By Ken Wilson –
“If you have two exactly identical homes side by side, and one of them makes a $1,000 worth of power a year, and the other one doesn’t, shouldn’t that thousand dollars count?”
Coming from Greg Slater, Associate Broker with Nest Realty, that’s no idle question. Slater is on a mission—an educational mission, you might say—to help homeowners, REALTORS®, and appraisers understand the cost-saving value of energy-saving technology, and learn to take advantage of recent changes allowing appraisers to include those upgrades when valuing a home.
It’s an understanding that can make a home more comfortable, make it more valuable at resale, and save on monthly energy bills in the meantime. “Anything that’s tied to energy efficiency is also lowering the carbon footprint and contributing to a greener more sustainable world,” notes Cynthia Adams, CEO of Pearl Home Certification, “so for those architects and builders and trades people that are tied to the green building sector, energy efficiency and your heating-cooling unit are considered a green upgrade.”
Millennials currently make up the largest segment of homebuyers, and they lean green. Changes in the MLS (Multiple Listing Service) make it possible to list green improvements, so they’re factored in when the home is put up for sale. Not surprisingly, houses for which green improvements are listed spend fewer days on market, and sell at a higher median price.
Standards for new construction also raise the value of green upgrades. “New homes are built much more efficiently than older ones,” Adams says. “People have expectations about how they want to live now that require owners of existing homes to keep up with that if they want their homes to be competitive with the new homes on the market.”
Smart Green Upgrades
As much as half of the energy a home uses is for heating and cooling. Smart thermostats allow users to heat and cool homes efficiently, for example, by setting different temperatures for different times of the day. They adjust for humidity and show the amount of energy being used. Some can be operated remotely through a smartphone, tablet, laptop or desktop computer. Others track a user’s preferences and adjust automatically. According to the EPA, smart thermostats can save up to $180 per year on heating and cooling bills.
Energy Star-rated appliances—dishwashers, refrigerators, home electronics and more—meet an international standard for energy efficiency. Energy Star light bulbs use 75 percent less energy than regular incandescents and last up to ten times longer. Energy Star LED (light-emitting diode) bulbs burn just as efficiently, but last two to five times longer than fluorescents and 35 to 50 times longer than incandescents. “Many people are skipping CFL (compact fluorescent lamps) and going straight to the LED,” Adams says.
Energy Star appliances mean little in the end without some other substantial features, warns Woody Fincham of the real estate valuation firm Valucentric. “In order to be considered a green home, there are lots of things that should be present.”
Insulation, for example. “If anyone’s not comfortable with what their home costs to operate they should have someone come look at their insulation,” Fincham says. It’s cost effective too: “There is only one improvement on your home that has been proven to pay more than it costs you to change your home, and that’s insulation. I had a neighbor whom I talked to for years; he had an insulation company come in and foam his attic under the roof deck, and he came and saw me the next day and said ‘I wish I would have done this four years ago.’”
“Any house built before the year 2000 can probably stand to have some cellulose blown in,” Adams agrees. “It has the greatest payback in terms of lowering energy bills and therefore paying for itself over time. If you air seal a house down to five air changes an hour, that’s a really efficient house. Typically a house can be air sealed for at or under $1,000. Or if the owner wants to do both air sealing and insulation at the same time, they can choose foam insulation and that would hit two birds with one seed.”
Besides saving energy, insulation and air sealing will make a home quieter and more comfortable, cut back on dust and bugs and help control humidity. “Good air filters and duct seal are other low cost improvements that can have a big comfort benefit,” Adams says, “because if your ducts are leaking you may have rooms that are persistently uncomfortable because all of that heated or cooled air is not actually making it to the register. It’s all being leaked out in the attic where nobody’s living.”
While insulation has multiple benefits, what’s on the other side of the roof can make just as big a difference. “The biggest thing we see happening over the last few years is the addition of solar panels,” Slater says. “The productivity of the panels has caught up to making the economics work. If you’re buying the home for a long term commitment and we show you the math of how the panels will pay for themselves in 8-10 years and you have the resources to do it, it’s actually a great investment. It’s buying in advance power that you know you’re going to need.”
“I have clients who have a power bill of $7 a month, because that’s what it costs to be connected to the grid,” Fincham says. “They literally produce 100 percent of their power needs. The biggest challenge to solar is shade; in these newer communities with no trees, there is no obstruction.”
