Thank you for the insightful information. Just wanted to comment that Austin is not the first local government to consider requiring point-of-sale energy or water conservation upgrades. There are a number of municipalities that have actually been successfully requiring said point-of-sale upgrades/retrofits for decades, inclusive of both residential (single and multi-family) and commercial properties. If you’d like to review some of the existing requirements in other locals, take a look at San Francisco and Berkeley, California. Links to both are below:
http://www.sfgov.org/site/uploadedfiles/dbi/Key_Information/19_ResidEnergyConsBk1107v5.pdf
http://www.ci.berkeley.ca.us/SubUnitHome.aspx?id=15404
…and considering the real estate markets in these areas, it’s fair to say that adopting such a requirement will not impede the market or its sales.

I appreciate you putting in so much effort to understand this issue. i have to say that is has not been clear to me for some time. It is funny how a lack of understanding of what is truly happening can scare people so much.

Would a “spur of the moment” home sale/flip be delayed weeks awaiting inspection? This prospect is frightening because that places the home buyer in a precarious situation, vulnerable to market swings simply because the sale is blocked by incomplete inspection.

I fear the delays because city home inspectors are not trained to inspect these upgrades and are not regulated by the city. They are trained and regulated at the state level, meaning the city has no authority to change the scope of what they inspect. That means the city would have to arrange for its own inspectors.

Yikes! Sounds like a potential mess in a very important economic exchange.

As I said, I’m not in favor of government involvement in real estate transactions, especially something as tricky as repair items, but I would like our Board of Realtors to present valid merits against the proposal instead of the slop they’ve been serving. Then we can all consider the arguments. ABOR actually hurts their credibility, and that of Realtors, by presenting a shrill, knee-jerk response instead of a measured, articulate overview of the potential impact on those involved.

Also, it’s reasonable and easy to project and assume that any such proposal would create a logistical nightmare, closing delays, etc., but in fact real estate buyers and sellers, and the “transaction” itself are, in my experience, quite resilient and flexible.

Most homes older than 10 years do in fact often have big ticket repair items. Any home built between 1992 and 1996 that still have original HVAC, roof and appliances will have an inspection report the reveals a lot more in needed costs than this proposed ordinance will introduce.

I met an HVAC guy at one of our deals yesterday to evaluate the 16 year old HVAC system, which is leaking freon. Also, the 16 year old roof is at the end if its life. We’re looking at over $10,000 work needed on those two items alone, before we even go into the smaller details of the inspection and the code issues of a 1992 home. Yet this amount of work needed is not uncommon or unusual and buyers and sellers, in most instances, manage to work it out such that the deal happens and both sides are satisfied.

The difference in the above example and the proposed city ordinance would be the possible involvement of a city inspector. So, we’d add him or her to the list of other people who visit and check out the home – inspector, appraiser, termite inspector and other vendors as the inspection report might dictate. That’s something the task force would need to work into the deal, and do so in such a way that the sale is not jeopardized or hindered. But I doubt a 0.5% capped retrofit will kill a deal. Somehow it will get worked in.

Thanks again for the well stated comments and views.

Steve

I agree the hyperbole is rather thick on this topic from ABOR, but I hope a good deal of thought is put into the concept before any proposals are put forward. To wit:
1) your comments assume that sellers will be able to secure the capital resources to make the improvements prior to sale. Sellers will bear a cost to gain access to the funds (points, closing costs, etc.,) if they have to tap equity to make the improvements. We’re assuming, of course, that all sellers have good credit scores and won’t be shut out of the market. If the owners are deceased, is this a burden they will pass to their estates to remedy?
2) we seem to be assuming that the quality of work performed is good and uniform across all sellers. If the seller is elderly or disadvantaged, then I’d argue there is a greater likelihood that contractors may take advantage of them and perform shoddy work. By sticking the seller, rather than the buyer, with the obligation to make the repairs, you’re asking that seller to assume the risk.
3) re: realtors’ incentives to make marginally more by selling at a higher price, reference “Freakonomics”. Unless the realtor is selling their own property, at the margin they don’t seem interested in holding out for a higher price to make a slightly higher commission on their deals.
4) tacking 10% of the sales price onto a house leads to overall price inflation in the market over and above the already higher prices for homes in the core city. I’d argue that you will see a drive to substitution of new, denser, condo construction that is energy-efficient versus retrofitted older housing. If you have a property that would sell for $360K as is, for $396K improved, or sustain two new $390K McMansion condos on the same lot, you would probably see more buyers opt for the new construction. This would work counter to other city priorities for retaining existing housing stock.
5) the fact that we need to have this conversation is indicative of a failure of PUBLIC policy (local, state and federal), not of private preferences and choices. I dislike seeing private individuals bear these costs, especially when there is to little regard for making these structures PRODUCERS of energy (read: solar, geothermal, etc.) as well as more efficient consumers.

I’ll step off my soapbox now, folks….

Next speaker?

I’m still struggling, however, to understand realtors’ strong, public objections to this plan. Perhaps you can clarify it for some of us, since my economist mindset has me spinning my wheels and, of course, the ABOR campaign website provides no opportunity for discourse. Here are my questions:

According to the Statesman article today, it seems that ABOR is invoking principles of equanimity regarding which groups will be disproportionately impacted by this ordinance, viz. economically disadvantaged and elderly residents. But, the fees and commissions connected to real estate transactions are highly regressive–that is, they aren’t pegged to earned income or revenue but, like sales taxes, they are fixed–which seems to undercut these claims and appears disingenuous.

Moreover, it seems that sellers will incorporate these anticipated expenses into the selling price, just as they do the fees associated with closing. Thus, it seems as though the higher selling price will be beneficial to both sellers’ agents and buyers’ agents due to the incentives governing real estate transactions–that is, a buyer’s agent actually gets higher commissions if their client spends more money as does, of course, the seller’s agent.

Furthermore, it seems empirically questionable that tacking on these fees will “precipitate a real estate crisis in Austin”, considering that the fees associated with selling a home typically approach 10 percent. Why is it that the marginal cost of improvements, which are clearly not a deadweight loss on either party and will be modest compared to the fees, are seen as such a trigger for the collapse of the real estate market?

The only legitimate–although I can’t say I’m sympathetic–concern I can see is that this may delay the closing process a bit and, importantly, chasten home flippers since it will erode their margins.

Am I looking at this incorrectly?

Enjoy the blog!