Mid-Atlantic Builder Aug Sep 2012 by Maryland Building Industry Association

2012 GENERAL ASSEMBLY REPORT

Mid-Atlantic

Vol. 54 Issue 3 August/September 2012 www.homebuilders.org

Decoding the New Energy Code The complex new energy code requires major testing

PLUS Too Tight Is Just Right So Whatâ&#x20AC;&#x2122;s Next? Are You Ready?

Permit No. 356 York, PA

Paid U.S. Postage

Scan to read this issue online.

PRESORTED STANDARD

8441 Dorsey Run Road Suite A Jessup, Maryland 20794

MID-ATLANTIC BUILDER JULY/AUGUST 2012 www.homebuilders.org

www.homebuilders.org

AUGUST/september 2012 MID-ATLANTIC BUILDER

August/September 2012 Vol. 54 Issue 3

Mid-Atlantic

Publisher John Kortecamp

Editor Kristin Josephson Hogle, Editor communications@homebuilders.org

Advertising Chris Baughan, Advertising Sales Manager 410-265-7400, ext. 121 chris@homebuilders.org

Design Heather Winkel, Art Director Kristina Hopkins, Graphic Designer Network Design Group ndg@networkmediapartners.com

HBAM Legal counsel Linowes and Blocher

Mid-Atlantic Builder

10 Decoding the New Energy Code

Also

50 Green Building

Get up to speed on the new 2012 IECC.

16 Legislative Results

60 Corners Green Building

20 Too Tight Is Just Right

Departments

Mapping out Maryland’s land use issues.

24 Appealing to Women Home Buyers:

A Business Management Perspective

10 things to address in designing your building business to appeal more to women buyers.

33 So, What’s Next? Are You Ready?

Now that the building industry is getting back on its feet, what is your next step?

36 The Priced Out Effect

How many customers are getting price out of the market by new regulations?

04 06 08 56 54 57

Publisher’s Message President’s Message Events New Members Stats and Facts Government Affairs

Pages 29-32

Postmaster: Send address changes to Home Builders Association of Maryland, Inc., 7127 Ambassador Road, Suite 150 Baltimore, MD 21244.

ECO BOX Mid-Atlantic Builder text and cover pages are printed on SFI certified Anthem Matte using soy ink.

• The Sustainable Forestry Initiative® program promotes sustainable forest management.

Pull-Out Section MID-ATLANTIC

A tight seal is a must for energy efficient homes.

is a publication of HBAM Member Services, Inc., a subsidiary of the Home Builders Association of Maryland, Inc., 7127 Ambassador Road, Suite 150, Baltimore, MD 21244 410-265-7400, www.homebuilders.org.

Remodeler A supplement to Mid-Atlantic Builder

47 Everything You Need to Know About the

Threat on the Mortgage Interest Deduction

Learn the history and become knowledgable about the very real threat to the MID.

Award Of Excellence

Kitchen Remodel – $150,000 - $200,000 JFK Construction Services, Glusman Kitchen Remodel

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

How will you meet 2012 Energy Code requirements?

Helps You Reach The 2012 IECC Energy Code Requirements At Lower Construction Costs!

The Enviro-Dri® Weather-Resistant Barrier reduces the number of air changes per hour (ACH), giving you the greatest flexibility in reaching the 2012 energy code targets, at a construction cost that’s equal to or lower than your current costs. By reducing air changes, you can consider these less expensive construction options and still meet your energy code goals: • Retain your current 2x4 frame walls with R-15 interior insulation; • R-38 blown ceiling insulation will meet performance path code requirements; • You can meet the 2012 code without switching to insulated sheathing or 2x6 walls.

Contact Eddy Esplund, Tremco Barrier Solutions, to schedule a no-obligation “Energy Trade-Off Analysis” on your most popular home models. Learn how the Enviro-Dri WRB can reduce air changes, reduce your construction costs, and help you meet the 2012 IECC code. EDDY ESPLUND, CSI-CDT AT 609.206.7624 EESPLUND@TREMCOINC.COM

www.homebuilders.org

AUGUST/september 2012 MID-ATLANTIC BUILDER

2012 HBAM Leadership Photo Credit Stuart Zolotorow

Executive Committee Rod Hart President

Scott Armiger President Elect

publisher’smessage

Russell Dickens First Vice President

Jonas Jacobson Associate Vice President

Cynthia McAuliffe Secretary

Future Success

Lisa Junker Treasurer

Robert Goodier

In a little over a year HBAM will, hopefully, be going through a significant transition as a merger/ consolidation with the DC based Maryland National Capital Building Industries Association takes shape. The merger between the two orga-

nizations will produce one of the largest HBA/BIAs in the country with a combined membership of nearly 1,200. The challenges presented by the merger are many, but the prospective rewards to the combined membership and the industry at large are, in my mind, far greater and well worth the effort and risk. The challenges relate to virtually every aspect of the organization from administration to governance, to programs and events, to staffing. However, one area above all others must and should be stronger, more effective and more efficient from day one – advocacy. Indeed, as we look forward to the next fifteen months of transition, the government affairs resources, particularly as they relate to state legislation and regulation, will be effectively joined as one, working in concert with our state lobbyist Katie Maloney and her oversight board. It should come as no surprise to anyone that, as the industry has struggled financially under the weight of this historic housing recession, so have the associations that represent it, including HBAM and MNCBIA. As we prepare for and engage the transition to becoming one organization there is a special effort underway to ensure that the financial resources that will be required to have a strong and effective governmental presence are in place. Not just for 2013 and 2014, but

for the next four years, from now through 2015, so that when it comes to public policy we don’t miss a beat or an opportunity. We have dubbed this our “Government Affairs Sustaining Fund Campaign” and we are reaching out to HBAM’s membership to make a four-year financial commitment. It is money 100 percent dedicated to our advocacy efforts: from staffing, to research, to supplemental lobbyist support. It is money dedicated to assuring the strongest and most effective voice for this industry. We hope and expect that when we reach out, you will unhesitatingly do your part by contributing your proportionate share. The Executive Committee and I believe it is a commitment to support and uphold your best interests and prospects for future success.

Immediate Past President

Chapter Presidents Robb Aumiller Baltimore County Evan Gilligan Anne Arundel County Paul Mueller Carroll County Russ Robertson Baltimore City Jeremy Rutter Howard County Dan Whitehurst Upper Chesapeake

Council Presidents David Murphy Land Development Council

Cindy Plackmeyer Sales and Marketing Council

Joseph Smith, CGR, CAPS, CGP HBAM Remodelers

William Zahler Maryland Residential Green Building Council

Board of Directors

John Kortecamp HBAM Executive Vice President

Steven Gilman Scott Barhight Tom Baum Steve Breeden Mike Breen Ron Carstens Patrick Costello Sean Davis Brenda Desjardins Tim Ellis, LEED AP, CPE, CGR, CGP Chickie Grayson

Joe Gregory Cindy Huntzberry Steve James Sandy Marenberg James Mathias Michael McCann Tim Morris Dan Murtaugh Jeff Ott Steve Rubin Jake Ruppert Kevin Sapp

Alternate Directors Lou Baker Jay Hergenroeder Joe Hikel Tim Hudson Jim Hunter

Theresa Leatherbury Tim Naughton Leslie Rosenthal Matthew Wineman

Ex Officio Members Frank Hertsch Jack Orrick 4

Howard Perlow Chris Rachuba

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

Everyone loves a café. Now, everyone can have one. GE Café™ is GE’s first new line of appliances in 15 years, and it’s an exciting new sales opportunity. With stainless steel exterior and robust styling, builders and new home buyers will want to make it the centerpiece of their new home. For remodelers and their customers, the GE Café will easily transform any kitchen with restaurant-inspired design. At long last, everyone can afford to have an inviting café – right at home. www.geappliances.com/café For additional information on GE Appliances call GE Area Sales Manager Lora Williams at 410.679.0486.

GE Café ™

www.homebuilders.org

AUGUST/september 2012 MID-ATLANTIC BUILDER

Visit www.homebuilders.org for an on-line listing of Mid-Atlantic Builder Photo Credit Studio Z

advertisers with hotlinks. There, you can also view MAB archives and find information on upcoming events and current industry issues.

president’smessage No Slow-Down for Summer Usually, the summer brings a slow down in the home building industry but not this summer at HBAM.

Plans for the new HBAM headquarters building, The Maryland Center for Housing at Maple Lawn, are progressing. Monetary donations and product contributions are coming in and many members have already selected offices for naming rights in the new building. If you haven’t already signed on to be part of this project, get on board. You will be proud to be part of the lasting legacy this building will serve to represent for the home building industry. You can find a list of donors on page 44 and more about how you can participate. The government affairs team has been busy as well. There is a summary of the legislative results that came out of Annapolis this year and you can also learn what the new 2012 IECC regulations will mean to your company in the article “Decoding the New Energy Code” in this issue of Mid-Atlantic Builder. There is a flow chart included to help show you what path to take when bringing your building projects up to spec for these new regs. We have also added a section to our website at www.homebuilders.org/page/2012IECC/ to give you easy access to the most up-to-date information you need. I also think you’ll find the article by our long-time contributor, Alan Mooney, very interesting. He breaks down each segment of the building process that has an impact on the functional performance of new homes to find out why problems often occur. You might be surprised to find out what he thinks is the one of biggest challenges facing our industry. As usual, our events team never slows 6

down and there are plenty of things to keep you in the loop. The LDC awards will dole out their prestigious awards on September 20th, then we will all gather together to eat and bid on auction items at Chef Night on October 11th. There are plenty of opportunities for education as well. Again this year, HBAM is partnering with the Department of Housing and Community Development for the Annual Governors Housing Conference on October 16th and on December 5th, we will host the 2013 Housing and Construction Forecast Conference so you can prepare for what’s coming down the pike next year. In addition, our charitable arm, The Maryland Community Builders’ Foundation, has been busy changing the lives of those in need. The Foundation board and other volunteers repaired two homes this year making over $20,000 worth of renovations. This was made possible through the donations of products and labor from our generous members. Our Foundation has made tremendous impact on our community through philanthropy and volunteerism. You can get involved too by visiting www. buildingindustriesfoundation.org. I know you appreciate all that HBAM has to offer its members and I encourage you to let those members of our industry who haven’t joined the association know what they are missing. Together our voice is strong.

DIRECTORY OF ADVERTISERS Appliance Distributers Unlimited 59 BGE Outdoor Lighting 9 BGE Smart Energy 1 Builders Mutual Insurance Back Cover California Closets 53 GE Contract Sales 5 Saratoga Insurance 7 Southern Pacific Supply Inside Front Cover Tremco 3 Vintage Security Inside Back Cover Walbrook Mill & Lumber 60 For advertising opportunities please contact Chris Baughan at chris@homebuilders.org or 410-265-7400, ext. 121 Did you Know? “Magazine readers pay attention to magazine ads. They don’t avoid the advertising as they do with other media.” Source: BIGResearch Simultaneous Media Usage Study

Rod Hart 2012 HBAM President

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

www.homebuilders.org

AUGUST/september 2012 MID-ATLANTIC BUILDER

Events Land Development Council Awards of Excellence in Community Development September 20, 2012 Gramercy Mansion 6 p.m. – 9 p.m.

Join the LDC as they celebrate the Awards of Excellence for Land Development.

Celebrity Chef Night October 11, 2012 Martins West 5:30 p.m. - 9 p.m.

Donate-Cook-Attend-Bid-Sponsor

CALL 410-265-7400 for information on registration for our events or visit www.homebuilders.org.

The Department of Housing and Community Development Annual Governor’s Housing Conference

2013 International Builders Show

October 16, 2012 Hilton Baltimore 8:30 a.m. – 5 p.m.

Interested in staying at The Wynn Las Vegas Resort and Spa? HBAM is reserving rooms TODAY! Email wynnrooms@ homebuilders.org for availability.

HBAM partners with the Department of Housing and Community development to present the Governor’s Annual Housing Conference. This day long conference, approved for three real estate continuing education credits, will be focused on Housing and Sustainable Communities.

