Where does the circle of participation begin? Realtors, Appraisers, Builders???

In this group titled "Resale Value" we are all tasked to "demonstrate that enhanced home energy performance translates into enhanced resale value!"

Even though most of us understand that the increased comfort, health, durability, and lower energy bills means that the property should be more desirable and more valuable, it is hard to get this going due to the true way that properties are valued.

We all are aware of the boom we had that ended abruptly in 2007 where previously we saw prices skyrocketing with perceived end in sight. Although there is a lot of room to lay blame, the truth of the matter is that if it didn't appraise, then it wasn't getting financed. Mortgage bankers, realtors, and the like were pushing on appraisers to make the values work. Appraisers used articles to back up their inflated values showing the market is expanding at "x" per month, so the new value should be supported easily. Now they are complaining because foreclosures and short sales are hurting values and they still have to use the comps that are out there. They no longer can use articles to support inflated values and are searching for ways to get the numbers to work.

I think we need to get the national association that represents appraisers to start working with RESNET and HERS Ratings to easily add this value to the houses that have the upgrades. We need 3 line items on every MLS listing. (1) Green certifications (2) HERS Index Score (3) Estimated Yearly Energy Costs via Rem/Rate(etc...)

This would allow the appraisers to use the old 1998 DOE study that stated for every $1 saved on a yearly basis adds $20 to the value of the home. If the appraisers had a way to access those estimated costs, they could estimate the value and add it confidently to the value of the house they are appraising.

I think the appraisers are the most important part of the whole circle and the ones that can really take home performance into the next phase of hyper-growth!! If you could show someone that not only does the upgrade have an ROI, but also it adds to the listing/selling value, then I think the sell to Builders and Realtors will get that much easier.

What are your opinions?

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In a rational world in which people have full information, we could rely on the simple financial formulae for calculating the value of a perpetuity of future energy savings. If we expected $1 per year and were content with a 5% rate of interest, the present value of $1 per year would be equal to  $1 divided by 5%, which gives the DOE's $20 present value. If we expected energy prices to rise at, say, 2% per year above the CPI, then the present value of $1 per year growing at 2% every year would be $1 divided by our target rate of interest less the growth rate in rate in real savings; that is, $1 divided by (5% - 2%) or $1 divided by 3% which gives an added $33 of value to the home. Clearly we don't live in a rational, well informed world. But maybe we can start by finding some smart home buyers who are concerned about future energy prices who see a financial opportunity in paying attention to energy rating and past utility bills of the homes they are contemplating buying to get this ball rolling over time? And if they're really informed, they'll also realize they're getting a more comfortable, quieter and more durable home thrown in for no extra cost. I suspect the circle of participation will start with such buyers pressuring their realtors, appraisers, and builders to look out for this interest of theirs.

Jamie,

 

I think you back into this from total monthly housing budget and monthly cost of ownership.  It's not a value add discussion so much as value lost or missed opportunity.  

 

I think what Rick is saying is we need energy cost transparency.  

 

Until Realtors add "monthly energy budget" under "monthly mortgage payment" and "monthly taxes" there will continue to be a disconnect.  There is a LOT of information to track when buying a home,  some buyers are too ignorant and/or overwhelmed by details to factor in information not in front of them.  

 

Once they include that, then you simply calculate using current mortgage rate.  For example, $100 less utilities means $20,964 more house (assumption 4% 30 year mortgage).

 

Unfortunately the "give as little as it takes to make the sale" approach seems all too common.  Until the industry starts having a lot of deals fail due to late energy disclosure, suffering significant loss of time, I don't expect change.

 






This is the premise of the Save Act. The proposal "seeks to correct "blind spots" in current mortgage underwriting and home appraisal practices. Championed by Sen. Michael Bennet (D-Colo.), the SAVE Act would require federal loan agencies to assess the expected energy costs for mortgage loan applicants. This can be accomplished through modest adjustments to underwriting guidelines and appraisal practices and could be implemented over a manageable period without disruption. The SAVE Act would achieve the following:

  • Enable federal mortgage programs to improve the quality of mortgage underwriting and provide an accurate picture of repayment risk and the expected costs of homeownership
  • Greatly accelerate the supply of and demand for energy-efficient new homes
  • Quickly return any incremental cost for homebuyers due to home efficiency improvements
  • Encourage the purchase of energy-efficient homes that reduce utility bills for American homeowners and reduce the vast amount of energy consumed in homes
  • Consistently and accurately account for energy efficiency in appraisals, enabling builders and homeowners to invest in energy-saving features
  • Put people in the construction and manufacturing sectors back to work renovating and building energy-efficient homes and products"

 

Folks;

 

My background includes training and experience in the home peformance field, plus managing real estate, custom-home builder, and escrow offices.

 

We haven't found a good way to estimate the costs of operating homes, because energy use depends so much on behavior. Modifying behavior is difficult, and predicting behavior is only guessing. Add the phenomenon known as " take-back," and it becomes even more difficult. Take-back describes what happens when people switch to diet soda, and then drink so much they don't reach their goals. Take-back can and does happen with energy upgrades too.

 

I know we'd like to have some figures to support regulations that will boost construction and manufacturing. But there's a danger in treating models as if they gave us real-world facts. We could consistently and accurately account for energy efficiency, if home buyers were robots we could program. You're right -- we need a way to reward energy upgrades. We also need to encourage realistic expectations on all sides of the table.

In my experience behavior does not impact cost that significantly. Education about common operator errors plays a part, but its not a huge part of the opportunity. Nor does "take back" effect use much. Maybe 5% combined. Of course there will always be the egregious example, but those are outliers.

I routinely save my clients 30-70% on their bills, and I ask them to stop living on the border of unbearable street and frostbite ave. The results are much more compelling when your testimonials are "saved money AND more comfortable." getting more people to act is the key, not chasing pennies.

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