Shift to home performance, brand leveraging, helps homebuilder rise above rubble of California's housing crisis.
Selling home-performance improvements can be a challenge even in strong housing markets. With little visible "bling" to show the neighbors, and energy savings that may take months or years to be significant, the likes of energy assessments, duct-sealing and attic insulation remain a dubious and decidedly unglamorous investment in the minds of most homeowners.
So how is it that a longtime builder of new homes has grown its home-performance revenues to $3 million in less than three years -- in one of the most depressed housing markets in the country?
In part by emphasizing comfort instead of energy savings. And in part by leveraging the existing strengths of the company and its region -- namely, a brand the community has known for 45 years, as well as regional utility programs providing rebates to homeowners who invest in energy-saving projects.
"Everybody wants to save money, but we're pretty adamant about emphasizing comfort," said Mark Fischer, president of Stockton, Calif.-based Green Home Solutions (GHS) by Grupe and chief financial officer of The Grupe Company, which launched the home-performance company in 2009.
Selling energy savings, as most auditors and contractors know, can be a slippery slope that concludes with disappointed clients. Unless pressed, said Fischer, "we just don't sell savings, because as you know energy efficiency is a mixed bag," depending on occupant behavior and other factors beyond the contractor's control.
Fischer, a former contractor with both an MBA and a CPA, has been with Grupe Homes for about 20 years. In post-project client surveys, he noted, "we get all kinds of comments about savings. Some clients say their utility bills have been cut in half. But we would never promise that."
If anything, "we'll give them our best guess, making sure they know it's an educated guess. And we generally help them think about how long they want to live in their house and how much they'll enjoy it. And what's the return on investment for that?"
It's all in the expectations
Getting in the position of having those conversations with homeowners, of course, can be a hurdle in and of itself. For GHS, which was building 300 to 400 homes a year prior to 2007, a significant advantage was a mailing list of clients and business colleagues that multiplied during the region's overheated housing market of the previous decade.
"We really leveraged our brand recognition," Fischer said. In 2009, he led the startup of GHS after the simultaneous downturn of Grupe's production-housing business and the success of its near-zero-energy Carsten Crossings development. Buoyed by strong sales for this 144-home, mid-priced community, he made his first significant foray into home-performance retrofits through Home Performance with Energy Star (HPwES), achieving whole-house energy savings of 48 percent on a 20-year-old ranch home. Seven Grupe staff took the nine-day HPwES training course. (See this article in Home Energy magazine for more on this project.)
"When the housing market failed, I was looking around for something to really get my guys into," Fischer said. Retrofits of existing homes require different skills than new construction, and HPwES was just the beginning of ongoing installer training that includes classes through Saturn Resource Management, multiple certifications from BPI and regular reading of building science case studies, in particular those from Building Science Corp.
GHS' dedicated sales staff, or "energy consultants," also take Saturn courses, along with receiving sales-specific training through Sandler Training.
That sales training has been vital. Though GHS works in much of Central and Northern California, its home base of Stockton is nowhere near emerging from the housing downturn. Unemployment for the city and surrounding San Joaquin County was 16.7 percent in March, and Stockton is one of the nation's 10 worst housing markets, according to the Wall Street Journal's MarketWatch. In March, Stockton entered into negotiations with creditors to avoid becoming the largest U.S. city to file for bankruptcy.
With these economic realities in mind, GHS' marketing and sales program is far-ranging and consistent, Fischer said, aimed not at overnight success but steady, long-term growth. "It hasn't been hugely profitable by any stretch of the imagination, but we do look at energy efficiency as a long-term space that will be bigger over time."
Key to that growth is taking advantage of available financing, rebate and tax credit programs, to help clients foot the average GHS project cost ($17,000 to $20,000, according to Fischer). "We see some very exciting financing programs that we think are really going to help our industry," he noted. The GHS website outlines many of these programs and opportunities, which include low-interest 15-year loans, energy efficient mortgages (EEMs) and utility rebates based on modeled or actual results.
Active marketing has included billboards, newspaper ads and direct mailings, but Fischer credits less costly forms of "personal outreach" as more successful and cost-effective. A "partner incentive" referral program, for instance, offers lenders and real estate agents from $50 to 2 percent of gross contract amounts, depending on whether presentations lead to signed contracts with the referrers' clients.
