interested in the technical aspects of how and why green will improve their lives, especially if they are agonizing over a big financial commitment. The Costa Mesa home, for example, which sits on a golf course, features dual-flush toilets, an internal gray water system, and drought-tolerant native plants in the garden (see "Landscaping With Low-Maintenance Lawns Saves Money").
Sounds great, but most buyers are more likely to wonder whether they can afford the mortgage.
The cold truth is that buyers don't care about green features. They care about costs, and green features add costs that are never recovered through use or added value.
$500K price cut on ultimate ‘green’ home
August 23rd, 2010 — Marilyn Kalfus
A Costa Mesa residence that became the first single family home in Orange County to snag the nation’s highest rating under the LEED green building program has had a nearly $500,000 price chop.
The 7-bedroom, modern Craftsman-style house at 1811 Gisler Ave. is now listed at $2,499,999, down from $2,999,000 in January.
The home, priced at $510 a square foot, sits on 0.32 of an acre at the 11th green of the Mesa Verde Golf Course.
As Register reporter Pat Brennan wrote in February, the developer began planning to build the 4,900-square foot house from scratch 2 years before it hit the market.
Wrote Brennan:
“It’s loaded with features — solar panels, a gray-water system, natural lighting, low-flow water fixtures, landscaping with drought-tolerant native plants …”
All these elements helped Steve Blanchard earn the platinum rating from LEED — “Leadership in Energy and Environmental Design”:
- Solar power
- Internal gray water system, recycling sink and shower water for toilet flushes and outside irrigation
- Low-flow, dual-flush toilets and faucets
- An interior built with materials free from volatile organic compounds, a common pollutant
- LED lighting throughout
- Energy Star appliances
- Natural lighting throughout the house
- Tankless water-heating system
- High-efficiency heating and cooling units
- Gas-burning fireplaces
- Low-flow drip irrigation
- Landscaping with Orange County native plants, which won’t require any irrigation once established.
Other features include folding walls of glass that lead to a private courtyard, a formal dining room, 3 fireplaces, including in the master bedroom suite, a gourmet kitchen and an outdoor Dacor kitchen.
Another Ponzi implosion
- Today's featured property was purchased for $362,000 on 6/20/2002. The owner used a $289,500 first mortgage, a $72,150 second mortgage, and a $350 down payment.
-
On 1/23/2003, he refinanced with a $365,000 first mortgage.
- On 4/3/2003 he obtained a $50,000 HELOC.
- On 8/6/2003 he refinanced with a $369,500 first mortgage.
- On 5/16/2006 he got a HELOC for $250,000.
- On 12/22/2006 he was approved for a $315,200 HELOC.
- Total property debt was $684,700.
- Total mortgage equity withdrawal was $322,350.
Foreclosure Record
Recording Date: 05/13/2009
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 02/10/2009
Document Type: Notice of Default
Palladio Properties picked this up at auction for $536,500. They will net 8% to 12% for their investors.