Rock Your Sales Rally is coming to Baltimore! October 25, 2012 Martins West 8 a.m. – 12 noon

The high-powered, sales training half-day session that “blew it up” at IBS in Orlando in February, is coming to the 2012 SMC Fall SalesCamp and is guaranteed to give sales teams, sales and marketing management pros and Realtors more ammunition to energize the end of everyone’s year! Don’t miss Meredith Oliver, Melinda Brody, and John Palumbo as they ROCK your sales world on their only stop in the Baltimore/Washington metropolitan area. Don’t miss it. www.smcsalescamp.org

2012 Remodeling Awards of Excellence November 15th Gramercy Mansion

Join us as we recognize outstanding achievements by members who provide customers with superior and creative remodeling projects which are sensitive to existing structures and make appropriate use of building elements and neighborhood concerns.

ICON Awards November 30, 2012 Martins West 6 p.m. - 9 p.m.

Submit your nominations for Associate of the Year, Builder of the Year and Lifetime Achievement Associate and Lifetime Achievement Builder.

January 22-24, 2013 Las Vegas, NV

Save the Date for Builder Mart 2013! March 20, 2013 www.buildermart.org

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

See security & peace of mind in a new light Design assistance, installation, service and maintenance are a snap with BGE Outdoor Lighting.

See security and peace of mind in a new light.

BGE Private Area Lighting Program

See our lighting and pole options. Ask for a copy of our brochure.

Lots of choices — without lots of hassle! BGE Outdoor Lighting is the area’s leading provider of outdoor lighting service — and the smart choice for your residential or commercial outdoor lighting needs. With design assistance, installation, service and maintenance, BGE’s Private Area Lighting Program offers the complete package. For more information or to schedule an appointment with a BGE Private Area Lighting account representative, please call 410-470-9446 or visit www.bge.com/outdoorlighting.

www.homebuilders.org

AUGUST/september 2012 MID-ATLANTIC BUILDER

DECODING the new energy code The complex new energy code requires major testing. By Thom Marston

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

he war of 1812 significantly changed the future of Baltimore and the state of Maryland. Almost exactly 200 years later, the new 2012 energy code, known as 2012 International Energy Conservation Code, will do for the construction industry what the British did for Americans and their ability to unite for a common cause. The citizens of Maryland, new home builders, remodelers, energy design professionals and code officials are joining together to learn how the significant changes to the 2012 IECC will alter the way we build homes because the “code” in theory requires that new and renovated homes increase their overall thermal resistance and include R-20 wall insulation and R-49 attic insulation. Homes must reduce air leakage to a level that mandates the addition of active ventilation systems. Performance testing of certain duct systems and the building envelope are now mandatory. These testing processes were the providence of the advanced residential energy efficiency programs, including the EPA’s ENERGY STAR for New Homes program and the DOE’s Building America program, prior to the arrival of the 2012 IECC.

www.homebuilders.org

AUGUST/september 2012 MID-ATLANTIC BUILDER

The 2012 IECC will became law on or after July 1, 2012 throughout Maryland, but we not know the fate of the code or the building and remodeling industry for years to come. For the first time since the development of Model Energy Codes in 1993, the code officials are as unsure of the process as the builder. To the surprise of many looking on, code officials are opening their doors and holding meetings with builders to discuss the framework of the code details and chart their course through the maze of complexity that is the 2012 IECC. Prior to July 1, 2012 in Maryland, most counties were using an energy code written before 2009. Blower door and duct leakage performance testing is not part of these older codes. Most code officials have not witnessed blower door and duct leakage testing and they perform all of the reviews and inspections. Engineers were brought in only to validate a complicated design or certify that the framing was not deficient. The 2012 Energy Code mandates that each home get a blower door test at completion. If you install an air handler or any portion of the duct system in the attic, then these systems must be leak tested prior to receiving the Use & Occupancy certificate. The code official will not perform this testing. The builder must hire a “third party” expert to validate the results and must submit this information with supporting documents in order to receive the U&O. The blower door test will become a regular part of the last step in the building process. All homes must have the test performed to validate that the building leakage rate is at or below 3 Air Changes per Hour at 50 Pascals (3 ACH50). As someone who has been part of blower door testing for 30 years, I know that this is a very low air leakage rate, not typically seen in residential housing. If you have never tested any of your new homes, find an energy rater and get your next home tested. If you typically build homes smaller than 1,800 square feet and build on slab, then your homes have the greatest challenge because ACH50 is based on volume. Small houses without basements do not have much volume and so the leakage at the walls is proportionally much higher.

The duct leakage test is not a typical part of most builders’ process, and most heating contractors are surprised to learn that their duct system is leaking three to four times the required value specified in the 2012 code. Getting duct systems more air tight is not difficult because the testing process shows you where the ducts are leaking, but only when you test prior to hanging sheetrock. It is also much easier to repair a leaking duct system at this stage of construction. So, if you have not put your heating contractor through the process then take time to test the next house you are building to learn how your system performs. The previous versions of the Energy Code have always had three paths through the energy calculation, Prescriptive Path, Alternative UA Trade-Off Calculation and Performance Path, but most builders did not stray from the simple answer that was the Prescriptive Path. And this kept the code official’s job of reviewing and inspecting the home simple, consistent and repetitious. That concept will end with the 2012 code, even though we still have the three options to demonstrate compliance. This time most builders will choose the most complex Performance Path because the requirement and added cost for reaching an R-20 wall is a drastic change from their current building practice of building with 2x4 studs. R-20 requires framing with 2x6 studs and installing R-21 batts in the wall cavity. The outside of the wall can also be covered with insulated sheathing, but the simple approach calls for at least 1” of material over the 2x4 framing. This affects how windows and doors get trimmed out and how siding is attached over the insulation board. The wall must also withstand wind loads and most insulation boards do not provide rack resistance, so framers must include framing details that were deleted with the advent of plywood and OSB sheathing. The Alternative UA Trade-Off Calculation will require that Energy Design Professionals, who used to work mainly with Energy Star builders and remodelers, run calculations of the proposed design and prove that an alternative building design uses less energy than the code complaint house. The software needed to run this calculation is known as RESCheck and is a provided at no cost by The Department of Energy. Most production builders have run RESCheck on their homes to validate compliance with older versions of the code. Take your homes through RESCheck to see how they compare to the 2012 code. If the house cannot pass using the basic trade-offs in the DOE software then the next step is to use the more aggressive Performance Path, which is supported by REM/Rate software. This software and process is what HERS raters and their providers offer to Energy Star builders. We have demonstrated to production builders that they can keep the 2x4 framing, but the required offset in energy usage will require installing more efficient windows, greater-than-code insulation in garage ceilings and bringing duct systems and air handlers that were in the attic back into the house.

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

2012 IECC Residential Energy Efficiency Code Requirements Flow Chart In accordance with Maryland Building Performance Standards and the currently adopted Harford County Building Code all residential structures must comply with the 2012 International Energy Conservation Code. All of the Mandatory provisions and either the Prescriptive or Performance based approached must be followed

Building Thermal Envelope Compliance Exception R101.5.2 Low energy buildings. The following buildings, or portions thereof, separated from the remainder of the building by building thermal envelope assemblies complying with this code shall be exempt from the building thermal envelope provisions of this code: 1. Those with a peak design rate of energy usage less than 3.4 Btu/h . ft2 (10.7 W/m2) or 1.0 watt/ft2 (10.7 W/m2) of floor area for space conditioning purposes. 2. Those that do not contain conditioned space.

Mandatory Requirements Section R401.3 Certificate Section R403.5 Mechanical ventilation Section R402.4 Air Leakage Section R403.6 Equipment Section R402.5 Maximum sizing fenestration Ufactor and SHGC Section R403.7 Systems serving multiple Section R403.1 HVAC Controls dwelling units Section R403.1.2 Heat Pump Section R403.8 Snow melt sysSupplementary tems controls Heat Section R403.9 Pools and Section R403.2.2 Duct Sealing inground Section R403.2.3 Building Cavities permanently as ducts or installed spas plenums Section R404.1 Lighting Section R403.3 Mechanical Equipment system piping Section R404.1.1 Fuel Gas Lightinsulation ing Equipment Section R403.4.1 Circulating hot water systems and either the Prescriptive or Performance provisions

Prescriptive Option Requirements Section R402.1 General Section R402.2 Specific insulation requirements Section R402.3 Fenestration Section R403.2.1 Duct insulation Section R403.4.2 Hot Water Pipe Insulation

www.homebuilders.org

Performance Option Requirements Section R405 Simulated performance alternative

All new residential one and two family dwellings and additions to existing one and two family dwellings must comply with the residential provisions of the 2012 IECC unless the building is considered a â&#x20AC;&#x153;Low Energy Buildingâ&#x20AC;? as defined in Section R101.5.2. Additions, alterations, renovations or repairs to single family dwellings can comply with the code without requiring the unaltered potion(s) to comply. An addition shall be deemed to comply with the code if the addition alone complies or if the existing building and addition comply with the code as a single building. In addition to the mandatory provisions of the code, the Department must be advised by the applicant of the chosen compliance path by checking the application box. Additional detailed information on the mandatory provision and the provisions within each compliance path can be found in the Harford County Energy Code Compliance Check List. If the Prescriptive UA Alternative path or the Performance Path is chosen additional documentation must be attached to demonstrate compliance.

Mandatory Requirements All provisions must be compiled with regardless of the compliance path that is chosen.

Prescriptive Compliance Path Choose one of the three available options.

Performance Option Requirements Must submit compliance Documentation.

Prescriptive R-value OR

Prescriptive U-value OR

Prescriptive UA Alternative Must Submit Compliance Documentation

Plan review at time of permit application

In field inspections to verify compliance

Additional information regarding the requirements of the 2012 IECC as adopted by Harford County can be obtained by calling the Building Services Division at 410-638-3366. Local amendments and the 2012 I-codes can be referenced at www.harfordcountymd. gov/dilp/codes

AUGUST/september 2012 MID-ATLANTIC BUILDER

How will the 2012 code relate to remodeling existing homes? If you had an Eight Ball the magic cube would say “Answer unknown. Ask again.” But the correct answer is to discuss the process with your local code official. The code will require that you improve insulation when you expose the existing walls and attics. Newly framed wall and roof assemblies can easily comply with code requirements, but how will an existing brick and block wall with furring strip reach R-20 if renovated? Your task will be to demonstrate to the code official that energy improvements in other portions of the home, not affected by the renovation or addition, can offset the need to make the affected portion come up to code. This is not the typical process for the code official because the process today is not known. There is help in the marketplace, and the remodeler could add an energy audit to the building review prior to beginning the renovation. All Maryland homeowners can get a $100 subsidized energy audit performed by a certified professional that will show the homeowner and remodeler where the existing home is deficient and how to add energy improvements that offset the need to complete upgrades that are not possible within the scope of the renovation. The buyer may question why their new bathroom must include additional insulation in the attic or air sealing using the blower door process during the renovation. These are costs that they did not budget for and may not want to commit at this time. Take time to show the buyer how the code mandates greater efficiency during the renovation. Send them to their electric utility’s website where they can learn about the rebates that offset much of the cost for making existing homes more efficient and you will help your buyer lower overall energy usage in their home while they add or improve the space they plan to work on with the proposed renovation.

Less duct leakage in HVAC distribution systems As with the 2009 IECC, duct leakage testing is mandatory unless HVAC equipment and ducts are within the thermal envelope. The 2012 IECC requires total duct leakage testing (unless ducts and air handler are located within building thermal envelope), instead of leakage to the outside. Building cavities are prohibited from being used as ducts or plenums. The leakage limits have been reduced with the 2012 IECC, as follows: Total Duct Leakage CFM25 per 100 ft 2 CFA Construction Phase

2009 IECC

2012 IECC

Post-Construction

Rough-in

Rough-in if air-handler not yet installed

Note: Duct Leakage is measured in cubic feet per minute (CFM) at a pressure of 25 Pascals for every 100 square feet of conditioned floor space (CFA)

The 2012 IECC will became law on or after July 1, 2012 throughout Maryland, but we not know the fate of the code or the building and remodeling industry for years to come. There will be many small battles as we integrate new processes and new trade partners into the standard building process. For the first time, the code official does not have all the answers and must turn to the builder to validate that the home is more efficient. Challenge your county code administrators to work through the process with you. Find the energy experts that have worked with Energy Star builders and remodelers and have them help you fight your battle of building cost effective and energy efficient housing. In the end, this battle is won when we all agree that the customer has a more efficient and more comfortable home that costs less to operate then where they lived previously. n Thom Marston is a Registered Design Professional. He holds HERS Rater certification through RESNET and is supported through his Provider, Energy Services Group. He is also a Life Director with the National Association of Home Builders. Please contact him at thom@energysvc.com or 302-38-3000 for help with the 2012 IECC.