The cost of any home energy assessment, in turn, is deducted from the client's bill if she or he elects to have energy upgrade work completed.
Knowing that real clients can make the most compelling case, GHS also encourages clients to host post-project "Green Up" parties for their friends and neighbors. "We provide beverages and spend maybe 20 minutes presenting how we improved the home," Fischer said. "It's not a big presentation, but we know that referrals are the best way to get business."
None of these programs are "cutting edge," Fischer added. "They're just working the network."
In addition, post-project surveys provide useful fodder for client testimonials as well as areas where the company can improve or add new services.
Most notably, Fischer and his GHS staff strive to set and achieve or exceed realistic expectations. "It's all about customer service and buyer satisfaction," he said. There are tens of thousands of potential clients within the company's market reach, and many of them are still flinching at the unmet promises -- e.g., endlessly escalating home values -- that lured them to homeownership in the first place. By encouraging homeowners to more thoroughly enjoy the homes they have and may not be able to sell, Green Home Solutions by Grupe may be leading off another 45-year growth wave.
I'm not a gambler. Outside of a dollar bet on the Super Bowl with members of my family, I don't make bets. I do make projections, which basically means I don't have anything at risk when I try to tell what the future holds.
My crystal ball says you are going to meet a stranger who is going to evaluate your work, which will affect whether you make any money on the job. OK, maybe this isn't much of a prediction. Most utility and weatherization programs have some kind of random QC inspection, around 5 percent of all work performed. So maybe one out of twenty jobs involves a stranger evaluating your work.
But there are two factors that could come together to make this a more common occurrence. First is that except for used car dealers, consumers complain most about contractors. The second is that the U.S. Department of Energy is funding national Home Energy Professional certifications, including a Quality Control Inspector certification. Offered through BPI, they will pilot in June.
The first one is nothing new. There are plenty of bad apples out there making life difficult for everyone else. But this means that with the new QC Inspector certification, there are some immediate opportunities:
EE Program QC: Suppose a jurisdiction wants to protect consumers, increase energy efficiency and improve indoor air quality (obviously, there's a campaign slogan there somewhere). That jurisdiction could move to require inspections of home performance jobs by a certified Home Energy Professional QC Inspector. Before this new certification, putting in place an inspection process would have been nearly impossible, particularly with tight budgets. But now, this certification makes it a snap.
Build client trust: Having a certified in-house inspector is a great selling point to assure clients your work is high quality. If for no other reason than the peace of mind it gives the client, it may be worth it. When your ad says "certified inspector on staff" and that isn't in your competitor's ad, it says something to a prospective customer.
Expand your business model: Your inspector can be inspecting other contractor's work as well as your own. With incentive and rebate programs potentially using certified inspectors, this it is another service your business can provide. Having your company's name on a QC report is pretty good advertising for quality work.
Then there are all of the different energy incentive program credits. Only two states in the country don't offer some sort of program for energy efficiency. Of the other 48 states, some offer a type of tax credit; most have rebates, grants or loans, but needless to say in this time of budget and revenue scrutiny, these programs are all receiving careful review. Someone is likely to suggest that the Home Energy Professional QC Inspector certification is a way to see to it that the government gets the energy savings it is paying for. I won't make a prediction here, but any talk of fiscal responsibility begs the question "how do we ensure we get what we are paying for?"
Then there are the home inspectors. All three of the largest home inspectors groups are getting into energy education for homeowners, because homeowners are increasingly concerned about energy issues. Between the three groups, they sit down with about 5 million new homeowners a year and spend several hours talking about those homes. The average new homeowner will spend $8,000 in the first year on their new home. That is $40 billion of work that can be influenced by the home inspectors. Sure, their business model is to sell the QC inspection after you do the work. But they really don't want to have to tell the homeowner that the work wasn't done right. The homeowner might be glad to know that, but he or she won't be happy. The home inspector would rather do a QC inspection knowing that there is a 99 percent chance that it is going to pass because there was an in-house inspector who looked it over first.
My crystal ball says that in a couple of years, there are going to be a lot more QC inspections of home performance work than there are now. For the companies that do high quality work, this is a good thing; for the others, not so much. My crystal ball also says that companies with an in-house inspector will likely get more business than those without, and that the home inspectors are going to be driving a lot of home performance work. Finally, my crystal ball says it is going to be a lot easier to tell the good contractors from the other guys.