Irvine Home Address … 20 JULIAN 1 Irvine, CA 92602 
Resale Home Price … $639,000
Home Purchase Price … $536,500
Home Purchase Date …. 6/1/2010
Net Gain (Loss) ………. $64,160
Percent Change ………. 12.0%
Annual Appreciation … 53.6%
Cost of Ownership
————————————————-
$639,000 ………. Asking Price
$127,800 ………. 20% Down Conventional
4.52% …………… Mortgage Interest Rate
$511,200 ………. 30-Year Mortgage
$125,177 ………. Income Requirement
$2,596 ………. Monthly Mortgage Payment
$554 ………. Property Tax
$217 ………. Special Taxes and Levies (Mello Roos)
$53 ………. Homeowners Insurance
$128 ………. Homeowners Association Fees
============================================
$3,548 ………. Monthly Cash Outlays
-$434 ………. Tax Savings (% of Interest and Property Tax)
-$671 ………. Equity Hidden in Payment
$214 ………. Lost Income to Down Payment (net of taxes)
$80 ………. Maintenance and Replacement Reserves
============================================
$2,738 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$6,390 ………. Furnishing and Move In @1%
$6,390 ………. Closing Costs @1%
$5,112 ………… Interest Points @1% of Loan
$127,800 ………. Down Payment
============================================
$145,692 ………. Total Cash Costs
$41,900 ………… Emergency Cash Reserves
============================================
$187,592 ………. Total Savings Needed
Property Details for 20 JULIAN 1 Irvine, CA 92602
——————————————————————————
Beds: 3
Baths: 2 full 1 part baths
Home size: 1,650 sq ft
($387 / sq ft)
Lot Size: n/a
Year Built: 2002
Days on Market: 21
Listing Updated: 40418
MLS Number: S630611
Property Type: Condominium, Residential
Community: Northpark
Tract: Tibu
——————————————————————————
Beautiful Detached Home in Northpark Square Community. New Paint & Carpet. Stainless Steel Appliances. Open Floor Plan. Living Room with Fireplace. 3 Bedrooms upstairs. Spacious Master Bathroom with walk-in Closet. Close to Community Park. Move-in Ready.
This is fundamentally an issue of human stupidity.
Sure, municipalities distort markets when they mandate low-flow toilets or zeroscape yards, but government has been mandating all sorts of sprawl and vehicle-friendly development for decades, as well as subsidizing the price of water and, in the case of many HOAs, mandating lawns.
It makes more sense, anyway, to install low-flush toilets and gravel lawns after the price of water has risen, so buyers are just being smart. Some day, we will begin to pay market rates for water. It will be interesting to witness the rapid changes that will ensue.
I also look forward to zoning which does not mandate 50-foot-wide streets, or a certain number of parking garage spaces for each commercial office.
Irvine already does closely control parking spaces in commercial properties. Ever notice how the parking in The District can get quite crowded and is very obnoxious and inefficient in certain parts? That’s because it’s just over the boundary line in Tustin, so Irvine couldn’t impose their standards.
-Darth
Bwahahahahaha!!! After working in Irvine every single day for the last 24 years, it’s a classic sign from TIC to insert 3 lbs. of excrement into a 2 lb. container.
TIC closely monitors parking…LOL, yup I’m sure they do, and it is highly inadequate to every single place I’ve ever been too during busy times. Especially lunch times. Anyone remember the Rectum before the parking structures? I do, I refused to go then, just as I refuse to go now. The common word there being “refuse”…it’s garbage.
The D also monitors his parking areas up in his helicopter by having all TIC parking areas painted in green. This is so the king can view his conquests from the sky.
Hmm, I’m really not sure how to respond. I feel like I’m trying to explain to someone that water is wet.
I’m not sure what you’re expecting. Are you expecting a front-row parking space everywhere you go? Can you elaborate a little more on what you mean?
I never have a problem finding parking in Irvine. Some of the high-rise towers have paid lots or restrict parking to tenants only and UCI has some parking restrictions, but I’ve still never had a problem finding parking at any of these places. I’m really at a loss to what to say to you. Are we talking about a different city, perhaps?
-Darth
Is it a chicken and egg type question? When the prices are WTF and the buyer can only “afford” the house with enormous DTIs and hopeless loans, then WTF + 20% is a difficult sell.
If the green house was $250K and next to it a similar standard house for $200K, the green one might be preferred. When you can’t afford something in the first place, it is even dumber to pay still more up front. That house needed to come down $500k (and I think, more) anyway, green or not.
I accept that IR knows a lot more about what builders face than I ever will, but until the distortion of the bubble inflation is gone, isn’t hard to judge what people will (can) pay extra for?
Now excuse me, I’ve got to go out and hug a tree.
The harsh reality is that, if given a choice, consumers won’t even pay for things that make their house safe.
