Posts Tagged ‘pricing’

Homeowners can still grab energy rebate

Wednesday, December 30th, 2009

More than half a megawatt of solar and wind power could be generated at homes throughout New Hampshire due to a rebate program designed to spread alternative energy.  Since July 1, the state has received 229 applications from households for the rebates, totalling about $1.2 million. Most of them – 194 – were for solar panels, and the rest were for small-scale wind turbines.

“We anticipate that through the end of our first year of operation we’ll be able to meet all of the demand for residential application,” said Jack Ruderman, director of the state’s Sustainable Energy Division. “If you’re a homeowner and you want to get a system, you’re in great shape. After July (of 2010, when the program must be renewed), it’s harder to predict.”

The total installed capacity of the applications is 641 kilowatts, or more than half a megawatt.  This is tiny by utility standards: A small power plant has a capacity of 15 megawatts, or 23 times the total of all these applications, while a big one like Public Service of New Hampshire’s Merrimack Valley plant in Bow can generate almost 800 times as much electricity.

On the other hand, it is a huge expansion of the amount of the state’s “distributed power,” a term for electricity generated at the site it is used rather than by large, centralized power plants. Aside from the pollution benefits of coming from solar or wind power rather than burning fossil fuels, this electricity can reduce the need to build more power lines to carry power from power plants.

These are different from large-scale alternative energy programs like the 25-megawatt Lempster Mountain wind farm or the 51-kilowatt solar array that PSNH placed on its Manchester headquarters.

In the Nashua region, 15 applications had been turned in by mid-December, totalling 44 kilowatts; all but one are for solar panels. They are requesting $73,000 in rebates, roughly one-fifth of the total $378,000 cost of the projects.  Requests for applications came in from all over the state – from Nashua to Newfields, Lyndeborough to Laconia, Pelham to Portsmouth.  Facilities ranged in cost from $3,600 (a tiny, 960-watt solar system in Gorham) to $52,422 (a wind tower in Orange).

Most applicants will receive the maximum rebate of $6,000, although no rebate could be more than half the installed cost.  Money for the rebates comes from the state’s renewable portfolio standard, which gets money from the state’s utilities, mostly through what are called alternative compliance payments.  The total amount collected is about $4.5 million, so there’s more than enough to cover all home rebates, Ruderman said.

That money also will be used for future commercial rebate programs, which are going to be far more expensive, and perhaps even projects contracted out by the Sustainable Energy Division.

 David Brooks,  Nashua Telegraph.

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Exorbitant design fees?

Monday, September 7th, 2009

Exorbitant design fees?
Your architect or designer may not be making as much as you think

by Richard Morrison, AIA, ASID

I occasionally hear from people who are shocked by some of the hourly rates that architects and designers charge, perhaps anywhere from $75/hour to $250/hour or more. No doubt they are comparing these rates to their own hourly income (or the annual equivalent) as an employee, and imagine that these design professionals are just raking in the money. As a public service to my design colleagues, I am going to let you in on some of the “behind the scenes” financials.

The reality is that an hourly rate needs to cover much more than what a design professional takes home as his/her pay. Let’s take a billing rate of, say, $120/hour as an example.

To start with, not all time is billable. Most independent practitioners and owners of firms are thrilled when they can get 50 percent of their time billed. Some of the non-billable tasks that owners of firms must deal with are: accounting and billing, meeting with prospective contractors and product representatives, marketing, phone calls from non-business sources, fixing the printer that’s just jammed, attending trade shows and seminars, setting up filing systems, dealing with their insurance agent, listening to employees’ or colleagues’ gripes — well, the list is endless.

So, if only 50 percent of the time is billable, that means that each billed hour must cover two working hours — effectively creating an income rate of $60/hour.

But there are many expenses that need to be paid out of this money: office rent, new computers and software, insurance, phones, office supplies, professional licenses and dues, non-billable consultants, reference books — well, the list is again almost endless. It’s not uncommon to see 50 percent of total revenue go towards this “overhead” of maintaining an office.

So now we are down to a net (pre-tax) take-home revenue of maybe $30/hour from that original $120/hour — hardly supporting an opulent lifestyle in this part of the country. Of course, some professionals can reduce their overhead to the bone and work longer hours to generate more income, but it’s not a get-rich-quick profession.

