New HVAC SEER and HSPF Standards Coming in 2015 will Increase System Replacement Costs for Landlords in Maryland, Virginia, and Delaware

Seasonal Energy Efficiency Ratio (SEER) Explanation Link

Heat Seasonal Performance Factor (HSPF) Explanation Link

 

Changes are coming for the HVAC industry that will have an impact on your choices in the area of home comfort. The US Department of Energy (DOE) set into place new energy efficiency standards for heating and air conditioning equipment, effective January 1, 2015. These updates require that all residential HVAC equipment manufactured on or after January 1, 2015 carry higher minimum Seasonal Energy Efficiency Ratio (SEER) and Heating Seasonal Performance Factor (HSPF) ratings.

While heat pumps will carry a national required standard of 14 SEER and 8.2 HSPF (8.0 HSPF for packaged heat pumps), the DOE will now differentiate SEER rating requirements for air conditioners based on region. The U.S. has been divided into North, South, and Southwest regions, respectively. Air conditioners installed in the North region after January 1st, 2015 will be required to perform at 13 SEER or higher, whereas the required standard for the South and Southwest regions will be 14 SEER.  DOE regions may be somewhat counterintuitive, but note that MD, VA, and DE are all three captured in the region that will all have to comply with these higher standards (SEER 14 and 8.2 HSPF or higher) starting next year.

Why does this matter for landlords or property managers?  While representing significant energy savings over the long run on both an individual and a national level, the first impact these requirements will have will likely be in the area of price increases for high efficiency equipment.  So, the cost of unit replacement will increase almost immediately and the cost of older unit repairs will likely increase shortly thereafter.  Therefore, residential investment property maintenance costs and rental rates may have to increase to offset these increasing prices.  Whenever a standards regulation change of this magnitude is instituted, prices of higher efficiency equipment are always affected. Following the last major efficiency upgrade, there was a price increase for the new standard equipment of between 8-12%, and we can likely expect the same in 2015. Although we cannot know definitively how air conditioner and heat pump prices will be affected by the new standards, we do know that local distributors have predicted a "substantial price increase" in higher efficiency equipment next year.

Equally difficult to pinpoint is exactly how long the equipment that will be rendered obsolete by the new standards (but still held in the distributor's inventory) will be available to consumer. Although they will be allowed to continue to sell off their inventory of equipment produced prior to January 1, 2015, we know that no distributor will want to be stuck with shelves full of obsolete inventory. We expect that actual production was cut off far ahead of the January 1st deadline, and that a large portion of the available inventory will be acquired by large national home builders in order to delay the effects of the new DOE standards on their operations. This means that any available inventory of the cheaper equipment is probably almost gone.

We also agree with the industry prediction that federal and state energy efficiency rebates and tax credits will disappear next year now that these regulations will coerce replacement of worn out equipment with higher efficiency HVAC units.  We also predict that local power companies and manufacturers will likely follow suit in their incentive programs.

As a landlord or property manager, what action should I take?  First, start by considering the age of your current HVAC equipment.  The standard warranty for an air conditioner is anywhere between 5 to 12 years, while the average effective life of an air conditioner is about 12 years. If your equipment is nearing the end of its service life or is already maintenance "needy," then immediately replacing it may enable you to purchase one of the still available, cheaper units (decreasing the amount of time required for the equipment's return on investment).  Of course, if you're providing utilities as part of the lease, you may want to switch over to the more high efficiency units in order to reduce your reoccurring electrical costs.  For example, upgrading a 9 SEER, 3 Ton air conditioner to a 14 SEER unit (the new minimum rating) can save you up to 36% per year in electricity costs.  The yearly savings represented by upgrading to an even more efficient 20 SEER air conditioner would be up to 55%! 

If you find that your air conditioner or heat pump is due for replacement, consider the following options:

Option 1: purchase a new system that meets the current (older) standard. If you act soon, while these products with a 13 SEER rating are still available, you will be able to put off the entire issue for about another decade or more. You'll also be eligible to receive any power company and manufacturer rebates and any available tax credits while reducing maintenance costs.  We think this option has the greatest ROI potential for property owners not providing utilities w/in their lease.

