Energy Performance Does Add Value! Just look at the HERS Rating!

Trying to demonstrate to the unknowing that enhanced home energy performance translates into enhanced resale value is not an easy task. But actually it is right there in the HERS Rating!?

Even though most of us 'energy pros' 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 are all aware of the boom that ended abruptly in 2007ish where previously real estate prices skyrocketed with no 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 (those cash only situations are different). Mortgage bankers, realtors, and the like were pushing on appraisers to make the values work. I know appraisers that used to insert articles showing the market is expanding at "x" per month to help support the new, higher value. There was a higher value constantly being achieved. The circle fed itself. Now everyone is complaining because foreclosures and short sales are hurting values and appraisers 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 also 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 give appraisers a place to find those estimated values and allow them 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. (I would like to see what the value is today with the higher energy rates.) If the appraisers had a way to access those yearly estimated costs easily, 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, Realtors and Homeowners will become easier. The recently released study from LBNL that researched how to get people to act on home energy improvements stated that awareness and education are crucial, but not something that translates into action. Giving them the value they deserve could push that ball over the hill and really get things rolling.

I know there are some areas that have the participation of the local MLS and I have also heard of appraisers actually considering some value for the upgrades, but it's not without a fight and it is far from well known. It seems so simple, but why is there not a dollar value added for the things that help protect the home and make it more affordable to run and maintain? Just as I am writing this, CNN had a piece that stated remodeling doesn't add much value to the house and installing a new kitchen is one of the worst investments in upgrades you can make when it comes to a return, but that does not deter people from doing what the TV shows and The Jones's say. Although I agree that the nice creature comforts are a bonus and are things that I like, it is time for us to think about what we need and begin to use our money more wisely!

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Tags: DOE, HERS, appraised value, appraisers, energy, home, improvements, rating, remodeling

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Comment by Debra Little on January 28, 2011 at 11:39pm

The verifiable proof of an EE home is its utility bills. How many Btu or kWh does this house gobble up?  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 the property. I have concerns re: advocating for 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 as if that is 'objective proof' of added value. A green certification does NOT guarantee an energy efficient home. We know this. Although the general buying public may demonstrate their 'perceived'  value in EE by buying a “Green” cert home, they may not actually get what they thought they were paying for.  (the last thing we need for the currently confused, tho increasingly discretionary home buyers market- to get wind of.  We simply need to do our work well, w/o inflated claims) .

Appraisers are commissioned to report what the market is doing.  Their reports are not about their own personal opinion.  They are required to support any adjustment in value they make on the 'form' with hard, verifiable evidence from the market- that can stand in court. These days more than ever, appraiser's work is being scrutinized by a multitude of layers.  The market, the buying public, must provide the evidence so the appraisers can tell the story to the banks, with the existing examples they are REQUIRED to site to support their determined values.

Beyond EE features-  I see there to indeed be value in other green elements that appraisers need to recognize.  Durability, indoor air quality, water conservation, carbon footprint.  That is another part of the story.

Comment by Hunter Dendy on January 3, 2011 at 6:12pm
MPGs sell cars these days, HERS scores can sell homes....only if the general public knows what it is and has access to the information.  You're right that getting this into MLS listings is huge.
Comment by Sean Lintow Sr on December 19, 2010 at 6:30am

Very nice points Jamie & from what I have seen & heard of markets that do add the HERS score in with the MLS - those homes that perform \ have number listed sell faster than those that didn't participate \ do not perform. The biggest problems some Realtors see is if there are documented trouble spots or issues, they may not be able to sell the property, or it would be at a lower price thus impacting their commission.

I would also like to say, it is great seeing you taking up the blogging again

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