The situation is somewhat similar when a design office bills for employees. It is common to see billing rates of 2.5 to 3 times the actual hourly wage of an employee. So if an employee is being paid, say, $25/hour, you will likely be billed $60-$75/hour for that employee. Remember that the employer is paying not only the direct wages of $25/hour, but also for vacation days, sick days, workers’ compensation insurance, health insurance, training days, and other non-billable time. The billing rate must cover not only that employee’s costs, but also general office overhead costs such as an office manager and rent on a larger space, and the equipment and supplies needed by that employee. Oh, and maybe a little profit, too.

While all of this is likely to be self-evident to anyone owning their own business, hopefully, those who don’t will now understand the reason for these “exorbitant” design fees. I always encourage people to focus on the overall value that is being provided by a design professional. Usually, it far exceeds the fees being charged.

Richard Morrison, AIA, ASID, is a Menlo Park architect and interior designer

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6 Myths of Green Consumers

Wednesday, September 2nd, 2009

New study shatters stereotypes of what motivates buyers.

By: Jennifer Goodman

 

 

A new national study of green consumers contradicts several long-held stereotypes about them: The environment is not their top concern, their kids are not influencing them to be green, and while many know what they should do to save the planet, they often don’t do it.  As a result, marketing messages aimed at this group often fall on deaf ears, says Suzanne Shelton, whose Knoxville, Tenn., firm, Shelton Group, conducted the study.

 

“Most green advertising is created as if there’s one pool of green consumers and they’re all motivated by ‘Save the planet!’ messaging,” Shelton says. “We need a revolution in this thinking. Not all green consumers are the same, they’re not all motivated by the same messages, and they’re not all inclined to buy only green products.”

 

Released Aug. 21, the Green Living Pulse study polled 1,007 U.S. consumers who at least occasionally buy green products (77% of the population) and found there is no typical “green consumer.”  The study discovered six myths about this group:

 

Myth 1: Green consumers’ top concern is the environment.
When asked to identify their top concern, the economy, by far, is No. 1 (with 59% calling it their top concern) and the environment falls far behind (8%).

 

Myth 2: Green consumers’ main motivation when reducing their energy use is to save the planet.
When asked the most important reason to reduce energy consumption, 73% chose “to reduce my bills/control costs” and only 26% chose “to lessen my impact on the environment.”

 

Myth 3: Green consumers are all-knowledgeable about environmental issues.
For example, the survey asked, “From what you have read or heard about CO2 (carbon dioxide), please place a check beside any of the following statements you think are true.”  Almost half (49%) chose the incorrect answer, “It depletes the ozone layer.”

 

Myth 4: Green consumers fall into a simple demographic profile.
While the study detected some demographic tendencies, it found that green consumers aren’t easily defined by their age, income, or ethnicity.  

 

Myth 5: Children play a big part in influencing their parents to be green.
Only 20% of respondents with children said their kids encouraged them to be greener by, for example, promoting recycling and turning off lights.

 

Myth 6:  If buyers just knew the facts they’d make greener choices.
The study showed that knowledge does not always lead to eco-conscious behavior. Individuals who answered all of the science-related questions correctly did report participating in a significantly higher average number of green activities, such as driving a fuel-efficient car or lowering their thermostat during the winter; however, the 25- to 34-year-old age group consistently answered the questions correctly, yet, on average, this group’s green activity levels were lower than those of older respondents.

 

“Because green consumers are being stereotyped, and these myths we tested are embraced by marketers as facts, many green messages are falling on deaf ears,” Shelton says. “If these messages were better targeted, more people would be buying green products, conserving electricity, and doing more to save the planet.” 

 

Jennifer Goodman is Senior Editor Online for EcoHome.

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Not On Price Alone

Monday, July 27th, 2009

This is from an e-newsletter that I received from Ron Jones at the Green Builder.  I asked his permission to re-print it here:

Ask any home buyer or homeowner how many leaks in their roof or spewing plumbing joints would be acceptable. What about gas leaks or faulty electrical circuits? How many doors or windows are allowed to be left out? How large a hole can the builder or remodeler leave in the ceiling, wall, or floor and still call the job complete and satisfactory?

Now, ask that same consumer how much of the energy and water that they pay good money to bring into their homes they are willing to waste every month because of poor design, obsolete products, shoddy workmanship, mediocre materials, and inefficient mechanical systems. (Never mind the fact that their lifestyle and habits will have just as large an impact on these resources—if not more—than the sum of the building quality.)