Solar panels aren’t cheap, although many companies offer financing for them. “You can get a more efficient water heater for about $1,000 dollars, but you’re going to spend $10,000 to $30,000 on solar depending on the size of your home and how much room for solar panels you have,” Slater says. Placing a resale value on that investment isn’t easy for the time being. “It’s very complex to value solar on homes,” Fincham notes. “There aren’t a lot of resales yet.”
Third Party Certification
While energy efficiency increases a home’s value, it does so only if the homeowner makes those upgrades visible. If good records aren’t available, and the real estate agent isn’t trained in spotting green features, the homeowner will have trouble recouping that added value upon resale.
Proper documentation is crucial for backing up claims that improvements have been made. “People value what they understand and can connect to,” Adams says, “so it is incumbent on the homeowner to explain what they have done so the agent can take that and translate it into a buyer benefit.”
“If you’re selling your home and you’ve invested money to make it better than the average home in that price range or neighborhood or structure type,” Slater says, “the first step when the REALTOR® is helping you determine the price is to identify these things. They can only increase the appraised value of a home if someone actually knows about them—not only that you upgraded something in the house, but the efficiency ratings of that upgrade.
“A REALTOR® might be able to tell you that a house has a natural gas-fired furnace, there might be an Energy Star label on it, but none of that information tells you what the efficiency rating for the furnace is. If the REALTOR® doesn’t include that information in the multiple listing service, then the buyer doesn’t know it and the appraiser doesn’t know it. The appraiser is not a home inspector, so they’re not going through the house with a fine-tooth comb looking for things like that.”
That’s where third party certification and real estate evaluation firms like Pearl Home Certification and Valucentric come in. “We provide services for real estate agents, contractors and home sellers,” Adams says. “From an appraisal perspective, for a high-performing house that is third-party certified, that certification is an asset unto itself.”
“The appraiser has to understand what the improvement is, and how it contributes to lowering operational costs. That’s essentially what we do. We have a third party certification for new and existing homes where an independent certifying contractor goes into the house and does a walk-through inspection. They take down important information tied to the house’s high-performing features, including model numbers and efficiency ratings, and then we assign points to the property based upon how much those features contribute to efficiency, comfort and air-quality and your house can achieve certification.”
“What Pearl does for you is look at the window types, figure out which of your appliances are Energy Star certified, look into your insulation values, look at your HVAC,” Slater says. “Then they do a blower door test, pressurizing the home to measure how tight it is, how many times per hour the air in your home is naturally exchanged with fresh air just by the home breathing.” “Pearl certification is even more cost effective than solar panels,” Fincham says. “Homeowners get a significant savings on their bill when they go after those certifications.”
Qualified appraisers like Fincham use third party scoring systems like the HERS Index (Home Energy Rating System) and the LEED (Leadership in Energy and Environmental Design) rating to document a home’s green features and energy efficiency. “A rating system helps the appraiser create a quantitative comparison,” Fincham says. “It’s easier to extract the contributory value when there are reliable scores such as LEED, HERS and Pearl. We know that when scored with a reliable system there is merit to the upgrades.” Fincham calls LEED “one of the most substantial certifications you can get. But you generally don’t see that one on your everyday home, because it can be quite expensive to get.”
“Where the rubber meets the road for consumers and agents is if you have a certified home you have to market it well,” Fincham says. That means making sure your REALTOR® insists on a competent appraiser. “Freddie Mac, Fannie Mae, FHA—all the big government-sponsored enterprises out there except for the VA—require that an appraiser have what is called demonstrated competency for the type of property they’re doing. That means they’re not just familiar with it, but they’ve actually done one before.”
A Comfortable Home
As desirable and environmentally responsible as green upgrades are, homeowners should remember that only attic insulation and solar panels actually produce a positive return on one’s investment. But resale value is just the half of it.
“There are tangible and comfort-driven reasons why people will be attracted to a house with improvements and it may not be tied to the fact that they want to save on energy bills,” Adams says. “Other things are important. Very few people approach a real estate agent and say I’m really interested in a house in this school district, this size and this [green rating]. But people do care very much about comfort.”
“What inevitably happens when somebody makes these changes,” Slater says, “is that they are drawn to it for economic reasons. But that’s not what they talk about two months later. They talk about how much more they love their home because it’s comfortable. The changes become an intrinsic value that’s almost priceless.”