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

Residential Energy Efficiency Savings from Improvements to 2012 IECC Analysis of ICF International As Adopted by the ICC October 29, 2010 Final changes to insulation & fenestration component requirements are listed below (improvements over 2009 IECC are shaded in green):

Insulation*

Ceiling R-Value

Wood Frame R-Value

Basement R-Value

Crawl Space R-Value

Climate Zone

2009 IECC

2012 IECC

2009 IECC

2012 IECC

2009 IECC

2012 IECC

2009 IECC

2012 IECC

20 or 13+5**

5/13***

5/13

4 exc. Marine

20 or 13+5

10/13

4 Marine & 5

20 or 13+5

10/13

15/19

10/13

15/19

20 or 13+5

20+5 or 13+10 15/19

15/19

10/13

15/19

7&8

20+5 or 13+10 15/19

15/19

10/13

15/19

* Floor and Slab insulations levels remain unchanged. ** Commonly available insulation in 2x6 cavity (R20) or in 2x4 cavity with sheathing (R13+x) *** R5 continuous insulation or R13 for framed cavity insulation

Fenestration*

Window U-Factor

Skylight U-Factor

Window SHGC

Climate Zone

2009 IECC

2012 IECC

2009 IECC

2012 IECC

2009 IECC

2012 IECC

1.20

0.65

0.75

0.30

0.25

0.65

0.40

0.75

0.65

0.30

0.25

0.50

0.35

0.65

0.55

0.30

0.25

4 exc. Marine

0.35

0.60

0.55

0.40

4 Marine & 5

0.35

0.32

0.60

0.55

0.35

0.32

0.60

0.55

7&8

0.35

0.32

0.60

0.55

www.homebuilders.org

AUGUST/september 2012 MID-ATLANTIC BUILDER

A Plan for the Future HBAM 2012 General Assembly Session Report

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

By Kathleen Maloney

Key Highlights: • Maryland State Builders Association reviewed 190 bills and determined 75 to be priority issues • Sustainable Growth and Agricultural Preservation Act was significantly amended to improve grandfathering and preserve local autonomy in designating the growth tiers • Supported clarifying legislation on scope of Plan MD statewide development plan • Supported increases in Bay Clean-up funding mechanisms • Authorized local jurisdictions to provide green tax credits for ISO-700 Green homes The 2012 General Assembly Session will be remembered as much for what DIDN’T happen as for what DID happen. Significant legislation including Marriage Equality, Redistricting and Health Enterprise Zones all passed the legislature. However, for the first time in at least a decade, the General Assembly did not pass the Budget Reconciliation and Financing Act or a significant financing package, The State and Local Revenue and Financing Act of 2012. Without the two financing bills, the Budget that passed both the Senate and House would trigger almost $500 Million in budget cuts through “contingencies” throughout the bill. Overall, the Legislature introduced over 2,500 pieces of legislation and 25 resolutions. Of those measures, 791 bills and 5 resolutions passed. In order to fix what was dubbed the “Doomsday” Budget, the General Assembly reconvened for a special session to pass revenue increases to avoid the automatic cuts outlined in the budget. The building industry had a busy session as well, reviewing 190 pieces of legislation. Of those, about 75 were priority issues for the lobbying team to actively advocate the industry position. Here is a brief summary of these critical issues: www.homebuilders.org

AUGUST/september 2012 MID-ATLANTIC BUILDER

Environmental Issues

Land Use Issues

MSBA supported two fee bills this session aimed at augmenting funding for the Bay clean-up effort maintaining the broad-based fee structure rather than the proposed by-consumption approach. The first bill will increase the Bay Restoration Fee from $30 to $60 for residential dwelling units. This money is used to upgrade wastewater treatment plants and provides grants for septic system upgrades. The second bill requires the local jurisdictions currently under a discharge permit requirement, to establish a Stormwater Utility Fee in order to pay for Stormwater retrofits required in the permit. The fee will be set by each local jurisdiction and will apply to all residential and commercial parcels. MSBA worked with the two local HBA green building councils to pass clarifying legislation to ensure that homeowners are eligible for property tax credits for green homes for both the NAHB ISO-700 green standards as well as LEEDS. The industry opposed a measure that would require stormwater pond dredge material toxicity testing. This measure died but is expected to be introduced again next year.

The most significant issue facing the industry this year was the Sustainable Growth and Agricultural Preservation Act. This bill authorizes local jurisdictions to establish growth Tiers and restricts the development of major subdivisions using septic systems. MSBA secured significant amendments to address our concerns about this bill, especially concerning grandfathering existing communities in the approval process. Another issue of significant importance to MSBA dealt with Plan MD. We continued to have concerns about the potential threat to local land use autonomy and working with the Maryland Association of Counties, drafted and advocated for clarifications that the Plan cannot be used to deny a permit or approval and that if there are disagreements over land designations, the local land use documents will prevail. MSBA strongly supported a measure dealing with Regulatory Infringement of Private Property Rights. The bill failed in committee. Another bill that failed, the Rail Station Overlay Districts legislation, is expected to be introduced again next year. MSBA supported this measure to promote transit oriented development and walkable communities.

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

Professional Issues

Real Property/Common Ownership Issues

There were a number of other issues that MSBA worked on during session that impact our businesses. The Workplace Fraud Revisions that passed and were signed by the Governor provide an exemption for employers from the Workplace Fraud Act presumptions in current law. The prohibition on signage in state rights-of-way is a significant issue for our builder members. Almost a dozen bills were introduced that would require the State Highway Administration to authorize or permit the use of temporary signs on weekends. SHA opposed all the bills citing a letter from the Federal Department of Transportation that indicated Marylandâ&#x20AC;&#x2122;s federal funding could be jeopardized by allowing signs in the right-of-way. All the bills died as a result of this information but MSBA is continuing to work with SHA to attempt to negotiate accommodations for temporary weekend signs for builders and realtors. A bill aimed at preventing local code officials from weakening certain sections of the building code was amended and passed during session. As amended, the bill prohibits local building codes from exempting the fire sprinkler requirement for 1 and 2 family dwelling units. The bill provides grandfathering for existing projects and will go into effect in the next building code cycle in 2015.

There were a number of bills related to common ownership communities introduced this year. All of the bills the industry was concerned about died, as they have in years past. The four critical bills that MSBA followed, Common Ownership Dispute Settlement Mechanism Condo/HOA Governing Bodies, HOA Election of Governing Body and Investor Ownership and Owner Occupancy Requirements for Condominiums all died in Committee. These bills are expected to be introduced next year.

www.homebuilders.org

Interim/Emerging Issues MSBA has already begun working on a number of issues during the interim including regulatory requirements to use advanced technology septic systems for all new development, a draft offset policy to require all new potential sources of pollution to offset their footprint, a draft Climate Change policy to include land use and transportation emission reduction goals and the submittal of local Phase II Watershed Implementation Plans. MSBA will be pursing changes to the Stormwater Utility Fee provision to include state properties in the fee. n Kathleen Maloney is the owner/principal of Maloney and Associates, a government relations-lobbying firm providing lobbying representation and association management in Annapolis, Maryland. She has handled policy priorities of the residential development and building industry in both the legislature and state regulatory agencies in Maryland for the past ten years. For more information about these and other issues, please contact Katie Maloney at 410-263-0070 or katmaloney@verizon.net.

AUGUST/september 2012 MID-ATLANTIC BUILDER

t h g i T Too t h g i R t s u J is 20

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

Tight Seal is a Must for Energy-Efficient Homes

o matter how efficient a home’s windows or heating systems are, if it doesn’t have a tight seal — or envelope — home owners won’t see the energy or money savings they expect. Three members of the National Association of Home Builders Leading Suppliers Council explain the importance of making sure the home has a tight seal and share some options to make homes more energy efficient.

www.homebuilders.org

AUGUST/september 2012 MID-ATLANTIC BUILDER

A ‘Joint’ Study: Terminating Air Leakage To help achieve maximum energy efficient performance, the new green building motto should be “too tight is just right.” According to the U.S. Department of Energy, air leakage can account for a staggering 30 percent or more of a home’s heating and cooling energy use by allowing moisture and cold drafts to enter a residence. The average home has nearly a mile of exterior joints that can leak air. Knowing which joints are the worst offenders can help direct the most strategic placement of an air sealant solution. Using both laboratory and real-house measurements, a recent Owens Corning study quantified the leakage characteristics of 17 different key joints commonly found in a home. The top plate-to-drywall connection at all attic-wall interfaces, including interior partition walls, is among the most important joints for air sealing. The importance of the top plate-to-drywall joint is reflected in certification programs like the National Green Building Standard and ENERGY STAR, which require it to be sealed. For most houses, the primary air barrier at the top is the ceiling drywall that separates the living space from the attic. The ceiling drywall is an effective air barrier, except at penetrations (e.g., light fixtures) and terminations (e.g., partition/exterior walls). These termination joints between the drywall and the top plate commonly can amount to 500 feet or more of leakage path to and/or from the conditioned space, creating a primary source of air leakage in the home. When subjected to a typical blower-door test, the study’s air leakage measurements showed that this top plate-to-drywall joint can contribute between 0.3 to 0.7 cubic feet per minute per foot of joint. Extending this leakage across the total amount of joint present in the house can translate into whole-house leakage of between 0.3 and 1.6 ACH50 (air changes per hour at 50 Pascals of pressure difference). Even under normal operating conditions, this leakage consumes energy and causes comfort-related complaints. Sealing this joint from the attic side, after drywall installation, can damage the drywall and prove to be labor intensive. The safer, faster solution is to seal this joint in advance by placing the sealant on the face of the top plate, which fills the gap when the drywall is installed. Regardless of method, the sealant should be a flexible material to accommodate seasonal joint movement and not crack or debond with time. One product that helps with this is Owens Corning’s EnergyComplete™ Insulation and Air Sealing System, which is a total home insulation and air sealing solution that helps seals out pollutants and allergens and reduces air infiltration by up to 70 percent.

Maximize Energy Efficiency with Hybrid Insulation Systems Builders are faced with a number of challenges when it comes to maximizing energy efficiency without compromising the bottom line. While using closed-cell spray foam insulation in a wholehome application can offer the highest level of thermal efficiency, it is a more pricey option. Therefore, a growing number of builders are turning to a hybrid insulation system, which combines the best attributes of two or more insulation products. The system can offer a cost-effective solution in creating an airtight seal around the home as well as superior thermal efficiency and moisture control. The “flash and batt” method — a flash coat of spray foam insulation followed by the installation of a low-density fiberglass batt — was the hybrid solution that first gained notice. Since then, building scientists and technical experts have refined the approach by incorporating high-performance loose-fill fiberglass, offering unparalleled moisture control and air-sealing options that can be tailored to meet specific climate considerations. Although specific recommendations are driven by climate zone, a hybrid system typically includes closed-cell spray foam and blown-in insulation along with a smart vapor retarder, such as MemBrain. For example, a 1- to 2-inch coat of closed-cell spray foam is applied to the wall cavity. Next, a fiberglass blown-in insulation can fill the remainder of the cavity followed by a smart vapor retarder installed on the interior side of the insulated wall over the fiberglass insulation. When used in 2x6 wood stud wall construction, an R-Value of 25 or more can be achieved, exceeding many new energy code and green building program requirements. Simply put, a hybrid insulation system achieves high R-values, unsurpassed air resistance and revolutionary moisture control, which helps ensure a comfortable and healthy home. Contact CertainTeed Insulation at 800-233-8990 or at www.certainteed.com.

For more information on this system, visit www.ocenergycomplete.com.