Most of the studies I have seen estimate that as much as 30% to 40% of the energy brought into American buildings, including residences, for space heating, air-conditioning, ventilation, water heating, and operating appliances is never put to its intended use. It is simply wasted. As for water, these waste estimates range from 15% to 35%, and even higher in some parts of the country.

Does anyone reading this newsletter believe the cost of traditionally produced energy is going to go down? Does anyone on a public water system anywhere in the country think they pay the true cost of sourcing, treating, and delivering a gallon of safe, potable water to the tap? Does anyone know of a city council, a county commission, or other government body that has the political will to charge the electorate the real cost of anything, fearing that people mostly vote their pocketbooks, when they can instead externalize portions of these costs and cloak them by a variety of means?

I am always amazed when I hear builders and remodelers say that their customers are not willing to pay extra for higher quality or performance or that they are only willing to spend more if an acceptable payback can be assured. Sorry, that simply does not fly with me. If this were true then there would only be one model of each product, the cheapest version possible. And somebody please tell me what the ROI is on a brand-new big-screen HD television. Sure, price matters but people don’t make purchasing decisions on price alone.

No, my experience across the 25 years that I delivered homes to my customers was that they invariably chose to buy the best product, component, or system that they could afford. Sure, there were trade-offs. It was regularly necessary to balance the level of performance or price point with the overall budget until an acceptable bottom line was reached. And often they looked to me for my advice on what parts of the project they should prioritize, not only for the sake of resale value, but to help them understand where they could economize with the least impact on their quality of life.

Today, homeowners and home buyers are beginning to look at the long-term ramifications of their selections. They are realizing that operational costs, replacement rates, maintenance expenses, reliability and durability—not just the initial purchase price—are all keys to their ability to afford any dwelling over the long haul.

They are also carefully factoring insurance costs, property taxes, and the soft costs associated with their chosen type of financing vehicle (especially in the case of adjustable rate mortgages) with a keener awareness that keeping the lights on, the appliances running, the water heater fired up and the living space comfortably conditioned all come at a price, month after month, and must be transparent in the calculation.

Industry groups and individual building professionals have got to abandon their outdated circle the wagons mentality when it comes to attempting to forestall regulations requiring higher levels of performance and put an end to the monotonous messaging of denial and fear that only tell part of the affordability story. Trade associations, like NAHB, are not speaking for all of their members when they lobby lawmakers to limit increases in performance regulations to no more than token increments.

Many builders, remodelers, and contractors are already delivering performance that well exceeds the embarrassingly low minimum requirements held forever sacred by the foot draggers. It is time that the achievers are represented and rewarded rather than continuing to protect and defend those who make up the lowest common denominator.

Any building professional who believes it is possible to succeed going forward on the basis of price alone, or that higher building performance will remain voluntary, is in for a rude awakening. At the end of the day, a level playing field, an understanding that the market paradigm has definitely shifted, and a genuine determination to deliver the best performance and highest quality product possible are the keys to successful building, satisfied customers, and a brighter future for everyone.

By Ron Jones, The Gatekeeper @ www.thegreenbuilder.com

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Guest Post: How much does it cost per square foot?

Thursday, June 25th, 2009

Guest Post By Robert Knight

[Edited text of article which appeared in Fine HomeBuilding]

I am a residential architect, and almost every potential client that walks in the door wants to know “How much per square foot does it cost to build around here.”

For many years I had a casual, commonly accepted number for that question. Then about 15 years ago, after a spate of inflation I found out I was suddenly off by about 25%, so I set out to get more scientific about tracking what our houses cost.

In trying to systematize our price data it became apparent I needed to have a systematic way to compare buildings with different components in order to get a universal kind of square footage.

Unfortunately, having this universal square foot number doesn’t by itself solve problems when talking to clients because they have run into many different descriptions of square feet–with no disclaimers attached.

Generally, people selling houses want them to seem big so the 25’X40’ sq. ft. screen porch might well be counted as 1000 sq.ft. of living space in the Realtor’s description. On the other hand when someone has been told that it cost’s “$200/sq.ft. to build a house” they want the number of square feet to be as small as possible so the estimated cost is less—and then they multiply only by the interior “heated” sq.ft and get that screen porch for free.