If you are wondering how to take advantage of these growing opportunities to distinguish your business from the other guys, check out www.bpi.org/pilot for information about becoming a certified Home Energy Professional. There is information about all four certifications, including QC inspector.
Google street view approach to home energy audits
Energy analytics startup Essess has a plan to bring energy efficiency information to the masses, as described in this Treehugger.com article: it will send cars past every building in the U.S. – residential and commercial, take thermal scans to find energy leaks and give each building an energy score. The data will be compiled in an online library for possible purchase by building owners, contractors, realtors, inspectors, insurance companies or other interested parties. The client is presented with a detailed report card and a potential action plan.
Does the federal tax code discourage energy efficiency?
Is it possible that something as mundane as the treatment of depreciation by the federal tax code could be negatively impacting investments in energy efficiency? That is the question ACEEE attempts to answer in the new white paper, Depreciation: Impacts of Tax Policy. The paper is the third in a series of four working papers that examine how tax reform might encourage or discourage investments in energy efficiency.
Return of the housing market?
We know the housing market has been painful to watch for the last few years. But some signs suggest it may be about to surge, particularly the home building sector, according to this article by Esquire Magazine's portfolio expert.
Sick building syndrome revisited
For a look at the risks of too-tight buildings, check out this article from Environmental Leader. EPA estimates that "sick building syndrome" results in productivity and other losses of $60 to $200 billion a year in the U.S. alone.
Not much of a break in the weather
Slow winter for you too? Winter 2012 was the fourth-warmest for the lower 48 since record keeping began more than a century ago, resulting in relatively low energy prices and, for many home-performance contractors, little urgency from homeowners. Natural gas prices neared a 10-year low, according to the U.S. Energy Information Administration.
Maybe summer air-conditioning bills and severe weather risks will be better motivators. EIA forecasts a 0.9 percent hike for U.S. residential electricity prices, and Accuweather predicts a hot and/or stormy summer for much of the U.S.
Congratulations to Craig Bird of Preston Insulation in Tucson, Arizona for winning last month's "What's wrong with this picture?"contest. Craig was not only the first person to send in the correct answer. His answer was far and away the most comprehensive, and dare we say, the most elegant in illustrating what in the world of home performance was wrong with the picture, and what should be done about it.
The picture shows a snow-bound house in front of Lake Tahoe, its roof zig zagged with heat strips. Says Craig:
"The problem is ice dams. The home most likely had melting of roof snow which then refroze and created ice dams possibly causing water damage or excessive ice buildup at roof edges. This caused the homeowner to install energy intensive heat strips to melt the ice dams and jack their electric bill through the roof during snow events.
This is caused by:
- Air leakage from penetrations near exterior wall
- Heat sources close to exterior wall such as heating ducts or recessed lighting cans
- Insulation in contact with roof sheathing causing thermal bridging to roof deck
- Lack of soffit ventilation
- Air seal exterior top plate with spray foam. It is also important to air seal any other penetration which is delivering heat to the underside of the roof deck.
- If recessed lighting is installed near exterior walls, the cans should be ICAT rated to prevent air flow through the fixture. An inexpensive air tight trim kit may also be purchased to avoid changing out fixture itself. Heating duct boots can be sprayed with 2 part foam to prevent heating of roof deck.
- Install soffit ventilation at code recommended level at EVERY BAY that is affected.
- Install insulation baffles at all soffit edges in order to provide a path for ventilation and carry away any remaining heat transferred from house and cool roof deck. This also prevents insulation from contacting the roof deck (causing thermal bridging).
Since it is often difficult to get full insulation amounts at the soffit edge due to clearance, an optimal solution would involve installing ventilation baffles and using spray foam insulation against the baffle and as far in until a full amount of blown insulation may be used. This solution also seals any air ex-filtration through the wall top plate at the same time.
What's Wrong with this Picture?
The infrared image below was taken by John Snell of The Snell Group. The structure had recently been insulated with blown in cellulose. What is wrong with this picture, and what's the solution? What steps should the contractor and installation crew have taken to avoid this?