Option 2: upgrade to the new 2015 DOE standards-compliant equipment now. Purchasing a more energy-efficient air conditioner or heat pump ahead of the January 1st deadline will allow you to avoid some of the imminent price increases on this type of equipment and the added benefits of reduced maintenance and energy costs.  We think this is the best option for landlords providing utilities to tenants--particularly when coupled with a programable lock out feature on the new thermostat.

Option 3: wait to act until after January 1, 2015. This decision will give you the benefit of knowing for certain just what the efficiency upgrades will entail and allow you to purchase the latest products; however, you will no longer be able to opt for the currently-available lower cost equipment with a 13 SEER rating. You will be forced to purchase 2015 standard equipment, for higher prices, and with lower rebate and tax credit potential.

 

Why does a legitimate home inspection cost over $300 in Annapolis or Anne Arundel County Maryland?

upset-guy

In response to my students in the home inspector course I'm instructing near Baltimore, the following response is posted...

NOTE: these figures and estimates are based on the Anne Arundel market.  

The daily avg overhead rate (256 work days) = $70/work day.
The hourly rate for professional field inspector within this area = $40/hr.
The average number of inspections done = 50/yr.
Travel costs are $0.56/mile & avg. distance to site is 10 miles from office

 The assumptions also include the following: 

1. The inspector has at least two years of experience, is licensed, etc.
2. Inspection equipment is mid-range/modest: it doesn't include FLIR, etc.
3. Inspector uses software generated/checklist based reports.
4. Inspector's firm pays applicable taxes, fees, insurance premiums, etc.
5. The firm engages in a modest level of advertising <$2,100/yr.
6. The firm has financial commitment for admin, bookkeeping, etc.

The Break Even Point (BEP) Math

A typical, full-scope home inspection will take about 4 hours to complete.  The report takes an additional hour and results in a total labor cost of $200.
Daily fixed and variable overhead costs are calculated at $70 per day.  Note: if there are two inspections that day, this cost is halved.  However, most days have just one scheduled.
Travel costs for inspection 10 miles from the office is $11.20.
Delivery costs associated with the client's report and required filing/retention averages $8.

$200 labor + $70 ovhd + $11.20 travel + $8 report admin = The gross BEP price of a typical inspection =$289.20

The "Cha Ching!" Math

The "standard" profit w/in the construction trades is 10-15 percent of total gross invoice.  Assuming the low end of this scale, the profit from an BEP priced inspection would be $28.92.  

$289.20 Gross invoice + $28.92 profit margin @ 10% = $318.12

Of note: the profit margin would have to be below 4% to bring the cost of a legitimate home inspection under $300!

Given all of the liability risks and pitfalls, would you take on a job like this for less than 4 percent profit?  Yet, there are numerous inspectors--some unlicensed--who take inspections from Thumbtack, Craigslist, and agent referrals for less than $200.  Of course, we hear and frequently get to see first hand the aftermath of these "bargain inspections" as part of our day job as home improvement contractors.  

So, far from complaining about incompetent, super cheap home inspections, I wish these erstwhile competitors all the best.  In fact, I hope that even more homebuyers seek out the cheapest inspection they can find--get on Thumbtack, et al and get that the bidding down as low as it will go!  It's good for our business, for it's much more profitable for us to come and fix that house with the undisclosed and undiscoved defects as a licensed home improvement contractor AFTER it has been purchased!high-repair-bill

Still, most home inspectors are not also home improvement contractors, so, since their livelihood is at stake, what can they do to become price competitive with budget priced "Chuck in a truck?"

