Real Estate Agents are the Key to Better Choices

If there’s a lesson out of the recent housing crisis, it’s that as home ownership advocates, real estate agents need to be experts on the total costs of owning a home.  And the good news is that technology is making it easier for agents to help clients make housing choices based on what I call the “Total Cost of Ownership.”

Total Cost of Ownership is the difference between thinking about mortgages merely in terms of PITI (Principal, Interest, Taxes and Insurance) and providing guidance instead on PITI+.  The plus is

Transportation, Utilities and Maintenance.  PITITUM allows home buyers to make informed choices based on all the major costs in owning a home.

Why does this matter?  Let’s say a client purchases a home based on PITI.  Then, their financial situation changes.  Could be a pay cut, or maybe heating costs go up.  As the client responds to the challenge they have options:  stop paying the heat, stop buying gas (and going to work) or stop paying the mortgage.  Hmmm, which do you think they choose first?  Advice on Total Cost of Ownership allows your clients to grasp a more realistic and complete picture of how much it’s going to cost to own a particular home.

If you are a real estate agent, it’s time to get smart on the tools that help clients understand Total Cost of Ownership.  And, home buyers should seek out those agents (and lenders) that not only can help you find the right home in the right location – but can also help you find one that realistically fits your budget.

While there is no one-stop shop to help you estimate Total Cost of Ownership today, a lot of the tools to help do already exist.

Here’s a quick reference guide to the available tools.  Start with a PITI estimate from your lender.  Then add:

· Transportation- Try tools like Abogo or WalkScore.  The Center for Neighborhood Technology recommends that an “affordable” home is one where PITI + Transportation is less than 45% of your household income.

Utilities – Tools are evolving as we speak.  In the near future, the home you buy may come with a national “miles per gallon” sort of sticker like a car! In the meantime, a home energy improvement project to the Home Performance with ENERGY STAR standard in your state is a good resource to make sure your home uses energy efficiently.

· Maintenance – The longer you can keep and enjoy something, and the more efficient it is, the better it is for our planet, and your pocketbook.  If you ask, your home inspector can help you understand the “remaining useful life” of the major systems in your home from roof to appliances to heating and air conditioning.  This is a practice that condo associations have done for years, but homeowners typically don’t think about too much.  A home inspection, combined with home energy assessment is a great resource for a long-term maintenance strategy for a home.

Understanding the Total Cost of Ownership requires a little bit of extra homework today, but helps paint a much more realistic picture of what a new home might really cost.  Making decisions based on Total Cost of Ownership will help clients avoid surprises like unexpected maintenance or soaring energy or transportation bills that could put a family at risk of foreclosure.  Total Cost of Ownership is a powerful tool to help you distinguish yourself in the market and demonstrate your long-term commitment to clients.

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Laura Reedy Stukel is a real estate agent and nationally recognized market transformation expert. Her focus is on real estate leverage points such as GreenMLS and the appraisal and underwriting process.  Improvements in these areas will remove obstacles that currently hinder the market from assigning value to energy efficiency upgrades.  Stukel is on the national board of directors of Efficiency First’s Home Performance Resource Center, and chairs their national Real Estate Working Group.  She has consulted for organizations ranging from Accenture and Dow Chemical to CNT/Energy.  At home, she managed the retrofit of her 1966 colonial which was recognized as the Green Improvements winner in Better Homes and Gardens magazine’s 2009 “Home Improvement Challenge”.