Adding Up - Couple Finds Green Adds Value to Their Home

Rick and Joann Sandoval live in a green Ferrari – a souped-up, high-performance home loaded with energy-sipping systems and green-home features.  But when it came time to refinance their house and capture value from those items, the Sandovals were going nowhere fast.

 

Rick works for a green-home builder, and he got a lot of the work on the house at cost.  The Sandovals took out a $510,000 construction loan last year to pay for the place, at 4-1/2 percent interest.   Early this year, Vectra Bank dispatched an appraiser to re-appraise the property, and that re-appraisal came in at a disappointing $535,000, well below what the Sandovals felt the house was worth.

 

The Sandovals are hardly real estate newbies, with 40 years’ combined work experience in construction and title insurance between them.  They came to us for help in May 2013, and we used a common but under-used tool called a HERS rating to capture a significant bump in their appraisal value.

 

ENERGY METER

HERS ratings, “Home Energy Rating Scores,” assign a nifty “miles-per-gallon” number to homes where a “100” is built to code, and lower numbers are better – like in golf.  More importantly, HERS ratings measure the energy a home saves, and assign a projected energy cost for the property and savings, holding the house up against comparable ones. 

 

In June, I spent the better part of a day performing a HERS rating in the Sandovals’ 3,600-square-foot home in the hot Berkeley neighborhood of north Denver.  The house has everything you’d expect with features the Sandovals love – big, open-concept living areas, beautiful finishes, great location and high-end appliances.  Including a monthly solar panel lease payment of $40, their total utility bills are about $90 per month, and this with kids and extended family in and out a LOT.

 

When I was there, I measured insulation levels, appliance and light efficiencies, windows and overhang depths, and how much air the house leaks.  I factored also factored electric output from the solar panels.  I spent hours in the office generating the report, and BOOM! – the HERS number came in at an impressive 44.  That means that the house uses 56 percent less energy than a code-built home, and even less than most of the houses in their neighborhood. 

 

The rating also showed $2,572 in annual energy savings, resulting in a 20-year savings of $51,440[1]  That is flat, “today’s value” calculation – no fancy stuff like future value of money or fuel escalators thrown in (rising fuel costs over time).  Money today.  HERS ratings are hard-coded into federal mortgage underwriting guidelines[2], and that figure can be used to impact the value of a home similar to how energy costs impact commercial property values.

 

ALL THAT GLITTERS IS NOT GREEN

My partner and the managing broker of our real estate company, Tracye Herrington, met the second appraiser at the house, and walked him through the documentation.  He was not a trained and tested “green” appraiser[3], and his appraisal came in at an underwhelming $580,000. 

 

When we dissected the second appraisal, the appraiser had listed comparable “green” homes, but there was nothing in those homes’ for-sale listings that even mentioned “green” or “energy-efficient” features.  Tracye called the three listing agents for the properties, and nope – there wasn’t a green feature in any of them.  The appraiser had identified a fourth property (worth $450,000) as green and added a HERS bump for its features similar to the Sandovals’, and that lower number dragged the Sandovals’ appraisal figure down. 

 

We felt the documented value of similar properties alone should’ve lifted the Sandovals’ value to $600,000, and the HERS savings another $50,000.  So Tracye appealed to Vectra Bank’s appraisal and underwriting committee, and the bankers agreed that the second appraisal didn’t accurately reflect comparable properties.  They adjusted the value on the final appraisal $50,000 up per the HERS rating, resulting in a final valuation of $650,000.

 

“The appraisal was changed because the bank had never seen that input [HERS calculation], and they’d been in the business 25 years.  The bank underwriter appraisal review recognized absolutely that that was not correct,” Rick says of the second appraisal.  “When the bank committee audited the appraisal, they changed it based on that input.”

 

Rick says that to get the results he and Joann got, you have to surround yourself with people skilled in the nuances of both real estate and energy valuation.  “Having the right experts in products, financing, real estate advising and energy efficiency adds value when you need that representation.  If you don’t have them, you don’t get the value.”

