Homebuilders say one of the biggest advantages of buying a newly built home is energy efficiency. However, some of the ways that builders make homes burn less cash might not be as recognizable to buyers as say, kitchen appliances, generous closets and bathroom amenities. So now some builders are boiling energy efficiency down to something every buyer understands: money.
This week, Los Angeles-based builder KB Home will start giving prospective homebuyers an estimate upfront of what their monthly gas and electric bill will be if they buy one of the company's homes. The estimate label also will clearly show buyers where the home ranks on an energy efficiency scale. Houston-based McGuyer Homebuilders Inc. earlier this month began providing customers with estimates of what the annual heating and cooling portion of their utility bills will be on homes in the company's Dallas market. If buyers end up paying more, McGuyer promises to reimburse them for the difference in the first two years.
The strategy comes as homebuilders grapple with fierce competition from existing homes on the market, particularly sharply discounted foreclosed properties. Sales of new homes, which make up a fraction of overall home sales, sank last year to the lowest level since at least 1963. New homes, many bristling with energy-efficient features, often are priced at a premium to older homes. That can be a deal-breaker for buyers expecting to see bargain-priced properties as the housing downturn enters its fifth year.
But builders are betting that breaking out utility bill savings in black and white will persuade buyers to consider a newly built home.
"It's the biggest purchase decision that people are making at that time in their lives, and typically they have no idea what it's going to cost to truly own the thing until they've been there for several months," said Jeffrey Mezger, KB Home's president and CEO. "It's a cost of homeownership that hasn't been out there."
The building industry has been good at explaining the technology inside a home and behind the walls, but not at clearly showing buyers how it all translates to lower utility bills, says Nate Kredich, vice president of residential market development at the U.S. Green Building Council. This new approach by KB and other builders is similar to what automakers have done for years with miles-per-gallon labels, and it's helped make fuel-efficient cars more popular.
"The model is there," Kredich says, "but homes are significantly more complex than automobiles."
KB's Energy Performance Guide draws its utility cost estimates from a home's ranking on the Home Energy Rating System (HERS) Index, which is regarded as an industry standard for calculating energy efficiency. The lower the score — which also is displayed on the label — the lower its projected energy costs.
A typical new home will garner a score of 100 on the index, while Energy Star qualified homes will typically rank at about 85. Resale homes typically fare around 130 on the scale.
What does that mean in terms of dollars and cents? The difference between a score of 80 and 130 could amount to seeing one's energy bill double, KB's Mezger says.
A Department of Energy program that launched in 2009 has been issuing certificates to builders whose homes achieve a HERS score of 70 or less. The builders also get the right to display the department's EnergySmart Home Scale label. Like KB's, it features the home's HERS score and an estimated average monthly energy bill.
The program has issued certificates on more some 5,500 homes, most of them newly built, said George James, the program's project manager.
KB, which builds homes to order, said it will provide both an initial HERS ranking and energy bill estimate when a buyer selects the type of home they want to purchase. An independent energy rater then inspects the home once it's built, and the homebuyer will receive an updated estimate and HERS ranking.
The HERS rankings and monthly energy bill estimates can vary among KB's homes, depending on size and the part of the country they're in.
One 2,167-square-foot KB house in Jacksonville, Fla., got a HERS score of 74 and an estimated monthly energy bill of $100. A 1,550-square-foot home in Las Vegas ranked 66 on the HERS index, with its owners likely to pay out $89 a month in energy costs.
And just as with cars' fuel efficiency estimates, how a buyer uses a home can raise or lower the energy bill projections provided by KB. With cars, the actual miles per gallon that drivers get depends on how fast they drive, how they maintain the vehicles and what fuel they use. With a home, leaving the lights on all day or setting a thermostat too high in the winter or too low in the summer will skew energy costs.
For that reason KB doesn't guarantee any specific level of gas and electric utility costs, though it says the HERS rating it advertises to buyers will be exact.
The energy bill guarantee offered by McGuyer Homebuilders also has its limits.
"There'll be some things we can't guarantee, like if somebody puts 50 tanning beds in their home," says Ken Gezella, regional sales manager for the homebuilder's Dallas and Fort Worth, Texas, market.
"That's not what the energy guarantee is for," he says. "It's for the average buyer."