“$5,000 for wiring that isn’t faulty! Outrageous!!!”
I checked out 32 vienne this weekend and it was a zoo. This was the house listed as low as 499k for 2900 sq ft house on 10000 sq ft lot. The listing is gone now but basically said that the house will be sold to highest bidder and the usual hype that comes with a totally non official auction. In any case, it was packed and as far as marketing goes, it drew tons of attention and the bid forms were filled to a half-inch thick high pile. The agents sitting out front said that they will call all bidders on monday and provide them the chance to bid higher than the top bid…and that’s where this thing is hype. Who is to say what the “highest bid” really is? Its like asking a friend to bid up your listing on ebay. “Hey bro, offer 900k…don’t worry, its totally non-official and we won’t commit you to anything”
In any case, we never got our follow up so not sure what the high is. I offered 527,001 (I really put deep thought into it) for fun. I am guessing it closes for as low as 700k as it needs some serious cleanup and decent updating. Btw its next to power lines on harvard but not sure how strong those are and if it should be a concern.
Anyone else bid?
I would ask for the agent’s card, and tell her I’m interested in a few other properties, but would like to call mid-week to give her a chance to undersell the other sellers, and that she should act quickly because now is the perfect time to sell. Indeed, I would also tell her that the market will never be this good for sellers for many years, and that she can rest easy that she will never regret selling that gracious home today.
Sell now, or be priced in forever!
“Sell now, or be priced in forever!”
I love this quote.
Under cut the sellers? Do you even understand? That sounds like a bigger waste of time than you and I posting here.
Some folks just don’t get it, that 499K listing will sell for $800K. Under cut the sellers? LOL
I have not seen it and I’m not looking much now. But it sounds like it should go for more than $700k and possibly more than $800K. A similar house, in terms of size, in the same neighborhood sold for ~ $950k last year. Since there has not been a big drop in Irvine (YET), it should go for $850k in today’s market considering it’s not in such a good condition as you say.
I think 300 a sq ft is too high right now for bigger houses. My friend sold his 4000 sq ft woodbridge house inside the loop which showed very nicely for 290 a sq ft. That’s a better location and in better condition. I need to look at comps but I think in good condition, a westpark 2900 sq ft house would sell for 850k. This house is next to power lines, needs new garage doors, tons of cosmetics, and front and back landscaping. Hence upper limit of 800k. Will be interesting to see what happens.
IR-i really urge you to update closing prices of your posts on the weekend threads. We can look back at comments and see what’s happening. Esp on these trustee flips…what are they really making.
Thanks for providing this report, rkp. I wish I can go but I’m no longer in the States (currently enjoying my unemployment/sabbatical/retirement/”whatever you wanna call it” somewhere.
I would have bid $549,001 just for fun as well 🙂
Let’s see what happens.
Am I the only one who did a double take on the featured property. The owner used a $350 down payment and managed to extract over 322K of equity before losing the house. Think about that for a second!
You just can’t make this stuff up, this would make any criminal enterprise envious. No laws were broken, no one goes to jail, just business as usual in our fraud bubble economy. How can anybody trying to do the right thing compete with these sheisters?
Irvine is immune from any future price declines, right?
June 2002 Purchase Price … $362,000
Sept 2010 Purchase Price … $536,500
June 2010 Asking Price … $639,000
WTF? Even at 2002 interest rates, the monthly nut was still less back then. What’s so special now that justifies this price increase? Oh, I get it, repeat after me: REAL ESTATE ALWAYS GOES UP
The more suckers keep paying inflated home prices, the longer this game will keep going on.
Buyers are not asking/demanding the green house. Regulators are the ones doing the demanding.
Insulation, passive hot water and heat pumps (in the proper climate) can pay for itself. A large problem is most manufactures price the new energy saving item according to a projected break even point and not the cost of manufacturing. The utilities’ rebates something make buy green profitable due to the accerated break even point and overcoming the extra green profit.