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

Weather Barriers are a Must with Exterior Foam Sheathing In some climate zones, exterior rigid foam insulation can be used to meet higher R-value wall requirements. And while it can act as an excellent insulator for a home, it isn’t always the single best option as a long-term air- and water-resistant barrier. Builders should also consider adding housewrap, which increases the air and water tightness of the building envelope. When properly installed, an air- barrier system helps reduce unwanted air and moisture flow and helps maintain installed R-values of insulation. Problems with only using exterior foam sheathing as a waterresistant barrier have been observed during laboratory testing and confirmed through field observation. As these foam boards expand and contract over time, due to extreme weather conditions, the taped butt joints are taxed which can cause the seam to fail. When this occurs, water and air can easily penetrate into the wall cavity. This increases the chances of mold growth, wood rot, and other issues which will ultimately affect the structural integrity and thermal performance of the wall system. Another issue with the use of foam as a water-resistant barrier is poor water management. This occurs with taped insulating sheathing panels because of reverse shingling at horizontal tape joints. Unlike housewraps, taped foam joints cannot be lapped in order to properly shed water. Water can enter into the top of the taped seam and continue into the wall system, resulting in significant moisture-intrusion issues. In the laboratory experiment, insulating foam butt joints were created and then taped. Water entered through the top edge (i.e. the reverse shingle) of the tape and then went into the wall cavity. An effective air barrier helps seal structures from the elements, contributing up to a 40 percent savings in annual heating and cooling costs. It also helps to reduce the load requirement on the HVAC system, allowing for proper sizing and potentially lowering the initial equipment cost. The dimensional instability and air and water management issues intrinsic with foam products can potentially be remedied by using a housewrap as the water resistant barrier to provide continuity at air barrier details. The use of DuPont™ Tyvek® Weatherization system products in conjunction with continuous exterior insulation provides both higher R-value walls and a more durable and superior water resistive and air barrier. n

No matter how efficient a home’s windows or heating systems are, if it doesn’t have a tight seal — or envelope — home owners won’t see the energy or money savings they expect.

More information can be found at www.dupont.com. For more information about this item, please contact Christopher Mclarty at 800-368-5242, ext. 8247 or via email at cmclarty@nahb.org.

www.homebuilders.org

AUGUST/september 2012 MID-ATLANTIC BUILDER

Appealing to Women Home Buyers: A Business Management Perspective Position your company to grab the attention of women buyers. By Paul Foresman

hy should a prospective buyer purchase their new home from you? Unless you offer the cheapest prices in your market and always win the low price war, you need to be perceived as different and/or better than the other builders. “We build quality homes,” you might say. In my 20 years in the business, I’ve never met a builder who didn’t tout the quality of their homes. Since buyers hear quality from you and every builder they talk with, it is rarely a significant differentiator. “We’re environmentally- responsible, ‘green’ builders.” Admirable, but again a lot of builders are claiming to be green.

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

www.homebuilders.org

AUGUST/september 2012 MID-ATLANTIC BUILDER

As Jerry Garcia from the band The Grateful Dead said, “You want to be considered the only ones who do what you do.” In this challenging housing market, successful builders are positioning themselves uniquely, becoming the leader within their target market. By truly focusing on the needs and preferences of that audience they are perceived by those buyers as the best builder, and “price” – while always important – becomes a secondary issue. One niche market that is rarely focused on is targeting the women in your consumer base. “Women directly purchase or have controlling influence in the purchase of 91 percent of all new homes,” says Joan Smith of Smith-Dahmer Associates. With that in mind, here are 10 things to address in designing your building business to appeal more to women buyers: 1. Take her seriously.

At a minimum, she is at least an equal partner in the purchase decision. Salespeople need to understand that women don’t want to be treated differently. Eye contact and body language say more than words. Active listening helps her understand you care about her, not just her business. 2. Understand design is more than function + form.

Whether it’s the home plans you offer or the products you include, design has meaning and value. Good design is practical, functional, and does what it is supposed to do. That’s easy. And, good design is aesthetically pleasing. It is eye-catching and attractive, evidence that we’ve moved beyond mere function to an appreciation of form. Think carriage-style garage doors compared to the raised panel doors you used on your last home. But it’s the social aspect of design that may be the most important. How does it make her feel? The home she will buy and the products displayed will both establish and reflect her self-identity. What will the home’s design, with its master suite courtyard, the landscaping package, or the stone countertops say about her? It should be a reflection of her personality.

3. De-stress everything.

In her book Just Ask A Woman, author Mary Lou Quinlon reports that stress is one of the most compelling themes for women. Using the lens of de-stressing is essential in creating homes and a company she wants to do business with. Whether it’s low- or nomaintenance products that give her back a little more time, understanding how she likes to unwind and relax, or not forcing her to walk past the dirty laundry room when coming in from the garage, all contribute to a less stressful home. 4. Get her talking about you (in a good way!).

Generally, with women, word-of-mouth is more influential than other forms of advertising. Women look to their friends, family and peers for opinions and recommendations. A wonderful brochure is great, but she trusts what others tell her about you and your homes. Now, with the Internet, and particularly social media sites like Facebook and Twitter, word-of-mouth spreads further and faster than ever before. 5. Focus on value.

Price is always important. But rather than simply purchasing the cheapest home, most women use price to establish the short list of builders they will seriously talk with. From that point on, best value typically trumps lowest price. There is tremendous value in the relationship you establish with her, and the information she gets from you and not from other builders. She values anything that saves her time – whether it’s convenient meeting venues or low-maintenance products. She values a builder who has done the research and makes the whole process fun, easy, and exciting. 6. Embrace a consultative sales approach.

Give her the opportunity to consider things she may regret later not having chosen. For example, if they are a two SUV household, you suggest an oversized garage with an 18’-wide x 8’-high garage door. Help her manage her new home investment. Empower her with the information so that she can make wise, informed decisions regarding her home, within her budget. This helps her understand you care about her and earns her trust.

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

7. Become a great story-teller.

There’s a story behind everything you do – the designs you build from, the included features, the way you work with customers. Stories are more interesting that the mere information, so she’s more likely to listen. You could simply point out that in this new home you don’t walk directly in to the laundry room coming in from the garage. Or you could relate your embarrassing story of the last time friends and neighbors traipsed through the laundry room – with piles of dirty laundry strewn about – in your home.

Women directly purchase or have controlling influence in the purchase of 91 percent of all new homes.

8. Design your customer experiences.

Too few builders focus on this. They just assume that building a great home and having a savvy sales team are the keys to success. But there’s another key – the prospective buyer’s experience with your company at every touch point. What can you do to better establish and manage expectations so there are no surprises? What are you doing in your model home to appeal to her senses – all of them? How have you designed her final walkthrough/new home orientation to be remarkable?

design and an environment that facilitates lifelong learning. Margo probably won’t be interested in your “best-selling” or “most popular” because it won’t be unique or different. “Maggie” is fun-loving, very social, and activity-oriented. Maggie’s home often centers around casual entertaining spaces and flexible areas for her hobbies and interests. And be sure to offer her a travel center for those last minute getaways. n

9. Anticipate what she might want.

The bottom line is that you must understand your female customers well enough that you can truly anticipate her future wants. This is pre-need marketing. Delight her with innovation in design, products, and your business approach. Maybe a pocket office option, or quiet products like bathroom exhaust fans and kitchen garbage disposals were not on her radar screen, but would she later regret not having had the opportunity to consider those things?

Paul Foresman is the Director of Business Development for Design Basics LLC, a nationally-recognized home design firm. The company specializes in understanding and appreciating women’s preferences in their homes. Paul can be reached at 800-947-7526 or via e-mail to pforesman@ designbasics.com.

10. Don’t assume all women want to be treated the same.

At Design Basics, we have identified four primary female buyer personalities – each with distinctive preferences in design, in products for the home, and in how they want to work with their builder. We gave each profile names. “Elise” is traditional, and puts her family’s needs, wants, desires ahead of her own. You can’t have too much storage in an Elise home, because she prides herself on a neat, orderly home. “Claire” is a planner –educated and discerning when it comes to her home. Detail and quality are very important, and she’s the most likely to enjoy formal entertaining in her home. “Margo” is more individualistic, often preferring modern, contemporary

www.homebuilders.org

AUGUST/september 2012 MID-ATLANTIC BUILDER

So, Whatâ&#x20AC;&#x2122;s Next? Are You Ready? Ramp up your systems and be ready to rebound.

www.homebuilders.org

AUGUST/september 2012 MID-ATLANTIC BUILDER

hat you are reading this probably means that you have weathered the worst that has been thrown at the building industry in some time. Some of us have been through this before, while for others it may be the first time.

By John Barrows Many builders and remodelers say that this one is different, and it may well prove to be, but there is one similarity among the recessions – with it comes a recovery which can mean opportunity if one is prepared to take advantage of it. Some of the core problems will remain – lack of financing, poor buyer credit, excess inventory and sales of existing homes through foreclosure – and these will affect this industry for the foreseeable future. To capitalize on the recovery, start by looking at what you did as the recession got worse. First, you streamlined your operations and eliminated personnel. You evaluated your product and its costs. Some may have even diversified into associated businesses such as remodeling, commercial work, energy efficient retrofits and weatherization. It is important now to spend some time and evaluate what you did, its success, or lack of, and how to use that knowledge and experience to prepare for the future.

Streamline operations As businesses downsize they often look at automate some of their processes. Automation can have a long-lasting, positive impact. If done incorrectly, automating procedures merely allow for the same mistake to be made faster and more frequently; often going unnoticed. Therefore, it is imperative that whatever is being automated be fully understood prior to implementation. The goal of a successful system is to delegate the routine and repetitive tasks, thus freeing individuals to do what they do best – solve problems, work with clients and provide exemplary service. Three systems that are often overlooked but can have a profound effect are:

Estimating – Often builders fail to recognize the best part of an

estimating system is the job cost system. What benefit is an automated estimating system if it is not routinely checked against actual costs? Failure to check variances on each project will only allow the same mistakes to become part of every job moving forward. The estimate needs to mirror the job cost system and vice-versa. Then it needs to be checked at the close of each job for accuracy to the estimate. Purchase Orders – To many, this is unnecessary paperwork. A

successful purchase order system goes beyond merely ordering materials and work. The purchase order validates the estimate. All materials and work should come directly from the estimate and extra materials or work orders should be flagged as a variance. Reviewing the variance purchase orders on a regular basis can illuminate errors in estimates and change orders. Purchase orders serve an additional purpose in that they can automate the record keeping. Those assigned from the estimate with the proper job cost code are assured that they will be accounted for properly. Someone else can match invoices to the proper purchase order and no longer will your valuable time be consumed cost coding invoices at the end of the month; you will only see the few that need your direct attention. Scheduling – Too often builders and remodelers fall into the trap

of thinking if they just had one more job at one time, they can become more profitable. In reality, that causes inefficiency, lost time (profits) and poor customer relationships. The goal should be to do more jobs over a given period of time by increasing the speed, or velocity, of your projects. A well-thought-out schedule that is monitored consistently and has the buy-in of your team will increase that velocity, and in the process deliver increased profits and increased customer satisfaction.

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

Now is the time to look at each of these three systems and make sure that they are implemented for the maximum benefit. Deployment of each of these alone will increase your efficiency and deployed together will assure you that as work increases, it will be completed efficiently, profitably and with increased customer satisfaction.

Your Business Practices Hiring - Deploying efficient systems will provide a certain level of security as the work load increases but at some point employees will need to be added also. Now is a great opportunity to find experienced key personnel. This is a once in a business cycle opportunity to find the best individual for your company. Many people have been laid off and are looking for work but your search should start with a careful evaluation of where you need help. Ask yourself these questions: • What do you do best? • What do you dislike to do most? • Where can you reap the most benefits of added personnel? Remember that the goal is to increase efficiency first and simply adding people may not serve that purpose. Careful, written job descriptions and responsibilities will help find the perfect fit. Understanding your systems and how your processes work will help define those jobs and responsibilities. Product evaluation – When the market is good it seems that whatever we build or remodel is a success, but when the market tanks it’s quite the opposite. There are plenty of success stories from the last couple of years of builders and remodelers who found the right blend between their product and consumer satisfaction. Build what you know will sell, not what you think will sell. To know, you must identify what you do best, where the consumer demand is and how you can satisfy that demand. It stands to reason that what you do best will provide the most success. Knowing where you excel is critical to selling yourself. Market research, either through a consultant or your own study, will then illustrate how you can fit into what is selling. The goal is find your niche and then exploit it.

www.homebuilders.org

Understand the selling price comfort level of your target consumer. Start with the target selling price, take out your desired margin and you will be left with your costs to deliver that project. Too often builders start with the product cost, then add markup, only to find out that it is priced out of their target market. Then to move it they have to cut their margin, since the costs have become fixed. Diversification – For many in the past few years, diversification meant doing anything to create cash flow. Now is the time to evaluate those moves also. Ask these questions: • A s things improve and work becomes more plentiful will those diversified services provide the necessary profit? • Are they now an integral part of your business or will they become a distraction as your core business improves? • Do they drain from your core business? The answers to those questions should help you decide where to keep your focus. Remember, the goal, as workflow improves, is to accomplish it more efficiently and at a greater profit. As things improve it will require additional focus to work efficiently, to maintain the streamlined systems and to build customer satisfaction. That will require additional energy that should not be diluted by products or operations that do not support those goals. Finally, take a moment to pat yourself on the back. You have survived a very tough economic period. Don’t dwell on the failures as anything other than learning experiences. Congratulations, you are almost there and with some business examination you can assure success as the building industry improves. n

John Barrows is President of J. Barrows Inc., a company that has provided construction services, general contracting, construction management and consultation services for over 30 years. Barrows is a nationally recognized author and speaker on topics including green building, construction, production management and business management. In addition to presenting his own seminars, he has worked with the National Association of Home Builders to develop and teach some of their designation courses.