Of course reality lies in between. The screen porch isn’t free, but it doesn’t cost as much as heated finished space.

To get an universal “square foot” we have developed a series of fractional multipliers that we use to get what we call “factored square feet” (see spreadsheet ).

We start with the Gross Heated square feet. This is a reasonably accepted industry standard. The floor area measured to the outside of the rough walls–as the building is dimensioned. We get this for all finished floors and total it separately, because this number by itself has other uses–for solar calculations, bank appraisals, real estate questions etc. This is Total Gross Heated Space, and it is definitely what a lot of people think of as “The square footage of the house”–but it is just the beginning.

Two story spaces we calculate and multiply by 0.5. It is an industry standard that cathedral ceilings are 1.5 times spaces with flat ceilings, (remember we have already gotten the basic floor space in our “Gross heated space” so this 0.5 is adding to that). Does it really increase the cost of a room 50% to have a cathedral ceiling? If that ceiling has open beams and lots of skylights and balconies overlooking it, it may be more than that. If it is simply a cathedral ceiling, probably not–but this is an empirical way of comparing dissimilar buildings so some simplification of reality is called for. In my experience, micro adjusting these multipliers is not wise, because it implies a level of precision that this methodology doesn’t have. This is good for a first look. When you want to know what it will really cost, spend the time and “stick it out”.

What of the other spaces???

Full basements: We usually add 10% for them. Why not more? In Maine if we use frost walls they are probably 5’ deep anyway, and we always put a “rat slab” in the crawl space, so going to 8’ doesn’t add that much. Multiplier = 0.10.

Attics: If they are really unfinished space under the roof eves with only a plywood subfloor we usually take them at 20%. If its just trussed space we see it as part of the roof and add nothing. Incidentally I usually don’t count space under the eves behind knee walls that are under 4’ high at all in my floor calculations, so adding 20% for a real attic (which is probably more than it costs) tends to compensate for throwing away that square footage. Multiplier =0.20.

Insulated Garage: We think is about 40% of the cost of heated house space. They usually have a good deal of mechanical stuff in them, good windows, expensive doors, a shop work bench, maybe a stair up to a second floor “attic”, but they are inherently simple spaces.
Multiplier = 0.40.

Uninsulated or “Raw” garage: We usually use 30%. Because there is less of the above reasons. Multiplier =0.30.

Covered decks, screen porches, and roof decks over inhabited spaces we take at 40% because they involve lots of expensive finishes and detailing. Multiplier =0.40.

Open wood decks we figure at 20%. We find a deck with PT framing and WRC surface, some stairs, railings; some built in seating goes currently for around $38/sq.ft. which is about 20% of heated space at $200 sq.ft. But, you think, what if the house is a luxury model at $300 a foot, the deck won’t increase to $60 sq.ft. Won’t it? Won’t it in fact be a granite patio or be made out of South American Ipe on that level of house? If it truly won’t, then reduce the multiplier–but don’t say I didn’t warn you.

The point of this is that the multipliers should reflect the kinds of buildings that you build so that the “Factored sq.ft. number” that you come up with for your buildings will allow you to compare dissimilar buildings.

When we develop a square foot sheet for a house that is at all atypical we often times will adjust the multipliers to be what we feel is a more accurate reflection of this particular building–but they rarely change more than .10 up or down. The important thing is to go through the exercise, and to realize this is only a first look at a building–before you really have enough information to truly cost it out.

Our clients often want to massage these numbers. I resist this, because the only way they get massaged is downward. If a 1000 sq.ft. 2 story space is multiplied times 0.5 it adds 500 “factored sq. ft.” to the house square footage. If that is multiplied times a sq.ft. cost of $300/sq.ft it amounts to $150,000.00. Surely it doesn’t add this much to the cost. It probably doesn’t, but other areas might add more and if we only reduce the areas that seem too high we will end up with a very optimistic estimate.

When we resist our clients efforts to massage this spreadsheet it has proven to be a pretty good predictor of building costs.

 (Note:  Northcape Design/Build has adapted Robert Knight’s system with his permission for our own “Estimated Project Budget Range”.  This system provides budget guidance for our customers in the very beginning phases of each project using comparisons from similar projects that we have completed.)