LED light (not bright enough) and $ too high for energy saving. LED are for battery power lights, i.e. flashlights, are great.
Solar panels, questionalbe when manufacturing pollution is considered. I would use out in the boonies and if the power companies are forced to buy the solar power from me. Low flow toilets, be prepared to flush 3 times.
Most buyer only buy on the looks. Out of sight, out of mind. If the house falls apart after 7 years, that will be 7 years of dancing.
We used some ‘green’ building techniques, and our builder did some on his own. We wanted low/no VOC paint and hardwood seal, and also knew that we would probably recoup none of those costs. Our builder used low-erosion site plans (seeding after clearing the lot), used some recycled/scrap wood in places, covered all entry doors (to reduce water infiltration). The only one that would help in resale is the covered entries, and that would only help eliminate a possible problem. We looked into spray-foam insulation, but the cost – 1% adder – didn’t pay up for the r-value increase.
I would argue that a 4900 sqft, $2.5M home sitting unsold says nothing about the green building idea, but a lot about the sale of > $1M non-custom built non-historic homes.
The obvious way to encourage people to fo green is to tax the dickens out of energy, like Europe does. I was struck how on a visit to Germany how everyone was thin there. Then I notices the price of gas, the tiny bar fridge people had, and how they had to walk to the subway to work, then take the subway home and walk to the market to get food to cook as the bar fridge didn’t hold much, then walk home to cook it. Maybe the govt should tie any public health care plan to a carbon tax. Health care per person is a lot cheaper if everyone is thin from walking rather than obese.
Actually, most of them are thin because most Europeans smoke.
Actually, not. Smokers = thin people? Really, or are you thinking about the last days with terminal cancer?
One could make the argument that this 4,900 square foot, 7 bedroom monster is not a ‘green’ house at all. It’s just an state-of-the-art mcmansion.
Light cigarettes aren’t any healthier than regular cigarettes if you smoke twice as many packs of them, and this supposedly green mcmansion is as dubious as a Hybrid Hummer.
Great point.
Uh Planet (Un)Reallity, I believe it’s called ‘sarcasm’ not that I would expect you to get it.
BTW I hear that the word “gullible” is not in any dictionary. Could you check on that for me? I don’t have one handy. TIA.
This owner appears to like 32 Vienne’s style:
http://www.redfin.com/CA/Irvine/46-Wheeler-92620/home/4783057
Description: “Beautiful Lite and Bright 3 Bedroom Home. Breakfast nook in kitchen, formal dining room, large master suite with walk in closet, inside laundry, new flooring. Close To Award Winning Irvine Schools. No Mello-roos, No Association Dues. Offers will be accepted at OPEN HOUSE ONLY Sat. Sept. 25 from 12-3 Home will be sold to the highest & best offer on Saturday”
I’m pretty sure they’re wrong about Northwood not having any HOA dues, though. The listing is by “Lawyers Realty Group”. LOL! Double the trustworthiness! Lawyers and [r]ealtors together!!!
🙂
-Darth
Another fake 499K listing. There must be something appealing about that number since they don’t choose $1.
Of course it’s fake! But are you really suggesting price stabilization so long as there is this kind of desperation from sellers? They can see the price reductions happening in front of their eyes, same as you and me (well, ok, you can’t ’cause your eyes are closed, but that’s not the point…). Sellers are scared and desperate and willing to try any tactic to sell their overpriced house ASAP.
Catch that knife, Planet [r]ealty!
-Darth
It’s not exactly desperation when you list it for $499K get 32 offers and then negotiate the final price at $850K.
It may be stupid, but it’s not deperate that’s for sure.
Yeah, I agree.
Seems like the sales tactic du jour to get buyers to jockey for position.
Why not just market/ hang a giant “FCB’s Welcome” banner like TIC did introducing it’s 2010 New Home Collection.
Huge Success!
