It will come as no surprise that when buyers look at the total cost of ownership for living in a particular home the utilities matter.  In some places utilities are significant parts of the monthly expense.  The mortgage principle, interest and property taxes are for many the main concern as the lenders should be watching to be sure they make an affordable home loan, but the role for the smartest buyers is to include those utilities.  Not every state has property taxes like New Jersey, but some are closing in.  Some places like California have seemingly outlandish electric rates, and natural gas for heating while down this year is no guarantee that next year will be the same.

Homeowners and homebuilders are realizing that the utility cost reductions can have a significantly positive increase in a home’s value.  Every dollar saved in utilities can go to higher mortgage balances or higher disposable incomes.  Its usually best, to get that investment in before the first mortgage is taken, as later the monthly money budget will need to cover both a sunk higher cost and the new investments to reduce the monthly cost.

Energy Efficient Home Features. Click image for more info.

Ann Griffin of the Earth Advantage Institute has done investigative research and produced documented findings in Certified Home Performance: Assessing the Market Impacts of Third Party Certification on Residential Properties. (‘Certification’ is explained in the report.)  Griffin’s sample showed certified homes in the Portland metro area sold at a 3%-to-5% price premium. In addition, certified homes were on the market 18 days less than non-certified homes.  (Earth Advantage Web Site Link.)

In the Portland study were 92 certified homes built between 2000 and 2008, with a majority sold in 2006 and 2007 that were paired with 3 or 4 comparables totaling 340 comparable homes netting 432 surveys.  In Seattle 68 certified homes and 207 comparables came to somewhat less, 275 surveys.  Seattle had better pricing, sales prices were found to be 9.6% more for the third-party sustainable certified homes.  But on market time was averaged to 5 days longer.  One might trade almost 5% more price for 5 days.

Griffin also surveyed people.  90% of third-party certified home residents say they would choose it over a non-certified home and would pay more. 80% would pay as much as 5% more.  Depending on your home that can be quite an investment.

Energy Efficiency Added Perceived Home Value. Click image for the largest view.

The study offers much for buyers, lenders and sellers.  Some 98% of the homebuilders she interviewed believe that third-party verification adds value and are concerned that current residential appraisal practices fail to recognize the positive benefits of certification.  It’s also a point that lenders could or should keep in mind in an application process.  Home purchasers need to better understand the value and significance of certified sustainable homes. Homebuilders say homebuyers need to learn to appreciate the quality and value (long-term durability, high quality materials, improved indoor air quality, increased energy efficiency) of sustainable homes.  Over time sellers will have to get certified sustainability to get good prices.

Another point, rather big brother like, is home values should incorporate performance measures. For example, long-term reductions in utility bills and repair costs should be a considered in the appraisal price and loan balance allowed.

Momentum is building among energy agencies and legislators to label homes and buildings so to empower buyers to make comparisons. A publicly available score on the Multiple Listing Service (MLS) would surely transform the value of energy efficiency improvements and drive adoption.

Griffin quotes Jim Harris of the Financial Post, December 15, 2009, “What is the future of energy? It’s a critical question. The three fastest-growing sources of power in the future will be: ‘negawatts’, smart systems and clean power. ‘Negawatts’ is a term coined by Amory Lovins to signify electricity that isn’t needed produced due to energy efficiency. Mr. Lovins is one of the world’s leading energy efficiency experts – and coined the term when he saw a typo in a report – ‘negawatt’ instead of megawatt. “Every kilowatt hour that I save through energy efficiency is a kilowatt hour that someone else somewhere else on the grid can use. It’s the cheapest form of power generation. A negawatt strategy can apply to: 1) how electricity is produced; and 2) how it is consumed…”

Energy efficient homes that are certified are worth more.  Even homes with prepared printed out utility bills can have a positive effect. That’s simple, obvious and worth some thought.  Getting tightened up, insulated and being sure the water heater and furnace are as efficient as needed to close to the highest home price are worthwhile efforts.

Realistically though, most folks still buy paint and the ‘look’ and seek to get the biggest house they can afford.  As for everyone else maybe a little oversight by regulation would be worthwhile.  Don’t get over excited, the lenders couldn’t handle a boom, buyers over bought, many sellers were flippers, and the whole thing crashed. There doesn’t seem to be much about the lessons being discussed.

Meanwhile the flood of government money has and is rushing to the real estate market with oddly, a lot of caulking involved.  That’s fine, but as Griffin points out, there’s a lot more to it than that.

Its still buyer beware, but what to beware about is getting easier.


5 Comments so far

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    Eugene Gregorio

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