Price Is a Snapshot. Value Is a Story

 In this episode, Sara and Cynthia expose a major economic blind spot: we’ve optimized for the transaction, not the experience. 

Transcript

SPEAKER_01 0:05

Welcome to the Valuation Metric, a podcast about the risks, rewards, roadblocks, and revelations reshaping the way that we measure worth. I'm your host, Sarah Gutterman, CEO of Green Builder Media, North America's leading media company, focused on green building and sustainable living. Today, I want to begin with a question that might feel a little uncomfortable. What if the housing crisis isn't really just about housing? What if it's a signal indicating that our internal systems are misaligned? We choose what to measure and value. We choose what to ignore. And so here we are, not at a moment of incremental change, but a moment of reckoning. A reckoning with our metrics, our assumptions, our blind spots, and maybe a reckoning with ourselves. This is a conversation that I am excited to have today with Cynthia Adams, CEO of Pearl Certification. Cynthia has spent years doing something both simple and pretty radical, telling the truth about how homes actually perform. And more importantly, how that performance should be recognized, valued, and rewarded. Cynthia, welcome.

SPEAKER_02 1:20

Thank you, Sarah. It's a pleasure to be here with you today. Good to see you.

SPEAKER_01 1:24

Thank you. Lovely to see you as always. Now, when you step back and look at how we value homes today, what do you feel like we are not seeing? Not just technically, but fundamentally.

SPEAKER_02 1:38

I think what we're missing is how homes perform. And I think we're missing how they perform over time. Today's valuation captures that purchase moment in the home sale transaction really well, but it largely ignores what happens after the transaction, the part where you live in the home, where you have to experience how comfortable or healthy it is, what it costs to operate, what it costs to maintain, and how it holds up as climate risks change. So there's this huge part of the homeowner experience that really never shows up in how we assess value. We're really good at pricing the transaction, but not so good at the lived experience which follows.

SPEAKER_01 2:27

Cynthia, do you think that valuation gap is just a data problem, or is it something deeper, a reflection of how we've been taught to define value in our culture?

SPEAKER_02 2:40

I think it's both a data problem and a definition problem. Um, but I think the definition problem comes first. In real estate, in particular, we've been taught to define value as what you can see, what you can compare easily. So that's square footage, number of bedrooms, finishes, location, things that we're all pretty familiar with. But these are proxies for value. I don't really think that they're value in and of itself. And if I had to define value more directly, I'd say value, again, to me, is really wrapped up in how that home actually performs for the person living in it. And that includes everything from, again, I mentioned comfort and health, but also resiliency and affordability. And the problem is that we haven't had a shared way to measure or communicate these things. So the market defaults to what's visible and to what's simple. Um, I think that's where the gap comes from. It's not just missing data, it's that the industry has never had a common language for the things that determine how the home lives. Um, so we didn't just miss the data, we kind of optimized around the wrong definition, if you will.

SPEAKER_01 4:00

To that end, it feels like we've confused price with value and cost with worth. How do we untangle that?

SPEAKER_02 4:12

I think we have to start by widening the lens. Price is like it's a moment in time. It's what you pay to acquire the home, whereas value is what the home delivers over years of actually living in it. And when you look at it that way, um, I think it's easier to separate cost and worth. A lower purchase price can actually come with higher operating costs, more maintenance, and less comfort. Whereas a higher priced home can actually be more affordable, excuse me, to live in over time. I think many builders now are kind of zeroing in on that when they're talking to buyers who are comparing existing homes with new construction. And the existing home may seem cheaper on the surface, but really cost more over time when you're you're comparing the lived experience. So I think that untangling it means shifting from a transaction mindset to more of I'm gonna call it a performance mindset. And it involves looking at the full cost of ownership and how that home performs over time, not just what it's sold for. Um, if I had to summarize it, I think of price as a snapshot where value is really, it's more like a story that unfolds over time.

SPEAKER_01 5:32

I really like the way that you're articulating that. And I like to say that cheap up front generally means expensive forever.

SPEAKER_03 5:41

Or until you go exactly.

SPEAKER_01 5:46

No, as you've uh as you've indicated, a home is a lot more than a structure. It's a system, it's an environment, it's a container for human life. When that system is working, what does that give us? And and when it's not, what does it take away? Talk a little bit about that lived experience.