Well, this property originally listed for $680K back in May of this year. If you think that it will sell for $850K a few days from now, then that tells us a lot about your perspective on home pricing.
Maybe you need to go browse Redfin, Trulia, or the MLS and see all the price declines that are NOW HAPPENING!
This is the question that people have been asking about Irvine since 2007: WHEN. When will prices on desirable properties really start to fall in Irvine? The answer: NOW. Sit back and watch the show.
-Darth
If they sell it for above $680K then I’ll have to take back calling them stupid.
Seems to me like January 2009 was still the time to buy in Irvine. Hopefully for your sake we will get back there soon. Unfortunately in the process your job may come in jeopardy as the DOW slides beneath 8000.
The FCBs need not apply as their brief cases only carry $888,888.88
Darth you keep blabbing on about huge price drops in Irvine but the reality is that in April 2009 irvine was selling for $325/sf and now it’s selling for $350/sf.
Exactly, kudos to the FCBs.
They love to over pay.
Ten, they love to over pay all they ask is that our fluent English speaking asses GTFO so that the schools stay on top.
I’m not a fan of this sales technique, but I have to admit it’s clever. Look at all the attention it’s getting – a home packed full of potential buyers over the weekend. I’m doubtful the rest of the market priced homes have such a stellar turnout. I also found one part of the deal genius – that all offers were subject to seller’s approval. Meaning… they ran this like an auction in the hopes of getting a big offer (lots of upside potential for the seller,) but if nobody bid high enough, the seller could refuse all offers and loses nothing.
This is all just another sales tactic. Just like price ranges was big for awhile.
I’ll keep waiting. Just wake me up in a few years after all the shadow inventory is gone and we have intrinsically valued asking prices!
We were a 32 vienne for about 30 minutes and in that 30 minutes, we saw about 50 people there. 2 young indian couples, 1 extended persian family, and the rest east asian. this isnt to say other races didnt show up but its what i observed.
I know its going to go down another 20%. A friend just closed his restaurant in Woodbury. After 3 years he just cant deal with the crazy rent they wanted. Yet they are building away in Laguna Crossing. I am starting to smell some blood in the streets. TIC is just pushing too hard. Went to the Spectrum on Saturday for lunch. 3 cars total in the Valet over by the Yardhouse. Not a good sign at all. People are telling TIC with their feet that something is very wrong.
Was the restaurant rent the same it’s always been, or did they want a rent hike?
Maybe they just didn’t want to pay for the valet, would rather self park. I went to South Coast Plaza today. It was interesting. Fair bit of foot traffic for a weekday morning. The De Beers jewelry store was deserted and the stock was all small diamond modest budget for a wedding ring type stuff. Nearby though, Svorski crystal had several people in the store. Lots of creative and eye at catching jewelry for $300 and below. So, maybe value for money is back in style, hence the lack of interest in the valet.
The problem with the Costa Mesa house on the golf course isn’t that it is green, it is the $GREEN$, which you can read as $GREED$.
The non-green comps for freshly renovated 3k sf houses on big lots on the course are ~$1M.
check out the houses that have sold in the past few years on the best streets: Java, Tahiti, Capri. The highest asks have been $1.7 and $1.6. The highest solds have been $1.2, $1.0
And the lot that the LEED house is on is not even one of the best of these trophy lots.
If the excess costs due to green were 25%, then they should be asking $1.25M, not $3M.
Its just another ridiculous seller, a la Shady
This post was interesting to hear why builders do what they do. I understand they need to make money, but in the hay day they were making obscene amounts of money, especially in Arizona where I live. I even got caught up in a “lottery” and thank god I pulled out, because I’d be a hurting unit now. Do you think that builder is doing lotteries now? Nope! I’m a small business person myself, so I can relate to doing what’s best for the business, but doing what’s best for the customer isn’t a bad thing either. Just my opinion anyways.
Regards,
Mike