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Price Per Square Foot Can Obscure a Home's Real Value

By Katherine Salant
Saturday, April 7, 2007

Many people who look at a production builder's furnished model home ooh and aah about the floor plan -- it feels so big and open. They fixate on the floor finishes: This Brazilian cherry looks almost edible. They gape at the beautiful kitchen countertops: My friends will be jealous; at the big rooms -- this bathroom could fit 20 of my best friends; and at a host of other details.

But in the end, it comes down to price. Most home buyers want the most space for the least money because, after all, we're a nation of bargain hunters.

Buyers don't determine value on price alone, however. The gold standard for assessing value is cost per square foot. The builder with the lowest figure is seen as the one that offers the best deal.

Unfortunately, home buyers' insistence on evaluating quality in terms of cost per square foot has had consequences they don't appreciate, according to Ron Jones, editor of Green Builder magazine and a custom home builder for more than 25 years.

"Buyers value the dollar per square foot, and the builder responds by delivering as many square feet of conditioned space as possible for $X. If he can deliver 100 more square feet than the competition, most buyers think it's a better value," Jones said in a recent interview.

"But the problem with this is that the more square feet that are added for a given price, the less . . . quality per dollar for performance of the house. The quality of finishes, appliances, mechanical systems and the building envelope suffers. If the builder has set the price at $200,000, for example, he will have to dilute the quality," Jones said.

"Builders concentrate their energy where their buyers will compare -- generally the kitchen, the master bathroom, bedroom count and overall square footage.

"For those things least familiar to consumers, a builder takes the path of least resistance and installs the bare minimum in performance and warranty. For example, he chooses the cheapest appliances and [specifies] an electric water heater over gas because it's less expensive, but it doesn't perform as well and costs more to operate. He [specifies] an electric range because it's less expensive than gas, though most people prefer gas. With appliances, the brand is likely to be one the buyer recognizes, but the model the builder provides will be a less-expensive builder grade. With other items, such as windows, a builder will use a no-name brand.

In terms of useful life, "if the standard of the home builder industry for a particular item is five years and it is not a selling point for buyers, there's not much incentive to offer a longer one."

Even though they acknowledge that the cost-per-square-foot figure is the coin of the realm, many builders say they resent being judged by this criterion. They point out that value depends on what is in the square foot. If they use higher-quality materials than their competitors, they will have a higher cost per square foot, but they are also selling a better house.

That is the argument made by Allan Waschak, a small custom and production builder working in the Washington and Baltimore areas.

"As a small, local builder, I can never beat the big national guys on price -- they can buy materials by the trainload, and they get a steep discount on everything. My prices are higher, but a second- or third-move-up buyer who has owned several houses recognizes the subtle differences in my houses," Waschak said.

Almost every builder has a great-looking kitchen that he pitches as the homeowner's "silent salesperson" at resale. What Waschak sees as different about his kitchens are the standard features for which his competitors charge extra. For example, to make life easier for the homeowners, he includes a pullout trash and recycling drawer and a wall oven that's big enough to hold a Thanksgiving turkey.

And almost every builder caters to the nearly universal desire of new-home buyers to have a maintenance-free exterior. Waschak said that most builders in his market offer Colonial-style exteriors covered with synthetic wood look-alikes -- fiber cement or vinyl siding and trim he calls "plastic." (To be precise, it's cellular polyvinyl chloride.) The difference with Waschak's houses is the roof. He puts 30-year, architectural-style shingles on them because they give a roof surface a textured, layered appearance that looks better and lasts longer.

Waschak also caters to the small number of buyers who study the building frame and the number of BTUs of energy a household consumes -- things that you can't see in a finished house and that most buyers ignore. These buyers are intensely interested in energy-saving upgrades, Waschak said.

"In a model home park, they're the ones who go down to the basement furnace room to check out the exposed framing. I know that when this buyer pokes around my furnace room and sees my tight joist spacing and my stiffer Advantech subflooring, he knows the floors won't bounce and the dishes in the kitchen cabinets won't rattle every time he walks across the floor in the room above. And that buyer at least will come back for a second look."

Eric Doub, a custom-home builder in the Boulder, Colo., area, promotes the energy efficiency, durability, healthy indoor air and comfort of his houses. They're more expensive than his competitors', but the cost he emphasizes is not the initial price. Instead, he highlights the monthly costs once the owners are in the house -- utility bills and mortgage payments. When the utility bills are negligible because the house is extremely energy efficient, the owners can afford a higher mortgage payment. That, Doub said, makes his energy-saving features affordable.

Over a year, Doub's homeowners' energy bills are actually a net zero, he said. To take advantage of Colorado's 300 days of sun a year, his houses run on solar energy. During the day, photovoltaic cells on the roof turn solar energy into electricity. Any excess not used by the household is sold to the local utility for the higher daytime rate. At night, when the electricity rates are lower, the owners buy back from the grid. Annually, the dollar amounts of the electricity sold and the electricity purchased are roughly equal or slightly in the owners' favor, Doub said.

To heat the house, Doub uses a combination of solar strategies. The houses are oriented toward the south to capture the free warmth of the winter sun. This is supplemented with heat generated by a solar-heated hot water system on the roof. Some of the heat coming into the house during the day is absorbed by the walls, stone fireplaces and clay floor tiles. At night, this heat radiates back into the space. The next morning the outside temperature can be in the single digits, Doub said, but inside the thermostat reads 69. The system, given an assist by a very tight building envelope and copious insulation, can store enough heat to "coast" through two days of cloudy weather without discomfort.

Doub said that in selecting materials, indoor air quality is a critical concern because his houses are so tight that fresh air must be mechanically provided. He avoids anything that can emit volatile organic chemicals, commonly known as VOCs.

The energy efficiencies add about 7 to 10 percent to the total cost, but the no-VOC materials do not add a significant amount, Doub said.

Katherine Salant can be contacted via her Web site, http://www.katherinesalant.com.

© 2007, Katherine Salant Distributed by Inman News Features

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