Maryland DLLR regulates home inspectors

 

What an inspector could do to bring their basic inspection price down below $300

1. Drop optional insurance coverages that protect their clients, such as Errors and Omissions (E&O) policies or INACHI's home buyback guarantee program.  Low-priced competitors typically don't carry these policies because they are not required to maintain home inspector licensure in Maryland.  The only insurance required by the state is general liability coverage for a minimum of $150K.  Note that this policy will do absolutely nothing to pay for any errors or oversight on the part of your home inspector.  If the inspector you hire doesn't have additional coverage, your only recourse is lengthy, potentially costly litigation.  Of course, you can still complain and here's a convenient link for the form to do so MD DLLR's Link to Home Inspector Complaint Form

2. Stop attending more than the minimum professional development training required to maintain licensure.  Most low-priced competitors seek out the cheapest, shortest, & easiest training available for the small number of courses that are required by the state's Department of Labor, Licensing and Regulation (DLLR).
Continuing Professional Competency Training Requirements for MHIL

3. Drop memberships to professional inspection associations and disengage from home inspection groups and blogs.  Most associations, such as the International Association of Certified Home Inspectors (INACHI), require continuous education and dues to remain a member in good standing.  Low-priced competitors don't have time to spend on networking with colleagues, additional education and testing, or keeping up with developments in new building technologies or inspection issues.  

4. Stop upgrading inspection equipment and software.  Most low-priced competitors are still using the same basic tools and references they initially trained with.

5. Find shortcuts and other ways to reduce the amount of time spent on an inspection.  Most low-priced competitors will spend less than two hours from start to finish--about half the time needed to perform a complete evaluation of the home's systems.

6. Insist on delivering a generic, preformatted report on-site.  Most low-priced competitors are extremely reliant on checklist-based reporting software to cover their lack of experience.  Many of these programs can be quickly sped through to produce a report that can be printed off/e-mailed before the inspector leaves.  Unfortunately, a fast and cheap report is rarely any good, and once they have delivered the report they are done!

7. When it comes to describing your experience and competency, exaggerate, exaggerate, exaggerate!  Then, solicit temporary workers who can operate under cover of your license and pay them at the general labor rate.  Some low-priced competitors simply "fake it until they can make it" and charismatically convince their clients to stay focused on the "deal" they're getting on the price of their inspection (or the home they're going to buy).  Referrals were given to you for a reason!  If you didn't specifically go out of your way to ask for it, and the person you got the referral from isn't your friend or family member, what likely motivated that individual to provide this "assistance?" Is their motivation in your best interest???

MD Home Inspector Ethics and Standards of Practice links

8. Change your name or move elsewhere.  When their slipshod service and general incompetence finally begins to catch up to them, many low-priced competitors seek out new markets under a new pseudonym.  Beware the recently established company with the unbelievably low prices!

9. Toss the moral compass: disclaim and disavow!  Insist on putting as little as possible in writing.  Take only a few germane pictures and point out only the most obvious of defects.  Many low priced competitors even have "hold harmless" clauses buried in the fine print of their inspection agreements.  Ask to see previous reports and read all agreements carefully!
cheap-fast-good 

 

Stigmatized Home Sales in Maryland...What You Don't Know Could Come Back to Haunt You!



There are several forms of stigmatized property, and some states have passed resolutions or statutes to deal with them. One issue that separates them is disclosure.  In Maryland, the seller or realtor is not necessarily required to disclose the full facts related to stigmatizing events related to the property.           

  • Criminal stigma: Maryland does not require disclosure of property used in the commission of a serious crime.  
  • Murder/suicide stigma: information related to homicides or suicides occurring on the property is not viewed as a material fact under Maryland statute. 
  • Phenomena stigma: Maryland does not require disclosure if a house is renowned for "haunting," ghost sightings, etc.


Maryland Code is very clear that real estate agents in Maryland are not personally liable for failing to disclose the details of events that would stigmatize a property.  From the Maryland Code, Business Occupations and Professions, Title 17. Real Estate Brokers, Subtitle 3. Licensing comes:

§ 17-322.1. Failure to disclose certain facts – Disease, death, felony.

(a)  Material fact.- For purposes of § 17-322(b) of this subtitle, it is not a material fact relating to property offered for sale or lease that:

(1) an owner or occupant of the property is, was, or is suspected to be:

(i) infected with human immunodeficiency virus; or

(ii) diagnosed with acquired immunodeficiency syndrome; or

(2) a homicide, suicide, accidental death, natural death, or felony occurred on the property.