SPEAKER_02 6:05

You know, it's ironic because when the home is working really well, you almost don't notice it. It gives you comfort, it gives you stability, it gives you that sense of ease. Um, it kind of fades into the background and lets you live your life. When it's not working, okay, that's when it does the opposite. It demands your attention. And it might show up as higher bills, inconsistent temperatures, poor indoor air quality, um, things breaking down at the wrong time. So at that, in that moment, it takes your time, it takes your money, it takes your sense of well-being, um, and it creates this sort of unease and anxiety around the lived experience. So the difference it isn't often subtle, but it is the difference between a home that supports your life and one that kind of quietly erogues it.

SPEAKER_01 7:00

So, what is a home that actually shows up for people inside of it look like, in your opinion?

SPEAKER_02 7:09

I think it it's a building for um well, it's really around the how the home shows up over time, not just how it looks on day one. Um I think that within real estate and oftentimes even with a new construction, we've been optimizing for those first impressions: granite colour tops, hardwood floors, big master bathroom suites. But what matters is really how that room performs, not just on day 100, but day 1000 and beyond. So we've optimized for the showing, and now we need to optimize for the living. A home that really works is one that you can rely on, right? It's comfortable every season, it doesn't surprise you with constant repairs or high bills, and it holds up as conditions around it also change. It consistently supports the people living in it. So for me, that's that's how I would define a home that shows up for the owner or the occupants.

SPEAKER_01 8:11

It's really interesting because our cognition smart data um reflects that younger generations, millennials and Gen Zs in particular, really um want those granite countertops or some of the um upgrades or benefits that boomers uh who very much tie their identity into their homes wanted when they were um, you know, buying their first homes. Um, and even Gen Xers, uh, the same thing, you know, some of the upgrades and features that they were looking for. Millennials, uh, again, our data shows that they would so much rather have a sustainable quartz countertop or some other kind of countertop, uh, less square footage, but super efficient uh, you know, heat pump, HVAC and water heating systems, and you know, uh whole home indoor air quality systems and water monitoring and leak detection systems as opposed to some of those cosmetic uh upgrades that, you know, used to be in vogue. And it's so clear that that transition has happened already in terms of home buyer demand. But I want to pivot and go a little bit deeper for a moment. Cynthia, do you feel like we've lost a sense of reverence for the spaces that we inhabit?

SPEAKER_02 9:28

You know, I do. I do think we've lost some sense of reverence. And maybe the younger generation and the ways that you're pointing out are picking it back up again. But um, particularly in how we talk about in transact homes, we tend to treat them like commodities. We focus on features and the square footage and the finishes, like I've said. These things are easy to compare. They're easy for real estate agents to talk about and to market. But a home, I think is something much more fundamental than that. It's the shelter, it's the safety, it's the backdrop in front of which your life actually unfolds. Um it's a place where people rest, where they recover, where they create meaningful moments with their families and with their loved ones. And I think reverence comes from recognizing that a home encompasses all of these things. Um so when we reduce a home to like the set of visible attributes, or again, the price per square foot, we kind of lose that other important connection. And um, as having worked as a contractor myself at one point and and um learned a trade, uh I think that there's this dimension of craftsmanship and the dignity that comes with building a great home and living in a great home, a well-built home, something that's truly designed um to support the people and the lifestyle in a in a sustainable way that goes beyond just fashion and trends. So the home isn't just something that you own, but at its very best, a home is something that takes care of you. So, yeah, I do think we've lost some of the reverence. But what do you think about that, Sarah? What is your answer to that?