AUGUST/september 2012 MID-ATLANTIC BUILDER

Special Studies, February 1, 2012

Metro Area House Prices:

The â&#x20AC;&#x153;Priced Outâ&#x20AC;? Effect R by Natalia S. Siniavskaia, Ph.D.

ising home prices do not come to mind as a potential threat to housing affordability these days. Nevertheless, National Association of Home Builders Economics regularly receives requests to evaluate the effects of pending new regulations on housing affordability in local markets where regulatory actions are expected to raise home prices. The NAHB Priced Out Model provides most straightforward answers. The model has been recently updated and the new 2012 priced out estimates are now available.

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

www.homebuilders.org

AUGUST/september 2012 MID-ATLANTIC BUILDER

Table 1: US Household Income Distribution for 2012 Income Range:

Households

Cumulative

$0 to $10,723

8,904,433

$10,724 to $16,086

6,780,995

15,685,429

$16,087 to $21,448

6,563,954

22,249,383

$21,449 to $26,810

6,822,788

29,072,171

$26,811 to $32,172

6,188,392

35,260,563

$32,173 to $37,535

6,342,134

41,602,698

$37,536 to $42,897

5,789,689

47,392,387

$42,898 to $48,259

5,746,690

53,139,077

$48,260 to $53,621

5,050,282

58,189,359

$53,622 to $64,346

9,432,260

67,621,619

$64,347 to $80,433

11,860,699

79,482,318

$80,434 to $107,244

13,753,935

93,236,252

$107,245 to $134,055

8,796,336

102,032,588

$134,056 to $160,866

4,976,246

107,008,834

$160,867 to $214,489

4,890,873

111,899,708

$214,490 to More

4,594,048

116,493,756

The affordability concept underlying the priced out model is based on mortgage underwriting standards. Based on these standards, it is possible to estimate how many households can qualify for a mortgage before and after a house price increase. The resulting difference is the number of priced out households. The 2012 estimates show that nationally a $1,000 increase in the price of the home price leads to pricing out about 232,447 households. The size of the impacts varies across metros and largely depends on their population and income distribution.

The affordability standard is thus a ratio of housing expenses to income and the number of households that qualify for a mortgage to buy a home of a given price will depend on the income of households in an area. The American Community Survey, which replaced the decennial Census long form, provides the detailed income distribution for the United States and all metro areas with population of 65,000 people or more annually. The most recent income estimates are now available for 2010. To adjust for expected 2010-2012 income growth, NAHB uses the annual estimates of median family income published by the Department of Housing and Urban Development for every state and county. At the request of NAHB, HUD now releases median income estimates in advance, prior to the beginning of the calendar year for which estimates are produced. The 2012 estimates were made available early in December 20111. To adjust for population growth, NAHB relies on annual household estimates reported by the ACS and extrapolates the most recent household growth into 2012. Table 1 shows the projected US household income distribution that underlies the 2012 priced out estimates. Other assumptions used in the priced out calculations are a down payment equal to 10 percent of the purchase price and a 30-year fixed rate mortgage. The mortgage interest rate is set at 4.5 percent with zero points. For this typical loan, the model also assumes lenders require private mortgage insurance with an annual premium of 45 basis points2. Effective local property tax rates come from the 2010 ACS. The ACS reports both median home values and real estate taxes paid and, thus, allows estimating the effective property tax rates for all metro areas. For the US, the median rate is $11.36 per $1,000 of property value. Property hazard insurance rates are constructed based on the 2007 ACS Public Use Microdata Sample (PUMS)3

The Priced Out Methodology Most home buyers take out a mortgage to finance a purchase of a new home, so the Priced Out model uses ability to qualify for a mortgage as an affordability standard. To qualify for conventional loans, housing expenses should not exceed 28 percent of homebuyers’ gross monthly income. Monthly housing costs include principal and interest on the mortgage, property taxes and homeowner’s Insurance – often abbreviated as “PITI”.

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

A Brief Explanation of the Housing Affordability Pyramid At the base of the market for housing in the U.S. is a large number of households with relatively modest incomes. The homes that these households can afford are also relatively modest. Based on conventional assumptions and underwriting standards, it takes an income of about $26,430 to purchase a $100,000 home. In 2012, about 28.9 million households in the U.S. are estimated to have incomes lower than that threshold and, therefore, can only afford to buy homes priced under $100,000. These 28.9 million households form the bottom step of the pyramid. Of the remaining 87.5 million who can afford a home priced at $100,000, 23.3 million can only afford to pay a top price of somewhere between $100,000 and $175,000 (the second step on the pyramid). This trend continues up the pyramid of house prices. Each step represents a maximum affordable price range for fewer and fewer households. Although itâ&#x20AC;&#x2122;s certainly possible to find households at the high end of the market, there are many more households at the low end where affordability is a major concern. Increased development costs can easily price these households out of the market for a new home.

Note: The peak of the pyramid shows a very small share of households able to afford homes priced above $1.25 million. Itâ&#x20AC;&#x2122;s possible to have more million dollar homes than this in the U.S., because many households would have initially purchased homes at lower prices which subsequently appreciated. The pyramid is based on an income threshold and a 10 percent downpayment assumption. Households at the high end of the market may be more likely to have equity in a previously owned home or other accumulated wealth for a larger downpayment. Finally, to preserve confidentiality, the Census Bureau suppresses some detail that makes it difficult to estimate the number of households at the top end of the income distribution with precision.

US Households (in Millions) by Highest Priced Home They Can Afford Based on Income: 2012 2.0

850K - 1.25 million

2.4

700-850K

2.5

575-700K

4.1

475-575K

5.8

400-475K

7.0

325-400K

9.2

250-325K

13.8

175-250K

18.0

100-175K

22.8

0-100K

28.9

House Price

> 1.25 million

Source: Calculations by the National Association of Homebuilders Housing Policy Department, based on income data from the 2010 American Community Survey, U.S. Census Bureau

www.homebuilders.org

AUGUST/september 2012 MID-ATLANTIC BUILDER

Table 2: Additional Charges on Building Fees Building Costs/Fees

Add-on Charges

Imposed directly on buyer

During construction

16%

At start of construction

18%

When building permit acquired

20%

During development

37%

When applying for site development approval

39%

House Prices The priced out analysis is most meaningful when based on median new home prices. Medians are preferred to averages, since they are not skewed upward or downward by a few outliers (e.g., a few multimillion dollar mansions). New home prices are preferred to existing home prices since they are directly affected by new regulations. The median new home price for the United States is set at $225,000 for 2012. It is estimated as an average of monthly median new home prices reported by the Census Bureau over the most recent twelve months, and adjusted for inflation based on the 2012 NAHB forecast of the Case-Shiller Home Price Index. To estimate median new home prices for metropolitan areas, NAHB relies on data reported by the 2010 Census Bureauâ&#x20AC;&#x2122;s Building Permits Survey and Survey of Construction. The Permits Survey provides both the number and aggregate value of new housing units authorized by building permits and, thus, allows calculating average permit values for all metro areas. However, permit values do not include brokerage commissions, marketing/finance costs and may not include the cost of raw land. These additional costs are likely to differ across geographic areas but not available for metro areas. Nevertheless, the SOC provides enough data to tabulate median new home prices for all nine Census divisions and, consequently, division-wide ratios of median new home prices to average permit value. The ratios are then used as scaling mark-ups to convert metro average permit values into median new home prices4. The resultant median new home prices range from less than $110,000 in Beaumont-Port Arthur, TX to more than $845,000 in Bridgeport-Stamford-Norwalk, CT.

Metro Priced Out Results A typical household in Beaumont, TX, where half of all new homes is sold for less than $110,000, needs an annual income of $33,000 to qualify for a mortgage, while a household in Bridgeport-Stamford-Norwalk, CT will need to earn $226,569 to qualify for a new home loan. Clearly, these differences are driven by large divergences in new home prices across metropolitan areas. The more expensive new homes, the higher monthly principal and interest payments, the higher income required to qualify for a mortgage. But the relationship is not always linear as property tax and insurance payments also affect monthly housing costs.

For example, even though two metro areas in Texas - BeaumontPort Arthur, TX and Brownsville-Harlingen, TX - have the lowest median price new homes, the income needed to qualify for a mortgage to buy these homes are not the lowest in the nation. Hot Springs, AR, Valdosta, GA, Cedar Rapids, IA, Las VegasParadise, NV and several other metros have new homes that are more expensive but require a lower income to qualify for a mortgage. This is a result of higher property tax and insurance payments in Texas. Not surprisingly, Bridgeport-Stamford-Norwalk, CT metro area with most expensive new homes turned out to be least affordable, as only 7 percent of all households earn enough money to qualify for a new home loan. The three other least affordable metropolitan areas in the nation are Sebastian-Vero Beach, FL, Napa, CA, and Barnstable Town, MA, where less than 15 percent of all households can afford a median price new home. In sharp contrast stand metro areas like Cedar Rapids, IA where half of new homes are priced under $112,000 and more than three quarters of households can afford them. These differences translate into different effects of adding $1,000 to a new home price. Increasing a price of a new home in Chicago-Naperville-Joliet, IL-IN-WI by $1,000 disqualifies more than 6,000 households from buying a new home. This is by far the largest priced out effect in the nation, partially because it is a relatively affordable metro area where 43 percent of households can afford a new home, and partially because it is a populous area with almost 3.5 million households residing there. The second largest number of priced out households is in New York-Northern New Jersey-Long Island, NY-NJ-PA, where more than 5,000 households are priced out. Even though this metro is double the size of the Chicago area, the priced out effects are smaller, simply because the area is less affordable to begin with. Only 20 percent of households can afford a new home before any price hikes. Similarly, Los Angeles-Long Beach-Santa Ana, CA, where affordability is low but population is high, register the third highest number of priced out households, close to 5,000. At the other end of the spectrum are small and often unaffordable high home priced metropolitan areas. Napa, CA, Ocean City, NJ, Carson City NV, Sebastian-Vero Beach, FL are all estimated to have less than 50 households priced out of the new home markets. In Napa, CA where half of all new homes sell for more than $700,000, adding another thousand to a price, affects only 14 households, since there were only a few of them (13 percent) who could afford such expensive new homes in the first place. Looking at the affordable metro areas, where more than fifty percent of households can afford new homes, the priced out effects are large and can often disqualify thousands of new home buyers. In Houston-Sugar Land-Baytown, TX, almost 4,700 households are priced out of the new home market as a result of prices rising by $1,000, in Atlanta-Sandy Springs-Marietta, GA â&#x20AC;&#x201C; 3, 771 households.

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

Conclusion Quite frequently and often unintentionally local regulations raise construction costs and trigger hikes in home prices. NAHB consistently relies on the priced out model to estimate the impacts of price changes. Even though the model does neither answer all questions nor estimate effects of regulation on new home sales or housing starts, it highlights often overlooked effects of regulation on affordability of new homes. The new 2012 estimates show that, in relatively affordable metro areas, hundreds and sometimes thousands of households can be priced out of the new home markets as a result of prices rising by $1000.

The new 2012 estimates show that, in relatively affordable metro areas, hundreds and sometimes thousands of households can be priced out of the new home markets as a result of prices rising by $1000.

