Anticipating Real Estate Value for Energy Efficiency
by Laura Reedy Stukel
Original blogpost from www.notyetgreen.com on January 4, 2011
Remember the Heinz Ketchup commercial? An-tic-i-pa-tion…
That’s a bit where we are with energy efficiency. The steps to make an existing home more efficient have evolved, the awareness is out there, the incentives are getting better. But the number of homeowners making the upgrades is still disappointing.
Anticipation.
The missing link? Value.
When green remodeled homes start selling for more than traditional homes, other home owners will key in on that and start making improvements themselves. Just ask the granite countertop fabricators. Features that lead to successful real estate sales lead to lots and lots of follow-up customers.
The characteristics of today’s real estate market keep us in anticipation mode. They are keeping value at bay.
Challenge 1 – Price Pressures. It’s a buyer’s market and a sensitive economic climate. Price is everything. Right now, buyers look at price first. Any upgrades (including green remodeling) are considered along the lines of a free bonus. They might help market time, but buyers are not ponying up a lot more for them.
Challenge 2 – Volume. Fewer home sales mean less success stories in the market, and not enough good examples for appraisers to compare one green remodeled home sale to another to determine value. According to the National Association of REALTORs, 2005 we saw a record number of existing home sales at over 7 million. In 2010, even with the boost of the home-buyer tax credit, that number was 4.8 million. Sales since 2006 have been flat at around 5 million, which represents only about 4% of the overall US homes inventory. Flat transaction volume translates into a slower value engine.
So what’s the alternative to anticipation? Now is the time to get the engine that can calculate value tuned up and ready for a more robust real estate market. Resources like the GreenMLS Toolkit and others are an important focus.
For further information: http://www.realtor.org/rmonews_and_commentary/Articles/2011/1101_2011outlook
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I think that once Realtors get on the bandwagon and figure out that they can market the home with the highest efficiency score to their clients, and buyers are willing to pay a modest premium for the more energy efficient house, then we will see the concept take hold. I think this concept will gain some much needed momentum in 2011. We shall see.
Good post. Thanks Laura.
The current stage of residential energy efficiency it seems will continue to grow slowly.
To accelerate growth we need more immediate grassroots community and neighborhood outreach including specific incentives for early adopters forming local ECO teams. This will require a program and modest resources.
P. Jutras
Great info! But what I have seen is that the realitors want only the cash cow. They are like home flippers, get in and out. I have tried to talk to them (realitors) but they dont want to do anything that will stop the sell or make more paper work.When I go in and do a energy audit on a home being purchased, The realitors cringe on what we will find and in some cases alot. In fact Home inspecters(not all of them) miss alot from the get go. (Its not the people its the process). How the banks and lending out fits loan for sloppy home inspection, only to have the new owners move in and have problems from the get-go is crazy. A energy inspection/audit does more than a home inspection Period. When the banks, and realitors figure that out, people will start living in a safer,healthier,durable,and energy efficient existing home!I dont know how many homes I have inspected that the garage is in the home. Do a blower door test with the new home owner standing there and you should see their faces! Then they say I had no Idea! I get lots of work from those home owners but like I said the realitors cringe. The insurance companys who insures these propertys need to get on board also.Have a good day people!
Real estate agents and lenders will need education of rebates, financing and other programs specific to their industry. There is so much value for homeowners, home buyers and the real estate industry that I’m encouraged proper education will only stimulate further demand for energy efficiency.
HOW TO MOVE ENERGY EFFICIENT MORTGAGES FORWARD AND PROMOTE GREEN AND ENERGY EFFICIENT APPRAISAL ACCURACY
Write your legislators, Fannie Mae, Freddie Mac, FHA, VA; call your lenders and appraisers about these changes:
1. Lenders should offer buyers energy efficient mortgages or energy improvement mortgages. An addendum needs to be added that is signed at the time of loan application. Example: “I have been advised that FHA, VA and Fannie Mae offer the ability of adding the costs of certain energy improvements to the mortgage thus reducing the cost of utilities of the home.”
2. A box should be added to the Uniform Residential Appraisal Report Form (form 1004). Suggested components could be:
Energy Star Certified Home: (the EPA program); Date of certification: ________
NGBS Level: (the NAHB research center program);
Date of certification:
LEED Level: (the USGBC program);
Date of certification:
Other Program: (local program); Date of certification:
3rd Party verified: YES NO
Documentation attached: YES NO
Home Performance score: ¬ Type : (HERS index; EPS-Energy Performance Score; DOE Energy Score)
Walk Score: Other:
3. The appraiser valuing a green or energy efficient building should be proficient in that type of property. Provide this statement on top of the supporting documents about the green or energy efficient features of the home:
“Dear Appraiser: This home is an energy efficient and/or green home. It has the following certifications: ________________. We request the valuation of this property be done by an appraiser that is competent to appraise this type of property with these features. If you have no experience in valuing green and energy efficient properties or you have not taken specific training in valuing green and energy efficient properties, we request this appraiser request be reassigned to someone who has these credentials. If you are in fact competent to value this home, please review the attached supporting documentation outlining the key green and energy efficient aspects of this property. Thank you.”
4. Additional Action Steps:
• What lenders can do:
• Take training on these programs and training about green and energy efficient building.
• Support the changes in the appraisal form.
• Short of a nationally required disclosure about energy efficient mortgage and energy improvement mortgage, create your own disclosure and information packet for consumers about these loan features.
• Support the local MLS efforts to add green fields to the listing (www.greenthemls.org)
• Learn the programs and then make presentations on them to real estate agents and consumers.
• Promote the 203K as a green and energy efficient financing tool.
• What real estate professionals, architects, remodelers and builders can do:
• Ask lenders to take training about green and energy efficient building.
• Ask lenders to be sure appraisers assigned are competent.
• Take training on these lending programs.
• Support the changes in the appraisal form.
• Encourage lenders to offer a disclosure about energy efficient mortgage and energy improvement mortgage.
• Educate customers and encourage them to seek out these loan features.
• Support the local MLS efforts add green fields to the listing (www.greenthemls.org)
For more information on these resolutions contact
Dave Porter
dp@porterworks.com
206-304-8228 m
http://www.porterworks.com
19126 Soundview Dr. NW
Stanwood WA 98292
The verifiable proof of an EE home is its utility bills. How many Btu or kWh does this house use? I agree that if a home has a green certification (LEED, BIG, EarthAdvantage…) it is useful data to provide to an appraiser as information that can direct them in their due diligence research as to what features are really contributing value to this property. I have strong concerns re: a place in the 1004 form (appraisal form for most/typical residential properties) to site any certification, HERS score or any points based or model based scoring system. A green certification does NOT guarantee an energy efficient home. We know this. Although the general buying public may demonstrate their value in EE by buying a “Green” cert home, they may not actually get what they thought they were paying for. Beyond EE features I see there to indeed be value in other green elements that appraisers need to recognize. That is another part of the story.