SPEAKER_01 11:14

Yeah, thank you for asking. I absolutely do. I think that um, you know, if you look at how housing was created, designed, and built, frankly, before the SNL crisis in the 1980s, it um was this very virtuous cycle where builders would borrow from their local banks or SNLs, which were created by the federal government after the Great Depression uh in the 20s, um, and they would build homes for families in communities, and families would move in and become uh important community members. And again, it became this very virtuous cycle. But then once the SNL uh crisis happened in the 80s and Wall Street came into the housing market and basically commodified, as you said, housing and and and um created this valuation metric at scale because, again, as you said, it's neat, it's tidy, it fits into spreadsheets, um, but it takes out um sustainability, performance, resiliency, um, wellness, energy independence. And I think at that time, if you look at the difference in the performance of the housing stock, uh, there was less of a difference between homes that were built to price per square foot versus something like a value per square foot. Today, there's no apples to apples comparison anymore between homes that are optimized for price per square foot or you know, are um are basically designed and constructed to reduce and eliminate uh as much cost per square foot while still being legal, meaning building to code, versus homes that are, you know, that nurture life itself and incorporate all of these different things. I mean, we're talking, you know, apples and electric vehicles, or I mean, like we're not even in the same bulk or something. We're not even in the same genre or species. Um and so I feel like in that way, by commoditizing housing, we've reduced something that is deeply personal to something that um can't accurately reflect the humanity uh that it should be and needs to. And I think in that way, we have not only been undervaluing our homes and an essential part of our economy, but we've been undervaluing life itself. And actually, um, since you asked, I will pontificate for one more minute and just say that um I really believe that um the division that we feel in our society right now and in our culture stems from the fact that we don't have deep roots in community anymore, uh, like we once did. And I think that's partly because of technology and social media and now AI, which I use all of those things on a daily basis, you know. So I'm not anti-any of those things, but I feel like we get so immersed in these things that don't let us take a pause and um sit and connect with our own families and certainly not with our communities. And I feel like um that has actually led to some of the division and the divisiveness in our in our culture today, not just in our nation, but in our international culture. And I think that part of that actually can be solved by those of us in the housing sector that are paying attention that can actually create these vessels that promote more value and and value life more.

SPEAKER_02 15:03

It's interesting your use of the word vessel. Um, that's definitely a loaded turn, but I don't disagree with it, thinking about housing. Um, you reminded me once upon a time in a galaxy far away when I worked as a general contractor. Um, we had a family that was um very uh esteeked in sustainability and wanting to help educate their their kids uh about that. And we were we were building house for them. And one of the things that we did was we um, well, they actually not we, but they they they and their daughters spent some time one day um in the house after it had been framed out, um, recognizing the trees that gave their lives in order to do the framework for their home and just kind of saying a little bit of a prayer. And I know that may sound kind of cheesy or woo-woo, but it it was actually a really beautiful moment of recognizing that this shelter, you know, for them and for their families, it didn't just magically appear out of thin air. It it came from the community. It came from logging the forest to create the space for them and their families to grow up. And they brought their gratitude um into their home, you know, as a part of that.

SPEAKER_01 16:21

You know, that's so interesting. I was um just listening to a podcast actually with um a leading uh neurobiologist, a Harvard professor and researcher, and he said that, you know, the four things that keep couples together in romantic relationships, but that also just create adhesion within relationships in general are one, um you keep looking at looking at each other in the eyes. Two, you always hold hands or just you know, hug or touch one another just throughout the day, make sure you're doing that. Um, three, you read to one another. And then four is you you pray together. And he said it doesn't have to be to a god, any god, multiple gods, you know, it could be to nature or the trees. And so when you said what you just did about saying that prayer to the trees in reverence for um the space around us, it reminded me of that because I do feel like the power of prayer, and again, it doesn't have to be a religious prayer, it could just be gratitude, um, is so important for uh the foundational um uh understanding of the value of life. Um, I think it, you know, when we can can have gratitude as um one of our core pillars of just operating as a human being, then uh, you know, I think everything around us reflects that, uh, including our homes and our spaces. So I love that you brought that up.

SPEAKER_03 17:59

Thank you.

SPEAKER_01 17:59

Yeah. Um, and that leads me to my next question, which is um, you know, people are so conditioned to see what they see and and not see what they don't see. But how do we help people actually see what they've been conditioned to overlook, not just intellectually, but intuitively? And I I'm asking this question just generally speaking, because I'm curious to hear your answer, but also particularly when it comes to our homes and our spaces.

SPEAKER_02 18:29

I think we need to do more work in the industry at making the invisible visible in a way that people can actually feel and understand uh by translating that data into lived experience. To a certain extent, I think it's about storytelling. Uh, most people don't struggle to understand facts, they struggle to connect those facts to their daily life in a in in thinking about what that home will actually feel like. You can tell someone that a home, you know, maybe an existing home they're looking at buying. Uh, it's someone told me this, by the way, when I bought my house, my home inspector. I you have an old furnace. It's 18 years old, it's 80% efficient. And oh, by the way, some of your ducks are 10 inches wide and some of them are four inches wide. Um, that registers to me intellectually, but that's really different from the first morning that I woke up in the house smelling gas, you know, that smell that was blowing at me from across the room and filthy registers, and knowing that one room of the house was like steaming hot and the other rooms of the house were freezing cold as I walked from one side of the house to the other because of my duct issue. Um, and that's a situation where performance for me became really real. Uh, and I want to talk to people about it because it's not just facts and figures, it's a lived experience that either creates, again, uh a wonderful backdrop for you, your family, your friends, or one that is not so great. Um so I think the shift is from talking about features to also talking about how that home lives or thinking about benefits in the case of homes that have had improvements or are built better to begin with. So, what does it feel like, not just what it costs, um, how does it behave over time? And when people can see and and feel, experience it, not just read the data, I think it becomes more intuitive.