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Why ‘Low Bidder Syndrome’ Always Backfires

Thursday, June 25th, 2009

(This article was written by Everett Pollard for the 2009 HBRANH Remodelers Guide, a supplement in the 2/27/09 issue of the New Hampshire Business Review.)

What is the first rule of construction that every homeowner knows?  “We need to get three competitive bids.” 

Most homeowners are not well educated in the homebuilding or remodeling process and may only do one or two such projects in their entire lifetime.  Often they make a poor choice in selecting a contractor when it is based on price alone.  The assumption with competitive bidding is that the plans and specifications are so clear and unambiguous that any randomly selected, reasonably competent contractor will be able to do the job exactly as envisioned.  While more and more clients are aware that they can’t just hire the lowest bidder, few do a lot of research about which contractors to ask for proposals beyond getting some referrals or references from friends, Realtors or architects. 

Some homeowners rationalize that any bids that are over their budget are not due to different interpretations of the plans and specs – which are, after all, perfectly clear – but are the result of  sloppy estimating, high overhead or huge profit margins.  The fact is that the more thought and research that goes into a bid, the higher it becomes.  When checking an estimate, contractors more often find omissions rather than waste and inefficiency that can be taken out.  The irony is that estimates that are carelessly prepared tend to be more reasonable (lower) and those that are thoughtfully and carefully researched tend to be less reasonable (higher).  Guess which one will result in a better project?

Unfortunately, homeowners often have unrealistic expectations of what their project is really going to cost and in my experience sometimes underestimate the actual final cost by as much as half!  This expectation is often set up by the designer and even the contractors themselves with off the cuff and faulty upfront “ball-park” estimates. 

There is no such thing as “apples-to-apples” competitive bidding.  First, I have never seen 100% completely prepared plans and specifications that are not wide open to interpretation and substitution of products, techniques and materials.  Most sets of construction documents that have been given to me over the years are no more than 80% complete and I’m being kind.  As a competitive bidder, the understandable tendency would be to use the least expensive products and processes possible to return the lowest bid.  Second, every builder and remodeler brings a different set of professional skills to the process, and analyzes a project and its associated costs differently.  The differences can be subtle, but they exist and result in an unequal playing field creating confusion and misunderstanding.  The competitive bidding process reduces each builder to a number rather than considering his or her skills, professionalism, personality and ability to complete the project on schedule and within budget.  The competitive bid process is like dangling a project in front of three or four contractors to see who is the most desperate to get it. 

As the housing industry continues to become more sophisticated, the level of professionalism among builders and remodelers continues to reach new heights.  Many of the best contractors are now refusing to bid competitively, opting instead for a different approach; the negotiated contract.  In this scenario, a homebuilder is selected based on his or her abilities and personality, and how they fit with the client and their project.  These are critical considerations considering how closely the builder and client will need to interact with each other during a fairly long and involved construction process.  Savvy clients, those that have been through the homebuilding or remodeling process more than once, will usually spend much more time to find a contractor, interviewing as many contractors as it takes to find one that they are really comfortable with. 

The clients will then engage the contractor much earlier in the process and negotiate a contract with them.  The negotiated contract also takes the guesswork out of the project cost.  The owner’s budget is shared upfront with each of the builders being considered based on what the owner can afford not what the builder and his subcontractors think (or guess) it will cost.  Sharing the budget not only removes assumptions based on cost alone, it builds trust and enables better communication about what actual costs will be.  If necessary (and it usually is) choices can be made to realign the project scope with the amount that the owners are comfortable investing in their project.  That’s the negotiated part!

A huge benefit of this process is that the contractor is brought in much earlier and not after the entire design and specifications have been completed.  This allows the contractor to review the plans early on and suggest changes that might help to avoid budget and schedule issues.  A complete team of architect or designer, owner and contractor makes for a much more efficient process and a successful outcome.  The project becomes a collaborative effort, not a competitive one, and saves time, money and ensures a better project.  Make no mistake, owners that choose the negotiated contract method don’t always get the ”lowest price”, but they always get the best value and really benefit from the contractor’s full attention throughout the entire process.  By sidestepping the bidding process, the contractor is able to spend his or her time exclusively on activities that will be of real service to the owner.

As homebuilding and renovation continue to evolve with ever higher levels of sophistication and professionalism, new and more effective business models are needed.  The negotiated contract model has many advantages over the old “low bid” rule and will benefit homeowners in this new era of construction.

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