Note: Regulatory Costs Boost Home Prices by up to 39 Percent More than Building Fee Increases Hidden in median new home prices is the cost of government regulations. NAHB research shows that, on average, regulations imposed by government at all level account for 25 percent of the final price of a new single family home built for sale5. Every time a local or regional government raises construction costs by, for example, increasing the price of construction permits or impact fees, the cost of building a house rises. In fact, the final price of the home to the buyers will usually go up by more than the increase in the government fee. This is because each time construction costs increase other costs such as commissions and financing charges automatically rise as well. As a result, most cost increases are passed on to the buyers with additional charges. The size of these charges depends both on the type of fee/cost increase and when it is imposed in the development/ construction process. NAHB estimates that the add-on charges range from 0 percent if a fee is imposed directly on buyers to 39 percent if cost is incurred when applying for site development approval (see Table 2). So that for every $1 increase in fees incurred, for example, when acquiring a building permit, the final price of a new home to its final customer rises by $1.20. Alternatively, every $833 increase in fees imposed at the time of the building permit results in a $1,000 increase in house prices. n 1 In cases, where counties comprising a metro area are estimated to have different median incomes, an estimate for the county containing the core urban area listed first in the name of the metro area is set to represent the median family income for the entire metro area. . For the US as a whole, the insurance rates work out to $5 per $1,000 of property value. 2 In the PITI formula, mortgage insurance is essentially treated as part of the interest payment. Like interest on the loan, it is a percentage of the declining mortgage balance. 3 Producing metro level estimates from the ACS PUMS involves aggregating PUMA level data according to the latest definitions of metropolitan areas. Due to complexity of these procedures and since metro level insurance rates tend to remain stable over time, NAHB revises these estimates only periodically. 4 For Boulder, CO and Washington-Arlington-Alexandria, DC-VA-MD-WV metro areas, where permit values are volatile and likely to have a large margin of error, NAHB uses median existing home prices reported by the National Association of Realtors as a proxy for new home prices. 5 See P. Emrath â&#x20AC;&#x153;How Government Regulation Affects the Price of a New Homeâ&#x20AC;?, Housing Economics Online, July 2011

www.homebuilders.org

AUGUST/september 2012 MID-ATLANTIC BUILDER

Coming in 2012

The Maryland Center for Housing Be forever recognized as an industry support with a custom engraved paver at the new Home Builders Association of Maryland headquarters to be built in Maple Lawn, Maryland The Maryland Center for Housing will be a home for the Home Builders Association of Maryland, for the Building Industries Foundation, our non-profit arm, and for the home building and remodeling industry of Maryland. Thanks to a very generous lead gift by Stewart Greenebaum, the building will be located in Maple Lawn, Maryland in the southwest corner of Howard County, Maryland. Maple Lawn, a Smart Growth Community developed by Greenebaum and Rose Associates, is located in the heart of Central Maryland and is convenient to Interstate 95, US Route 1 and Maryland Routes 29 and 32. This headquarters will stand as a testament to the strength, vitality and endurance of the industry and the Association that represents it. Donâ&#x20AC;&#x2122;t miss your chance to be part of this lasting legacy.

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

“It has long been my goal to get the Association that represents the home building industry a home of its own” John Kortecamp HBAM Executive Vice president

www.homebuilders.org

AUGUST/september 2012 MID-ATLANTIC BUILDER

Maryland Center for Housing Donors Thank you to the following companies for their generous financial support. Lead Donor: STEWART GREENEBAUM Rachuba Family Foundation Bob Ward Family Foundation Cornerstone Homes Dan Ryan Builders Elm Street Development Forty West NVR Powers Homes Residential Title Security Development Development Design Consultants Chateau Builders Goodier Builders Mark Sapperstein

Orchard Development Shelter Builder Communities Baldwin Homes Lennar Morris and Ritchie Associates MD Landmark Ray Guidace Selfridge Family Foundation Steuart-Kret Homes Columbia Builders IWIF Williamsburg Homes Goodier Baker Builders Linowes and Blocher

NAMING RIGHTS Rachuba Family Foundation Foundation Office Security Development Howard County Government Affairs Office Elm Street Development Finance Office NVR- Sales and Marketing Office Walter and Betty Ward Government Affairs Office

Thank you to the following companies for their contributions of labor, materials and professional services. Azek 84 Lumber A.C. & R. Foam Insulators Bartley Corporation Bruce L. Jones Contractor, LLC California Closets Charles A. Klein Choice Stairways CMW Co., Inc. Colonial Electric Creative Touch Interiors Delbert Adams Construction Design House Kitchens Dow Building Supply EnviroSolutions Fast Signs of Dundalk Fireside Hearth & Home 44

Fretz Companies Gaines & Company Glen-Gery Brick Gray and Son Gutschick, Little & Weber Harkins Builders Hillis-Carnes Engineering Associates Interior Concepts L&L Supply Leisure Specialties Modern Foundations Moen Oâ&#x20AC;&#x2122;Neil Interactive Old Town Construction Out of Sight Home Theater Parksite Patterson Enterprises

Reico Kitchen and Bath Residential Title Richmond American Homes RLO Contractors Rosenberg, Greenberg & Martin Shannon Comer Architects Shelter Systems Sherwin Williams Siegel, Rutherford, Bradstock & Ridgeway SmartBox Portable Storage St. John Properties T.W. Ellis TW Perry Vintage Security Weyerhaeuser

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

6030 Daybreak Cr. #A150, PMP 362 Clarksville, MD 21209

www.homebuilders.org

AUGUST/september 2012 MID-ATLANTIC BUILDER

Maryland Center for Housing Donor Spotlight Weyerhaeuser Edge GoldTM Floor Panels 888.453.8358 www.woodbywy.com

Shelter Systems Limited Roof Trusses 410-876-3900 www.sheltersystems.com

Our roof trusses provide the most economical and substantial roof framing method today. Custom manufactured for a perfect fit, our roof trusses are easy to install - resulting in reduced labor costs and substantial time savings. Engineered with the same degree of quality and durability as all Shelter Systems products, our roof trusses enable you to close your building faster and help you maintain even the most demanding construction schedules. Comprised of the finest grades of kilndried, stress-rated lumber, our roof trusses eliminate deviations in roof line and provide a totally custom engineered roof system, taking into account all necessary uniform and concentrated loads. Built for strength and durability, our roof trusses assure you and your customer’s optimum structural integrity.

Creative Touch Interiors Flooring www.ctihome.com 1-855-CTI-6010

Creative Touch Interior’s design centers feature an exceptional selection of topquality interior finish products. The product offering is designed to streamline the selection process for home buyers, and our staff of interior designers carefully guides each home buyer through the process. Our award-winning builder solution, the Total Choice Advantage Program (TCAP), helps builders capitalize on home buyer upgrades through guaranteed pricing and pre-selected products in a variety of categories. CTI offers the most popular floor coverings, including carpet, tile, vinyl, hardwood and natural stone. Creative Touch Interiors is the first flooring subcontractor with installation processes based upon the National Association of Home Builders standards.

Weyerhaeuser Edge Gold™ panels don’t just start flat, install flat and stay flat. Thanks to patent-pending Down Pore™ self-draining technology and a proprietary edge seal, our panels withstand the elements so well that they can allow some framers to extend their building season. Plus, Edge Gold panels come with the added benefit of a 50-year limited warranty and a 200-day no-sand guarantee when used as directed. The best builders are always looking for new ways to cut down on job cycle times, increase profitability, and minimize callbacks. That’s why we’ve added Down Pore™ self-draining technology on the edge of every panel. The face of every panel is stamped with a fastening template and each bundle ships face-up, ready for easy and accurate installation right off the truck. Floor performance is important to homebuyers and TJ-Pro™ Ratings help you customize the specific level of quality and performance your customers want. Grow your business and customer satisfaction by using the most cost-effective combination of TJI® joists, TimberStrand® LSL rim board, and Weyerhaeuser Edge Gold floor panels.

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

Everything You Need to Know About the Threat to the Mortgage Interest Deduction

or almost a century, national housing policy has acknowledged the importance of the home in American family life. Today, however, the ideal of homeownership faces a number of serious threats. Legislative and regulatory proposals now under consideration would greatly harm home owners, home buyers, the housing market and the nation’s economy. Cutting the tax benefits associated with owning a home would deliver a serious body blow to the fragile housing recovery by inflicting a huge tax hike on millions of middle-class home owners. The collateral damage to the economy would be even more severe, reducing household wealth and placing more downward pressure on housing prices, which would further weaken housing demand, leave more home owners underwater and cause a spike in foreclosures. Owning a home remains an essential part of the American Dream and imposing additional taxes on America’s home owners is not the answer to solve our nation’s fiscal problems. Following you will find background and statistics that will help you understand the topic and speak to your customers and your legislative representatives about the issues.

The Mortgage Interest Deduction: Background and Statistics Summary

• Deductions for mortgage interest have been part of the tax code since its inception in 1913 • The mortgage interest deduction is a cornerstone of American housing policy • Limiting the deduction would be harmful to current homeowners and future homebuyers

Tax Rules for the Mortgage Interest Deduction

• Homeowners may deduct interest from up to $1 million of acquisition mortgage debt and up to $100,000 of home equity loan debt • Limits set in 1987 and have not been adjusted for inflation • Mortgages for a principal residence and second (non-rental) home qualify for the MID • Mortgage interest paid for the purpose of acquiring, building or substantial improving a qualified home may also be claimed against alternative minimum tax (AMT) [interest payments allocable to a home equity loan used for other purposes may not be deducted against AMT] Public Support for the Mortgage Interest Deduction is Strong

• 73 percent of likely voters think it is reasonable to support housing through the tax code • 71 percent oppose eliminating the mortgage interest deduction • 63 percent oppose limiting the mortgage interest deduction • The support is bipartisan: 69 percent Republicans, 64 percent independents, and 57 percent of Democrats oppose limiting the mortgage interest deduction • Support was high among renters (73 percent of whom aspire to own a home one day), with 59 percent of opposing eliminating the mortgage interest deduction • 75 percent also said owning a home was the best long-term investment • 95 percent of homeowners said they are happy with their decision to buy a home Source: Public Opinion Strategies/Lake Research Partners May 2011 poll conducted for NAHB

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

Aggregate Deductions Claimed

Average Mortgage Interest Deduction $16,000

% of Age Class AGI

$14,000 $12,000 $10,000 $8,000 $6,000

55 5

r ve

un 5

$2,000

$4,000

18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

Non-Housing Itemized Deductions

un 5

Real Estate Tax Deductions Mortgage Interest Deductions

The Mortgage Interest Deduction and Housing Prices

The Importance of the Deduction for Younger Households

• Homeowners do not expect to lose their mortgage interest deduction and prospective buyers anticipate taking the deduction. Changes to these “rules of the game” would have a significant impact on the market in terms of home buyer and home owner behavior • A s an example, a Tax Policy Center study found that limiting mortgage interest deductions to a 28 percent maximum rate would cause metropolitan housing prices to fall by more than 10 percent • Other changes that might undermine consumer confidence in the permanence of the mortgage deduction would likely have a similar impact on the market • The Great Recession was characterized by dramatic declines in home prices, resulting in lost economic growth and jobs – housing policy uncertainty will weaken the economic recovery

• The deduction is most valuable for younger households who tend to be recent homebuyers, with small amounts of home equity and growing families due to marriages and children • IRS data indicates that largest deduction amounts are for those aged 35 to 45; and as a share of household income, the largest amounts are for those aged 18 to 35 • 74 percent of the deduction claimed by those under age 55; 30 percent by those aged 35 to 45 • L arger families benefit more from the MID (larger families require larger homes) Source: NAHB Research: Housing Tax Incentives: Age Distribution Analysis

Aggregate Statistics

• The 2011 tax expenditure estimate for the MID is $78 billion (Source: JCT) Note not a revenue estimate; actual revenue from elimination would be smaller • Two-thirds of the tax benefit from the MID goes to taxpayers with less than $200,000 in economic income (same taxpayers pay only 43 percent of taxes – progressive deduction) (Source: JCT) • MID benefit is worth more to the middle class: for taxpayers earning less than $200,000, it is worth 1.76 percent of AGI; more than $200,000, value drops to 1.5 percent of AGI (Source: NAHB calculations of IRS SOI data) • 90 percent of taxpayers benefitting from the deduction make less than $200,000 (Source: JCT) • Since 2000, 86 percent of mortgage interest paid has been claimed as deduction on a tax return (Source: NAHB calculations of Bureau of Economic Analysis and IRS SOI data)

www.homebuilders.org

Typical Tax Savings Due to Homeownership Rules

• For a typical homeowner with $54,000 in taxable income, the deductions for mortgage interest and real estate taxes are worth $7,500 during the first five years of homeownership • For the first 12 years of homeownership, these deductions are worth approximately $17,000 Source: NAHB Research: The Tax Benefits of Homeownership n

