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Location: Mars Hill, NC, United States

A small, highly personalized real estate firm specializing in mountain homes and land in greater Asheville.

Saturday, May 10, 2008

Utility Costs and The Home Sale: Digging Deeper For Buyers

More than you ever wanted to know on utilities, but in the words of one well known RE blog, a post of enduring interest?

Barbara Corcoran, had a recent question on her blog. A home buyer was presented with a seller's verbal representation that monthly utility bills for their home were low. Should the buyer ask to see the statements for electricity, heat, and so forth to make sure? Is this rude?

We have featured Barbara on numerous occasions, and have learned from her. Click here to see her answer, which is to ask for utility bills from the last 6 months. Here are some additional thoughts of our own.

Utilities & Heat: A Bigger Piece of the Pie
This is legitimate information for buyers to know, especially in the last 18 months. In the last 6 months alone, NYMEX heating oil is up 45%, while natural gas, and propane are closer to 100%, (source for charts). Electricity is also in the news with rate increases of 30% appearing likely.

It would not be unreasonable to think that say, a 1,500 sq ft home in the northeast would cost $500+/month for #2 oil in the next heating season. Now add electricity. Those kinds of numbers start to become material facts, beyond any historical levels.

Doing Some Homework
With energy prices up 45% or more, the bills from the last 6 months might not reveal anything. But we can take some of our time to do well. And why not? We sell homes, and with energy costs this prominent, a working familiarity with some basic ideas here can only make us better, and our clients happier.

Making Sense of the Old Utility Bills
To solve this, it's more complicated than looking at the seller's old bills and then having the buyers make some comparison to their home. Some parameters need to be in our minds. Mixing and matching the variables below could surprisingly skew the costs, and the data in those bills, by 30%.

Did the sellers use COD terms for their heating fuel? The difference in price vs automatic delivery can be 10% around here. How do the buyers prefer to buy fuel?

If the seller paid their winter fuel vendor on a monthly budget plan, or locked in a price for last heating season, then the validity of those old utility bills becomes murky.

What about personal habits and the thermostat setting? The difference in cost between 68 and 72 degrees F in winter is 12%. The same 12% per 4 degrees applies for air conditioning in the summer.

Maybe the buyers have children, while the seller's became empty nesters a while back. For modern kids, that probably means televisions and PC's in the bedrooms. Two more televisions, and two more PC's could add as much as $70/month. Going back to our example of a 1,500 sq ft northeastern home, that's more than a 10% difference between the buyer and seller.

One can take such things ad infinitum. Examine those old bills with care and thought is the lesson.

What the Buyer is Really Asking?
Our guess is that no one is asking what utilities used to cost, but that the buyer really wants to know, "What WILL this home cost me for heat and power if I buy it?" None of us can answer that question, especially lately. But we CAN provide a ballpark for them on heating and cooling at today's prices for that house, and look pretty nifty doing it.

For Heating, we begin with what type of fuel does the seller's home use? Or maybe our buyers are considering a fuel change after the purchase. Some time back, we constructed this helpful fuel comparison tool for just such purposes.

By following the steps, and using only multiplication and division, one is able to provide a snapshot of heating costs to the square foot for #2 fuel, kerosene, natural gas, propane or electricity. With all of the emphasis about being hyperlocal this business, it wouldn't be a bad idea for a firm to have a handle on regional fuel costs either.

For Cooling: Since A/C is generated with electricity, we don't have the problem of converting fuel values. The web is filled with models to calculate cooling costs, here is a good start from Wikipedia.

Final Thoughts: The Human Element

Everyone wants a smooth transaction. But, it can be a minefield of personalities out there. The emotional content is such that the parties are cordial one day, at odds the next. It's no one's fault, it's human nature, and it's our job to navigate all that.

Communications 101 teaches us that there is always the message sent vs. the message received, and to consider ourselves lucky if the 'twain shall ever meet. The flow of information in real estate however is more complicated than a simple dialog. From buyer to buyer's agent, to seller's agent to seller, and back again is a delicate path to tread.

So, does one want to ask about the seller's personal habits and old utility bills? How will the seller perceive the question? As an accusation? By saying, "I already told you that"?, With courtesy? It's different in every case.

Thanks for stopping by,
Black Bear Realty Website
828 689 2055
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Filed Under: Buyers' Tips

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9:33 AM  

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