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: 275

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

Kaushal Bharath Raju posted a discussion

Affordability & Deep Energy Upgrade/Passive House Retrofit in Berkeley, California.

We have a small 1940s single level house (1005sqf) in Berkeley, California that is in need of a…See More
4 hours ago
Christopher Morin posted a blog post

5 Things New Energy Efficiency HVAC Contractors Need to Know

1. Do not sell on Price! Use 'Simple Payback'The price of High-efficient equipment will undoubtedly…See More
10 hours ago
David Eggleton commented on David Eggleton's group Considering Permaculture &/or Transition
"In August 2014, in Minnesota, there's another unprecedented opportunity to meet and mix with a…"
16 hours ago
Glen Gallo commented on Jim Gunshinan's blog post Energy Upgrade California—Up Close and Personal
"Nate, RE: Duct test On my own home and a rental I have tested more than once over the last many…"
17 hours ago
Profile Iconangela hines and Charles Goldman joined Home Energy Pros
21 hours ago
Jeff Flaherty joined Diane Chojnowski's group
Thumbnail

Tools of the Trade

A hammer and a saw used to be the key tools for home contractors. Today, the best-in-breed also use…See More
yesterday
Jeff Flaherty joined allen p tanner's group
Thumbnail

Energy Auditing Equipment for Sale, Trade or to Purchase

Discuss the pros and cons of the equipment you are interested in prior to purchase. Post equipment…See More
yesterday
Debra Little joined David Eggleton's group
Thumbnail

Considering Permaculture &/or Transition

Some who work to increase energy efficiency and intelligent/wise use of energy are, and some will…See More
yesterday
Jim Gunshinan commented on Jim Gunshinan's blog post Energy Upgrade California—Up Close and Personal
"Thanks for all the comments. Yes, it is interesting how the duct leakage grew over the years. Maybe…"
yesterday
Ed Minch commented on Jim Gunshinan's blog post Energy Upgrade California—Up Close and Personal
"What sort of energy bill do you have now, what is  your target bill, and what will it cost to…"
yesterday
Nate Adams commented on Jim Gunshinan's blog post Energy Upgrade California—Up Close and Personal
"I look forward to hearing more about the inside of the program! The big question that came to mind…"
yesterday
Glen Gallo commented on Jim Gunshinan's blog post Energy Upgrade California—Up Close and Personal
"It is curious to see a 15% difference in the duct test from the test out of 2007 to the current…"
yesterday

© 2014   Created by Lawrence Berkeley National Laboratory.

Badges  |  Report an Issue  |  Terms of Service