AUGUST/september 2012 MID-ATLANTIC BUILDER

green building BUILDING HOMES – BUILDING SUCCESS

Raising the Bar By H. Alan Mooney, P.E. President, Criterium Engineers

Our goal is to provide information that will allow quality-oriented builders to improve the product they deliver.

onstruction quality hasn’t changed much in the nearly 40 years that I have been evaluating homes in the United States. What has changed, however, are the reasons why. 20 years ago, if you asked me what the best product was for a certain application; roofing, for example, I would have given you an answer. Today, I am less likely to respond to such a question since I no longer think that the product chosen is as important as the skill with which it is installed. In other words, today the training and skill of the technicians building our homes has much more to do with quality and performance than the products chosen. That’s not to say that some products aren’t better than others, but even the best products will fail to perform adequately if not properly installed. Many window manufacturers are developing certified installer programs for just that reason. It’s important to focus on the details, to RAISE THE BAR on accountability for your crew. And what are the most common issues we see? Here is a summary based on well over 100,000 inspections we have done during the last ten years. The following are some excerpts from our periodic surveys. This is based on information and opinions gathered from our offices throughout North America, in 35 states and two Canadian provinces. The objective was to identify problem areas that have a significant impact on the functional performance and quality “feel” of new homes. The intent was to be objective. We asked our engineers just one question – “What problems are you finding?” An item made it to our list if it was part of the responses we received from enough of our offices to consider it widespread geographically.

We evaluate all of the homes we look at by comparing them to what we consider to be typical of similar construction in that geographic area. We specifically do not expect perfection. In fact, we have written and published a series of essays on why you can’t build a perfect home. As noted, we have identified problems that “have a significant impact on the functional performance and quality “feel” of new homes.” In that context, significant means a condition that requires repair and/or that cannot not reasonably be ignored or justified as typical of new construction. Our goal is to provide information that will allow quality-oriented builders to improve the product they deliver. It should be noted that, in our experience, the expectations of some home buyers and home owners have risen to the level of unfulfillable and unreasonable in recent years. We believe more education of home buyers is needed to help them understand residential construction. This survey did not seek input from home buyers and owners. Each subject is categorized by type of problem, tangible examples, likely consequences, approximate frequency of occurrence and most probable cause. These are national averages and summaries.

Summary Skill and workmanship are frequent causes for the problems we have seen. Material selection is the next most common cause. Finally, inadequate or superficial design and/or preparation is responsible for a significant portion of the quality compromises.

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

Where inadequate personnel training is noted, this may reflect a combination of inadequate training and a lack of commitment to produce quality results. Comprehensive training requires a quality oriented working environment to be effective. From our discussions with builders, it is increasingly difficult to find and/or train skilled and motivated workers. This may be the biggest challenge facing the building industry if the number and frequency of problems is to be reduced.

Problem Area: Window And Door Installation Examples Of Defect:

• No flashing • Inadequate attachment • No sealant or incomplete sealant • Loose windows • Out of square rough openings Consequences Of Defect:

• Poor window operation • Water intrusion • Framing rot and mold Frequency Of Occurance:

Problem Area: Roof Installation Examples Of Defect:

• L ack of roofing paper • Poorly installed roofing paper • Poorly installed eave, rake and valley details • Improperly placed shingles • Stapled installation Consequences Of Defect:

• Premature roof deterioration • Water intrusion • Perception of poor quality Frequency Of Occurance:

• 21 percent of new homes Most Probable Cause:

• L ack of adequate personnel training and/or supervision Problem Area: Siding Installation Examples Of Defect:

• Thin stucco, easily damaged • Improper attachment, wind driven failures • Poor details • L ack for proper brick veneer details Consequences Of Defect:

• Framing rot and mold • Water intrusion • Visual distortion and irregularities Frequency Of Occurance:

• 15 percent of new homes Most Probable Cause:

• L ack of adequate personnel training, schedule limitations

www.homebuilders.org

• 23 percent of new homes (and growing) Most Probable Cause:

• L ack of adequate personnel training Problem Area: Window Performance Examples Of Defect:

• L eaks through window frame • Loose sash • Broken seals Consequences Of Defect:

• Framing rot and mold • Water intrusion • Perception of poor quality Frequency Of Occurance:

• 12 percent of new homes Most Probable Cause:

• lack of adequate QC in window manufacture, cost driven manufacturing compromises, cost driven window selection Problem Area: Framing Adequacy Examples Of Defect:

• Unbraced roof trusses • Casually braced roof framing • Cut and compromised floor framing (plumbing, elect, etc) • Inadequately attached sheathing and/or shear walls • L ack of bracing or structural sheathing • Sloppy or inconsistent cutting of framing members • Inadequate or improperly installed framing connections • “Band aid” framing

AUGUST/september 2012 MID-ATLANTIC BUILDER

green building Consequences Of Defect:

• S tructural sagging • S tructural distortion, leaning •P artial or complete roof failures •R oof line distortion •C ompromised door and window operation •U nusually springy floors •P erception of poor quality Frequency Of Occurance:

•1 8 percent of new homes Most Probable Cause:

•L ack of adequate personnel training, schedule limitations

Problem Area: Site Selection/ Soil Preparation Examples Of Defect:

• Poor surface drainage • Differential settlement • Slab cracking • Structural distortion Consequences Of Defect:

• Water intrusion • Settlement and distortion • Low perception of quality • Ponding and poor surface drainage Frequency Of Occurance:

• 19 percent of new homes Problem Area: Hvac/Mechanical Equipment Installation Examples Of Defect:

• I nadequate service access •P oorly installed ductwork •C asual wiring •M arginal capacity • I nadequate safety standard compliance Consequences Of Defect:

•L ack of reliability • I nadequate performance •P remature failure • S hort service life Frequency Of Occurance:

•1 6 percent of new homes (and growing) Most Probable Cause:

•L ack of adequate personnel training, cost driven compromises in equipment selection and design, schedule limitations

Most Probable Cause:

• L ack of attention to site selection, soils evaluation, foundation design and final site grading Problem Area: Use Of Unproven Materials Examples Of Defect:

• Caulking/sealant failures • Material compatibility issues Consequences Of Defect:

• Water intrusion • Premature failure • Inadequate or unsatisfactory performance • Short service life • Perception of poor quality Frequency Of Occurance:

• 12 percent of new homes Most Probable Cause:

• Perceived competition and pressure to use the latest product

Problem Area: Foundation Construction Examples Of Defect:

•C oncrete spalling •E xposed aggregate • S ignificant cracking Consequences Of Defect:

•P remature deterioration •W ater intrusion •C ompromised structural performance •P erception of poor quality Frequency Of Occurance:

•1 4 percent of new homes Most Probable Cause:

•L ack of adequate personnel training, price driven compromises in construction specifications and concrete mix design, schedule restrictions

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

Some large, National home builders we are familiar with are establishing some aggressive programs to build “defect free” homes. The problem of construction quality is gradually being acknowledged throughout the industry. Like any significant trend, it’s important to keep up or, when possible, be a leader. If you have statistics from your homes that prove they are better than average, share that with your buyers. While building a perfect home may not be possible, minimizing defects is. However, it does not happen by accident. You need to set that standard and hold others accountable for that standard. Perhaps it’s time to RAISE THE BAR for your company. As you read my columns, if you have questions, please feel free to send me an e-mail at hamoooney@criterium-engineers.com, I will try to respond in a future issue or respond to you directly. Working together, my goal is to help explore new and better ways for you to build homes that you can be proud of and that will turn your customers into some of your best sales people! n

BEDROOM

GARAGE

ENTRY

WALL BED

STORAGE

OFFICE

PANTRY

Criterium Engineers has specialized in residential construction for more than 50 years, with more than 60 offices in more than 35 states. We have evaluated more than 750,000 buildings. H. Alan Mooney, P.E, President of Criterium Engineers, is a licensed, Professional Engineer in 8 states, with more than 35 years experience and has been the author and presenter for various NAHB programs, mostly on construction quality. For more information, please visit www.criterium-engineers.com and www.criteriumquality.com.

For over 30 years, California Closets has defined the most important spaces inside and around the home. Call for more information about our Trade Program and learn how California Closets can contribute to your success. BALTIMORE | Sulphur Spring Rd. SEVERNA PARK | Park Plaza | 410.247.8088 CaliforniaClosets.com

www.homebuilders.org

MD Baltimore_Builder_4.62x9.75_0212.indd 1

2/20/12 2:27 PM AUGUST/september 2012 MID-ATLANTIC BUILDER 53

stats&facts By the Numbers

4.29%

Single family home closing prices from June 2, 2011 to May 31, 2012 have increased 4.29% from the previous year.

Happy Times = Vacation Time! How is it Affecting Housing? By Brooke Burns

$378.19

The average price per square foot for a condominiums closed between June 2, 2011 and May 31, 2012 is $378.19, a decrease of 16.86% from the previous year.

2,110 The number of townhomes currently available on the market, down 21.68% from last year.

988 The total number of closings from January 1, 2012 to May 31, 2012 was 988, an increase of 1.54% from the same period of the prior year.

19.79% The total remaining inventory has decreased 19.79% from 12,449 the previous year to 9,985 this year.

In the last issue of Mid-Atlantic Builder, I told you that Hanley Wood Market Intelligence shows all signs pointing to positive for 2012. Now that we are half way through the year, are we still seeing these same signs or have they shifted? Comparing year over year statistics, signs are pointing to the fact that housing has stabilized. Summer months tend to bring slower sales paces and lower traffic. Every builder I have spoken with feels that this is the case. The sentiment is optimistic that this is just a cyclical occurrence and not an indicator that the market has fallen. Although it is slower than the spring selling season, it isn’t quite as slow as it was last year and year over years stats show similar trends of pace. In addition, we are experiencing a stabilizing of prices. The only product type that is having difficulty in the Washington DC MSA as a whole is Condos. Sales are in fact down and prices have had to decrease for that reason. This is not the case with Singles and Towns which have had an increase in closings and price points. Town homes have seen a 17 percent increase in closings comparing Jan – May 2011 to Jan – May 2012. Singles are on track with where their closings were in 2011 and the change is flat, however, we see a 4 percent increase in average price. Inventory is also significantly down at 20 percent across the board for all product types. The good news continues; let’s try to keep it up. Think positive thoughts! n Brooke Burns is the Regional Sales Director for Hanley Wood Market Intelligence and can be reached at bburns@hanleywood.com or 202-729-3678.

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

Inventory: Current vs. Last Year Single Family Homes 2011: 8,350 2012: 6,751

Average Closing Price: June 2011 to May 2012 vs. June 2010 to May 2011 Single Family Homes

Townhomes 2011: 2,694 2012: 6,751

Condominiums 2011: 1,405 2012: 1,124

2011: $481,169 2012: $501,798 Townhomes

Closings: January 1, 2012 to May 31, 2012

One icon is equal to 50 closings Single Family Homes

$ 2011: 632

2011: $327,291 2012: $338,493 Condominiums

2012: 634

Townhomes 2011: 208 2012: 243

Condominiums 2011: 133

$ $ 2011: $592,582 2012: $507,439

2012: 111

www.homebuilders.org

AUGUST/september 2012 MID-ATLANTIC BUILDER

HBAM Welcomes New Members Associate

Elysian Energy

Milby Company

Sharma & Associates

Daniel Anastasi 6404 Ivy Lane, Suite 700 Greenbelt, MD 20770 Phone: 240-297-3828 Professional Services - Banking & Mortgage Sponsor: Tim Morris, Williamsburg Homes

Jim Conlon 1111 East West Highway Suite 200 Silver Spring, MD 20910 Phone: 240-381-0395 www.elysianenergy.com Professional Services Environmental Services

Burnet Chalmers 6201 South Hanover Road Elkridge, MD 21075 Phone: 410-796-7700 Supplier - Plumbing Products & Fixtures Sponsor: Jeremy Rutter, Rutter Project Management

Raj Sharma 9055-B Maier Road Laurel, MD 20723 Phone: 301-776-0015 Professional Services - Signs & Displays Sponsor: Cindy Plackmeyer, Steuart-Kret Homes

Milby Company

Tidewater Property Management

Chesapeake Bank Of Maryland

Floors Etc.