 

- Melissa Baldridge 

We have a “Green Valuation Service” to help homeowners and real estate professionals snap together the pieces for higher property valuation with green, energy-efficient features.  CONTACT US TODAY for details.

# # #


[1] Twenty (20) years is considered the life of the energy-efficiency improvements and upgrades to the house.

[2] In 1995, the Mortgage Bankers’ Association and several state energy offices developed the HERS rating for these purposes – to standardize energy cost predictions.  Around 2002, the Federal National Mortgage Association (“Fannie Mae”) and RESNET (Residential Energy Services Network, the overseeing body for HERS ratings) developed a form for an energy savings calculation and a present value calculation. 

[3] According to Fannie Mae guidelines, appraisers must be competent to value “complex” properties.  For green properties, that’s 14 hours of training (minimum) and passing two tests.  CLICK HERE for more information.   

Views: 298

Tags: Baldridge, Denver, Estate, GreenSpot, HERS, Melissa, Real, estate, green, home, More…real, refi, refinance

Comment

You need to be a member of Home Energy Pros to add comments!

Join Home Energy Pros

Comment by Melissa Baldridge on September 5, 2013 at 1:02pm

Thanks, Jeffrey.  With our two GreenSpot businesses, we've bridged the gap between energy efficiency and real estate.  AND we're getting more money for these better homes and buildings, thankfully.

I read the most excellent paper by CNT and almost smacked my head 'cause it's taken us several years to figure out these key actions in the marketplace.  Can folks get higher prices for better (energy-efficient, green-certified) properties?  Yes.  It is easy right now and accessible to everyone.  In a word - NO.  The CNT paper makes these steps clear, and we're living in a parallel universe, working it out thru sales and valuation.

We're at a tipping point for green-certified commercial properties - at least in this one (metro Denver/Boulder) in a lot of markets.  And I see that on the horizon for residential.  'Bout time!

Comment by Jeffrey Gephart on September 5, 2013 at 11:06am

Excellent article Melissa. I never knew Rater/Realtors existed. I wish more did. I'd like to suggest to you and others finding this useful a recent White Paper from CNT Energy and the National Home Performance Council just released called Unlocking the Value of an Energy Efficient Home. This paper explains the efforts underway nationally to smooth out and standardize communications between the energy-efficiency and real estate professions. There is now a clear path and a massive need for education about these tools to see real market transformation.

Home Energy Pros

Home Energy Pros was founded by the developers of Home Energy Saver Pro (sponsored by the U.S. Department of Energy,) and brought to you in partnership with Home Energy magazine.

Latest Activity

Ethan Bukowiec replied to Ethan Bukowiec's discussion Thoughts on energy startup's new propane smart meter
"Wanted to give everyone an update on how things are doing with our Kickstarter campaign. We have…"
7 hours ago
Tom White's video was featured

Unlocking the Power of Grey Water in a Living Building Challenge Home

Rob Nicely, President of Carmel Building & Design talks with Tom Wood, Nexus eWater System's Chief Technology Officer, about Unlocking the Power of Grey Water.
7 hours ago
Griffin Hagle's discussion was featured

You're designing a Home Performance dashboard. Which 6 metrics do you include?

Credit Karma got me thinking about this. For those who are unfamiliar, it's a free* online credit…See More
7 hours ago
Bud Poll's discussion was featured

Inconsistant Local Authority

It becomes frustrating to give people modern advice and then have to backtrack and tell them to do…See More
8 hours ago
w d's discussion was featured

Managing Solar Energy

What's the state of the art on managing solar energy (esp. at the home)?There's surely no…See More
8 hours ago
Ethan Bukowiec's discussion was featured

Thoughts on energy startup's new propane smart meter

Hello,I wanted to introduce you all to a new energy startup I am working with called …See More
8 hours ago
George Kopf's discussion was featured
8 hours ago
John Porterfield replied to Dave Robinson's discussion Can We PLEASE Stop Calling Them “Ductless” in the group 1000 Home Challenge
"Any update on this work?  Seems manufacturers would provide an indoor coil that would…"
9 hours ago

© 2014   Created by Lawrence Berkeley National Laboratory.

Badges  |  Report an Issue  |  Terms of Service