Adding Value for Energy Efficient Features During the Appraisal Process

Recently, I was asked to manage another realtors' listings and buyer clients while she went on vacation out of the country.  One of her listings was under contract, within the last couple of days, so I needed to attend the appraisal and the home inspection.  While reviewing the listing alarm bells went off, but in a good way.  I noticed that the average utility bill was listed as $250 per month.  Knowing the home was 6000 sq ft, there had to be green features!  Green as in Energy Efficient.

 

This agent was not educated on Energy Efficient features and had no idea of their value.  I asked to meet with the seller, who had not provided full details of the home due to some personal issues going on at the listing appointment.  I also asked for the builders contact information.

 

Fast forward - met with the seller - called the builder (several times).  Finally learned of the additional 5 1/2" thick Icynene surrounding the entire home and in the lid.  2 Fresh Air Mechnical Ventilation systems, downsized HVAC, and the list goes on.  Met with the Appraiser, bringing along the Green & Energy Efficient Addendum and a typed list of all green features.

 

Final result - the home appraised for the $40,000 difference in comparable price vs. purchase price.  The seller was happy, the buyer discovered all the great features he now knew existed, the listing agent is a hero to her client, and I earned a measley some of a few dollars for all my work.

 

Question - since this was a first attempt at finally being at the right place at the right time, I wasn't sure what to charge.  I was paid slightly more than the appraisal for my years of experience in Energy Efficient homes.  How much is it worth to all parties for my work in keeping this deal together (it fell apart once before) and for the added value?

Tags: &, Addendum, Appraisal, Efficient, Energy, Green, adds, value

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Great anecdote Jan, thanks for posting.

I agree it sounds like you added some value to this transfer, and probably out of proportion to what you received in compensation. This happens all the time in real estate (ask most home inspectors).

Because it all comes down to price and terms, a property's energy-related attributes are ultimately no different from all the rest that make up the package. So anytime surplus value is generated (or as in this case, simply discovered) it's available for distribution to the other parties to the transaction. That's one of the things that makes the real estate business so fun and profitable for some, and so risky and anxiety-producing for others. Caveat Actor!

I don't believe that every Realtor needs to be an expert in green attributes, any more than they should be experts in roofing systems, fireplaces, mineral rights, etc. But the ones who will survive -- and at least get a chance to thrive -- will at least know what they need to be looking out for, and when they need to find someone else to help them close the deal.

Either your colleague just got lucky this time, or she had a pretty good hunch that you and your special expertise were the right fit for this job. To carve out a decent living in this niche, you'll have to find a way to do it quickly enough to not feel like you're being under-compensated and reliably enough to be confident you're not taking on too much risk. At least you're in good company. I know lots of home inspectors, HERS raters, and even some contractors who are struggling right now with this same conundrum.

Realtors and appraisers know they have key roles to play to help their clients identify and value energy efficiency, particularly in cases where it may not be so obvious. As your example shows so well, most will be happy to refer to others more expert in the technical details of construction and performance... as long as they can find those services to be reasonably affordable.

Thank you for your feedback Tom.  It's an interest crossroads, being a licensed REALTOR, Ecobroker and specializing.  It's value added service that keeps deals together.  Since our main job is bringing buyers and sellers of property together and ultimately changing ownership; we handle large sums of money and the more complex deals come with higher price tags. However, appraisals cause lower priced deals to fall out on a regular basis as well. 

I can imagine that others in these related fields come across this sort of issue, not earning what that value added service brings to the table.  I'm in contact with several "layers" of these folks who are slowly climbing that ladder of certification(s) and experience.  Building trust within these capacities is paramount to the success of their businesses, just as much as mine. 

I'm going on my 5th year as an EcoBroker and am in a constant learning flux.  We realtors cannot talk about building science as we have to be the source of the source of the information, not THE source. Hence our dilemma of crossing that narrow line of practicing out of our area of expertise.  We don't work in building science so we can't fully discuss it.  We can however talk about the features and benefits to the consumer.  

My colleague knew that I was an EcoBroker,, aka green realtor, She's been gracious in writing a very nice referebce for me to use in my marketing.  The way I see it, this is a lesson learned as to what the value is for this service and how it was perceived by a fellow realtor. She was grateful for all of the assistance.  Being compensated for adding value to a home that might have fallen out of contract, or if it would have stayed together would have cost the seller $40,000 in lost value, ie less at the closing table, is a tough question to answer.  Because the home appraised for the full purchase price, instead of the expected comparable sales price, he gets to keep his entire $1.2 million,  it closed on time, and he didn't have to start over again.  The value here in my opinion is far greater than the compensation. 

A friend of mine who is an Energy Auditor thinks I should charge a flat fee up front, then a percentage of the made up value.  In this case a flat fee + a % of $40,000.  Thoughts?

Interesting idea: a low flat fee, plus a performance contract for delivering a higher appraisal value and/or closing price ...you might try to build in multiple bonus milestones, rather than making the full commission contingent on close.

Why isn't such a two-track compensation system more common in brokerage services already? Has it been tried, and found difficult, or is it common for some types of transactions and I'm just ignorant?

Sounds like it could appeal to many, especially higher end parties.

A real estate agent can be compensated up front in a Buyer Broker Agreement and then at closing.  I've seen a few successfully accomplish this by charging a retainer fee of $1,000 up front, but then it was credited back to the buyer when a sale successfully closes. There are some that do work outside of real estate and combine real estate sales for the same client; however, E & O insurance (typically charged per transaction) comes into question as any compensation earned must go through our Broker first.  If it doesn't and it's a fee based service then the service wont' be covered by E & O.  

I do like your milestone idea.  Maybe a % under $50,000 in extra earned value, then higher % if over $50,000?  That does make sense.  Thanks for the idea!

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