Stanley Greenberg 3706 Crondall Lane Owings Mills, MD 21117 Phone: 443-548-0191 www.tidewaterproperty.com Professional Services - Property Management

Caliber Funding, LLC

Tim Nichols 2001 East Joppa Road Baltimore, MD 21234 Phone: 410-665-7600 www.chesapeakebank.com Professional Services - Banking & Mortgage Sponsor: Steven Gilman, Assembly Line Inc.

Susan Rosenberg 10709 Gilroy Road Suite 150 Hunt Valley, MD 21031 Phone: 410-329-9680 www.floors-etc.com Subcontractor - Flooring

Burnet Chalmers 6201 South Hanover Road Elkridge, MD 21075 Phone: 410-796-7700 Supplier - Water Condition, Mgmt., Proof. & Wells Sponsor: Jeremy Rutter, Rutter Project Management

J.L. Ward Painting Co., Inc.

Octavo Designs

Core Sales Group LLC

Jeff Ward P. O. Box 521 Woodbine, MD 21797 Phone: 410-984-2505 Subcontractor - Paint & Wallcoverings Sponsor: Ryan McGinn, Saratoga Insurance Brokers, Inc.

Sue Hough 108 West Church Street Frederick, MD 21701 Phone: 301-695-8885 Professional Services - Advertising & Marketing Sponsor: Cindy Plackmeyer, Steuart-Kret Homes

Lou Chirgott 1312 Bellona Ave Lutherville, MD 21093 Phone: 410-583-9400 www.coresalesgroup.com Professional Services Advertising & Marketing

Bement & Sons Const., Inc. Marty Bement 326 South Broadway Baltimore, MD 21231 Phone: 410-952-6233 Builder

Do Business With Your Fellow HBAM Members. “Building Your Business Through Association” is our philosophy. HBAM members believe that they should support those who support the building industry. NETWORK with other companies in the building industry to gain new contacts as well as strengthen your current ones at the Celebrity Chef Night and Auction, sporting events, chapter and council meetings and more.

ADD CREDIBILITY for your company in the building industry as well as with the general public by being associated with one of the largest building associations in the country.

KEEP UP-TO-DATE about pertinent legislative and regulatory issues on a local, state and national level.

WWW.HOMEBUILDERS.ORG is designed to serve both consumers and those in the building industry. You can access the latest legislative news, find out about member benefits, profile your company in the online directory or register for an event. Consumers can visit the HBAM home page to find you and other builders or suppliers in their area.

INCREASE YOUR KNOWLEDGE of the building industry through our educational programs and seminars. TARGET YOUR MARKET with cost effective advertising in any of HBAM’s publications and receive a spreadsheet of HBAM members. STAY INFORMED with HBAM’s publications. You will receive Mid-Atlantic Builder, BNN, HomeFront Online and the Buyers’ Guide.

Contact Felicia Fleming at 410-265-7400, ext. 115 or felicia@homebuilders.org for more information.

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

governmentaffairs State Regulations to Establish Statewide Requirement for Costlier Septic Systems Clears Hurdle By Jeff Tosi

n Tuesday, July 24, the Joint Administrative, Executive and Legislative Review Committee of the Maryland General Assembly overturned a motion to reject proposed regulations requiring best available nitrogenremoval technology (BAT) septic systems in all newly constructed homes statewide and any septic system that needs to be replaced. The current law requires BAT systems within the critical area (land within 1,000 ft. of tidal waters) for new construction and statewide when an older system needs to be replaced. The Maryland Department of the Environment proposed the regulations on the heels of the passage of Senate Bill 236 during the 2012 General Assembly session, which limits new residential development on septic systems.

The 11-8 vote in support of the new requirement will add an estimated $8,000 - $12,000 per lot for any new homes built with a private septic system. The Maryland State Builders Association submitted detailed comments opposing the regulations. HBAM Members, along with other members from around the state, participated in the public hearing before the AELR Committee in early July. In their testimony, industry representatives pointed out that regulators would get more ‘bang for their buck’ by focusing efforts on existing failing systems within the critical area, rather than focus on new homes that may be miles from a Chesapeake Bay entry point. In his written comments to AELR, MSBA President Eliot Powell noted that “BAT systems are more complex and more expensive systems that may not work optimally nor be necessary in all circumstances depending on soil type, topography, etc. The homeowner cost of installing, maintaining and operating these systems is substantially higher than conventional systems and so they should only be used where there is a clear benefit.”

www.homebuilders.org

The official public comment period for the proposal ends on August 15, and the final version of the new rule should be finalized this fall. The Maryland Association of Realtors, various local elected officials and the Maryland Association of Counties all joined MSBA and HBAM in raising serious concerns about the regulations. Despite the objections raised by these groups, the Committee gave initial approval. Bob Summers, Secretary of MDE argued that federal rules requiring states within the Chesapeake Bay watershed to reduce harmful pollutants in the Bay have forced actions such as this. Mr. Summers argued that 6 percent of the nitrogen load entering the Chesapeake Bay comes from individual septic systems and this requirement will cut that percentage in half.

Previous attempts to require BATs in new development were in the form of legislative proposals but all failed. The fact that legislative proposals were introduced but not approved by State lawmakers raised concerns about the State’s ability to use the regulatory process to push the regulations through. The regulations remain before the AELR Committee, which has the power to amend the regulations, deny the regulations, or pass them as introduced. The official public comment period for the proposal ends on August 15, and the final version of the new rule should be finalized this fall. n Jeff Tosi is the HBAM Director of Government Affairs and he can be reached at 410-2657400, ext. 101 or jeff@homebuilders.org.

AUGUST/september 2012 MID-ATLANTIC BUILDER

governmentaffairs Carroll County Commissioners propose 2-year moratorium on schools portion of Impact Fees – Saving builders $6,303 per house in fees.

In August, Carroll County Commissioners will vote on a resolution to reduce the educational portion of the impact fee to zero for a period of two years. If enacted, the Impact Fees in Table 1 will be effective until July 1, 2014. After July 1, 2014, the County will resume collecting the schools portion of the Impact Fee and the rates in Table 2 will be effective.

Baltimore County The Baltimore County Council recently enacted Green Building Property Tax credits for ICC700 National Green Building Standard Certified Homes. Council Bill 23-12 adds the ICC-700

National Green Building Standard as an equivalent to LEED for the county’s High Performance Home Property Tax credit program. The following tax credits now apply for 3 years to each certification level: • LEED Silver OR NGBS SILVER – 40 percent • LEED Gold OR NGBS GOLD – 60 percent • LEED Platinum OR NGBS EMERALD – 100 percent

The County still has the Energy Efficiency Tax Credits for homes not certified but built at least 30 percent more efficient that the current code, which as of July 1 is the 2012 IECC. The tax credit is equal to the percentage of increased energy efficiency achieved in the process of renovation or construction, with a minimum improvement of 30 percent. Improvements must be measured by certified HERS Rater, certified Passive House consultant, or certified ASHRAE professional. For existing structures, the initial measurement shall be conducted prior to the renovation to determine existing level of energy efficiency. A second measurement shall be conducted at the conclusion of the renovation.

Table 1: Proposed Impact Fees to be effective until July 1, 2014 Schools Parks Total

Single Family $0 $533 $533

Mobile Home $0 $538 $538

Town House $0 $604 $604

Multi-Family $0 $530 $530

Table 2: Proposed Impact Fees to be effective after July 1, 2014 Schools Parks Total

Single Family $6,303 $533 $6,836

Mobile Home $3,061 $538 $3,599

Howard County Plan Howard goes to the County Council

Howard County’s General Plan, referred to as Plan Howard 2030, passed the County Council heavily amended on Thursday, July, 26. Perhaps the most controversial aspect of the plan was the land use tier map, as required by SB 236 which passed the General Assembly earlier this year. Chapter members successfully lobbied the Council to have the maps removed from the General Plan and will work with the Council and DPZ over the coming months to introduce a new tier map as a General Plan Amendment. The original map proposed to add all RC zoned land as Tier 4, and all RR zone land as Tier 3. All areas in the east served by water and sewer would be in Tier 1. Chapter members hope a new map will take into account acreage already protected by easements as well as uncommitted lots in the RC zone to produce a map that protects the development rights of landowners.

Town House $7,006 $604 $7,610

Multi-Family $2,257 $530 $2,787

The General Plan also changed the Housing Unit Allocations Chart and a new chart is expected to be filed with the Council in the coming weeks. The new chart cuts the number of categories to 5: Downtown Columbia, Targeted Growth and Revitalization, Established Communities, Green Communities, and Rural West. HBAM submitted comments to the Council asking for additional allocations in the established communities and rural west, and fewer in the targeted growth and revitalization areas. We plan to comment on legislation once available. For a copy of our comments, please contact Michael@homebuilders.org. . n HBAM Government Affairs Michael Harrison Senior Director of Government Affairs Howard, Baltimore and Carroll Counties michael@homebuilders.org 410-265-7400, ext. 109 Jeff Tosi Director of Government Affairs Anne Arundel, Harford and Cecil Counties and Baltimore City jeff@homebuilders.rog 410-265-7400, ext. 101

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

Tomorrow’s Appliances Today

...since 1982

Appliance Distributors Unlimited adu.com

KNOWLEDGE EXPERIENCE SELECTION INSPIRATION

Showroom locations: BALTIMORE, MD DC METRO AREA CHANTILLY, VA YORK, PA

l l l l

410.789.8000 301.608.2600 703.263.2300 717.845.6500

Download NeoReader or another QR Barcode reader for your Smart Phone to get ADU’s Video of GE Cafe Displays in our Showrooms.

www.homebuilders.org

AUGUST/september 2012 MID-ATLANTIC BUILDER

greenbuilding Maryland Residential Green Building Council Awarded the 2011 Green Partner Award Winners The Maryland Residential Green Building Council of the Home Builders Association of Maryland has been awarded the 2011 Green Partner of the Year Award from the NAHB Research Center for their leadership and commitment promoting the National Green Building Standard ICC 700 to builders, developers, remodelers, government officials and local housing organizations. The council promotes high performance building practices and products to their members and associates and raises industry awareness of the benefits of certified green, high performance homes and apartments. “Through the hard work of our Council Co-Chairs Bill Zahler and Jodi Hawn, as well as all the Council members, we have successfully lobbied state and local governments to adopt green building property tax incentives for the ICC 700 NGBS and have put the Standard on par with LEED in Maryland. Political successes like this and our variety of educational classes from

two-day certification classes to one hour panel discussions on current topics have grown our Council to one of HBAM’s largest and this award recognizes the hard work our members have put into the Council,” said Michael Harrison the HBAM staff liaison for the council. The council successfully promotes certification to the National Green Building Standard and actively recruits builders and developers to make a commitment to green certification. In doing so, they are achieving market transformation through a voluntary, above code certification program. n

Get Involved Today www.buildingindustriesfoundation.org

Home Builders Association of Maryland

MID-ATLANTIC BUILDER AUGUST/september 2012 www.homebuilders.org

Products your customers crave with the service of your dreams. Vintage provides innovative technologies to make homes safe and enhance lifestyles. Call us for security systems, home theatre, whole house music systems, home automation, and structured wiring.

Contact Rick Brokaw or Bob Hartwick 路 toll free: 1-877-767-1800 路 Offices in Jessup, MD and Chantilly, VA www.homebuilders.org

JULY/AUGUST 2012 MID-ATLANTIC BUILDER

WE TAKE THE LOAD , OFF. IT S THAT SIMPLE.

For thousands of years, simple machines like the pulley have helped civilizations build structures that would have otherwise been impossible. And since 1984, Builders Mutual has been dedicated to helping builders ease the burden of choosing and managing insurance. We offer straightforward tools like risk management and Builders University to help protect your bottom line. If youâ&#x20AC;&#x2122;re in construction, the insurance choice is simple.

Ask your agent about us. Or read more at buildersmutual.com.

MID-ATLANTIC BUILDER JULY/AUGUST 2012 www.homebuilders.org