SPEAKER_01 20:31

Yeah, I love that. Now, in the housing sector, um, we have built systems for appraisal and lending and underwriting uh that really reinforce this outdated definition of value. So, what breaks first, the data, the models, or the mindset? How do we push through uh and create a new model?

SPEAKER_02 20:53

I think data is easier to move first. Uh, the mindset is the hardest thing to change. Uh, we see more data becoming available around how homes perform. You mentioned um AI. Uh, you can take a picture of things in a house and upload it to AI, and it can come back to you with all kinds of information. And models will follow as that data improves. But the mindset that takes longer. Um, that's shaped by habit. It's shaped by incentives, it's shaped by what the system has historically rewarded. So I think real change happens when there's like a consistent, I'm gonna say a shared standard that people can trust. And that's what then allows the appraisers and the lenders and the homeowners to start seeing value through a different lens, not as like this one off insight, but as something that is reliable and repeatable. Standards are what turn data into trust. And trust is ultimately, I think, what helps to shift behavior.

SPEAKER_01 21:57

Which stakeholders, in your opinion, are the Lynchpin for that transformation.

SPEAKER_02 22:05

I think that um man, the real estate agents have a lot to do with it. They do. Because they're they're they're like, they're that middle layer between consumers and builders, um, or buyers and sellers. Uh, they are the purveyors of data that makes its way into the MLS, or more often not, uh, when it comes to home's performance features. So I don't think that um you're going to see a big market transformation shift without bringing the real estate community along for the ride.

SPEAKER_01 22:39

And if we get this right, if we are able to shift, say, from price per square foot to value per square foot, what changes? What does that look like, in your opinion?

SPEAKER_02 22:51

I I think we move from just measuring square footage, number of bedrooms and baths, to measuring performance. So price per square foot, as you well know, tells you how big a home is. Value per square foot will tell you what actually works in that home, um, its operational costs, its comfort, its durability, its resilience, et cetera. So when that shift happens, I think people are empowered to make better decisions. Um, buyers can compare homes more meaningfully. Investments favor long-term performance over that short-term, you know, sort of aesthetic appeal. Um, and over time, I hope that the market then ultimately rewards the homes that have these improvements, the homes that support the people living in them and not just the ones that look pretty in the photos or on paper.

SPEAKER_03 23:42

Yeah.

SPEAKER_01 23:42

Are we ready for that shift? And if not, what's holding us back?

SPEAKER_03 23:49

We're a little bit early, unfortunately. We're getting clays, aren't we?

SPEAKER_02 23:55

I think that it, I mean, again, it's partly the mind shift that, you know, everyone's sort of, I don't know, we're not holding our breath. I think a lot of us are charging a card in that direction. And the macro trends are also driving us there, right? Like energy costs are going up, hello data centers, um, climate risk is becoming more visible, hello insurability. Uh, people are starting to feel it now. But what's holding us back is that combination of inertia and infrastructure. The industry was built around a certain way of valuing homes, and it it takes time to shift that. And until there are clear, trusted standards that everyone can use, I think adoption is likely to stay a little bit uneven. Um, but change also happens when the cost of ignoring something becomes too high. And we're definitely moving in that direction.

SPEAKER_01 24:44

Now, speaking of clear, trusted standards, data, I want to make sure that I ask you about uh the Pearl Registry. So, can you tell us a little bit about the work that you're doing with Pearl and uh talk about your registry?