 (b)  Disciplinary action; personal liability.

(1) It is not grounds for a disciplinary action against a licensee under this subtitle, that a licensee did not disclose to a prospective purchaser or lessee, a fact contained in subsection (a) of this section.

(2) A licensee may not be held personally liable for failure to disclose a fact contained in subsection (a) of this section.

H. Warren Crawford and Donald Allen White in their book Maryland Real Estate: Practice & Law put it best when they said “A licensee needs the express permission of sellers to reveal any of these matters to prospective purchasers or their agents, because such disclosure might impede the sale of the listed property … [i]n order to meet the requirement of trustfulness, they must answer prospects’ questions about these matters when given sellers’ permission.”

So, what can you do to make sure that your house isn't stigmatized?  Simply put, you can't unless and until you do adequate research. Here are some tips we recommend:

  1. Talk to your prospective neighbors.  You're going to have to eventually anyway, so now would be a great time to find out that the home used to be the residence of the local axe murderer, etc.
  2. Talk to your local law enforcement.  Most cops know where the truly memorable cases happened, and you can benefit from their insight on local crime stats.  You may also obtain criminal activity reports/records from the Sheriff's Department, etc.
  3. Conduct Internet researches of local media (newspapers, radio sites, etc.) using the street address of the property.  Skip past the MLS related stuff and add key words like "murder, suicide, drugs, homicide"--you get the idea.
  4. There are some nationwide databases of stigmatized properties, but we haven't found one we'd recommend.  You're welcomed to try them, but we caution about relying exclusively on their results.  Speaking of things you might want to know about, there may be other Web sites that you want to examine, such as the state's sex offender registry.
  5. Use an established realtor who has several years of local area experience.  Consider using a buyer's agent who has a specific fiduciary responsibility to their client.  You can add in a clause to the agreement that includes full disclosure of a property's history that would make it stigmatized.
  6. If the home has been on the market a long time (our area average is just over 90 days) and the price has dropped numerous times, ask questions until you find out exactly what is behind the difficulty in selling.
In closing, we don't recommend buying a stigmatized property.  They can be extremely challenging to sell, and even if there are no duties to disclose, the failure to do so can still result in costly litigation.

Corrugated Stainless Steel Tubing (CSST) Inspections in Maryland

Corrugated Stainless Steel Tubing Safety Link
Explanation of new CSST installation requirements
Addition of CSST inspection w/in MHIL COMAR 

Recently, final action was taken by the Maryland State Commission of Real Estate Appraisers, Appraisal Management Companies, and Home Inspectors on CSST inspection reguirements originally proposed under the Minimum Standards of Practice (COMAR 09.36.07).  Resolution passed and MHIL holders are now required to properly inspect any CSST installation on gas-operated applicances found withiin an inspected home.  Specifically, they are to check for proper connection and grounding to the home's electrical distribution system.

CSST installations became popular due to the increased cost savings and ease of installation.  This type of gas appliance supply piping is often used where traditional "black steel pipe" used to be the commonly installed standard.   CSST is available at larger home supply/hardware stores, so improper installation by untrained homeowners is highly likely in cases of "do-it-yourself" replacements of gas-operated appliances within the home.

This new requirement regarding the inspection of CSST grounding installation was motivated by an observed risk of home fires related to CSST ruptures following lightning strikes.  Approximately 7,000 homes are involved in lightning related fires each year in the United States, and although this number roughly equates to just under three percent of all home fires reported each year, CSST fires--fueled by lightning following along an atomized natural gas or propane supply line--are highly likely to result in catastrophic damage and/or loss of life.

The links provided will give more information related to the topic.  Home inspectors should review the installation exemplars and safety information in these links in order to comply with the newly adopted minimum inspection standards related to CSST installations in the homes they inspect.

Staying abreast of new building practices and the rapidly changing inspection requirements related to the proper installation and maintenance of these systems is part of a home inspector's continuing education requirements. Tokori makes an extra effort to put out this type of information in all of the home inspection courses we teach and makes blog posts to get the word out to the professional community.  

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