SPEAKER_02 25:01

Yeah, thank you. I'd be happy to. Um, Pearl started out as a certification service uh for high performance homes. And we demonstrated through that that um high performing homes are in fact worth more. We've done independent appraisal studies that documented on average a 5% premium for homes that had high performing features, and all of that was great. But it turns out that um our focus just on high performance home ended up segmenting the market rather than bringing all of the market along for the ride. So we've evolved into a rating system for homes, and the rating that we look at homes is through performance. So we have a PRLSCOR, where SCORES is an acronym that stands for safety, comfort, operations, resilience, and energy. And we've scored and done an hourly energy model in 97 million single-family homes. It's available that information for free in our home performance registry at PerlScore.com. You can go pop in an address and see what comes up. And then for four-sale homes, now we are releasing into market. We've released in the market actually, as of a week or two ago, a per score report, um, which at the moment is available for free for four-sale homes. And it's meant to provide buyers with this visibility and this insight into a home's performance based upon what we know about that home and the public record. So we don't have a magic wand or see-through glasses to see everything that's in the home. If it's in the public record, we can pull on that and we can pull on what code said about the home at the time at which it was built. Um, but the goal here is really to educate buyers and provide them and their agents with the language and the standard that's been missing so that we have a new way to think about homes in terms of value per first foot, excuse me, per square foot, not just price per square foot.

SPEAKER_01 26:57

I love that. Now, you said something that I want to ask you about. Um, you said that uh in the beginning, um, when you had the certification, you did research and you um the research came back to say that high performance homes uh sold faster and for um a better value or more or higher prices, more money. Um did you pull that data from MLSs or uh how did you access that data?

SPEAKER_02 27:25

You know, we did we commissioned an independent appraiser study. We did two, a couple of them, and those were peer-reviewed using a statistically significant sample in both cases of the study. Uh one was published in uh 2017, and the second one was published, I want to say, in 2022. And um those studies uh used a parent sales analysis. So they looked at homes that had the same square footage, the same number of bedrooms that sold in the same area, they sold within the same six to nine month timeframe. So, really an apples to apples comparison. And what they found was that homes that had the certification and where the agent used the certification as a part of the marketing in that home saw on average a 5% price premium. What's really interesting is that homes that had the certification, so they had the high performance features, but the agent didn't talk about those features in their marketing of that home. They didn't see a premium. Interesting. So it's not support the features exist, it's that you have to call attention to them. You have to make that value visible as well.

SPEAKER_01 28:37

Well, that's really interesting. Um, I'm really happy to hear that you got the results that you did because uh we see um on a national level, but particularly um, you know, in certain markets, that there's somewhere between that, say three to five percent, all the way up to even 12% uh increase in um the resale value for high performance homes that include resiliency and wellness and energy independence features. Um, but I so agree with you that unless those benefits are communicated, um, or unless they're translated into the MLS and they make it into the appraisal forms, you know, it's really hard to um to um actualize uh that that the value there in that in the you know second, third, fourth, fifth transaction, uh not even just the first transaction. Um so I want to ask you two questions that I ask all of my guests. First is what does value per square foot mean to you?

SPEAKER_02 29:43

I'm gonna I'm I'm I'm going back to that uh uh same statement that I I've made, and that for me, value per per square foot is um accountable to the home's performance, not just how it looks. So it's how that home delivers on comfort, on health, on resilience, on efficiency. Um not all square footage is equal. And then the value per per square foot for me makes these sorts of features or benefits, I should say, visible.

SPEAKER_01 30:16

I love that. Not all square footage is equal. All right. And my second question is if listeners could carry one idea forward from this conversation, one truth that might change the way that they see the world and value the things around them, what would it be?

SPEAKER_02 30:35

Dear God, please remember you are not just buying a home. You are buying how that home will live. You are buying what it feels like to wake up there every morning. You are buying how comfortable it is throughout the day. You are buying what it costs to operate and how well that home holds up over time. These are the things that shape our daily experiences far more than the finishes or the floor plan. So once you start seeing homes that way, I think it changes what you pay attention to and ultimately what you decide that home is worth to you.

SPEAKER_01 31:15

I love that. Well, Cynthia, thank you so much for being here with me today. This conversation has really reminded us that our homes shape us, they shape how we feel, how we breathe, how we sleep, how we connect. And yet we've been valuing them as if none of that matters. But it does matter. And value isn't just about what something costs, it's about what it sustains and protects and makes possible. So again, thank you so much for being here today on the valuation metric. I'm Sarah Gutterman, reminding you to always measure what matters because when we do, we can create a better future. Thank you, Cynthia.

SPEAKER_00 31:57

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