By Celeste M. Smucker –
The term “green” gets a lot of attention these days and can describe environmentally friendly activities of all kinds. When it comes to real estate it usually means investment in products and services that make your home healthier, more comfortable and more energy efficient.
Not only does investing in green make your home more livable it can also help you save some serious money on monthly utility bills. In addition, studies show you may also be able to recoup some of the cost of green improvements in the form of a higher price when you decide to sell.
Walking away with a larger check at closing is not guaranteed, however. To take full advantage of this benefit, you must be prepared to provide proof of the value of your green features to REALTORS®, prospective buyers, and appraisers.
While this level of documentation can seem overwhelming, as demand for greener homes has increased and the industry has matured, so have the ways and means available to standardize the value of green updates and incorporate them into the home selling process.
It all starts with buying a new home or renovating your present one. Either way there are choices to make that impact your cost as well as how much return you can expect to get on your investment. For example, does it pay to increase the R-Value of attic insulation? How about replacing appliances with ones that have Energy Star® ratings?
Then there’s your old HVAC system. Would it be cost effective to replace it? Geothermal heating and cooling alternatives have received a lot of press, should you consider one of them? Or would solar be a better choice?
While energy efficiency is usually at the top of the list of green upgrades, what about changes that make your home more comfortable and/or improve its air quality? Those may be just as important for quality of life but are more difficult to quantify when you attempt to compute a return on the cost of their installation.
Imagine now that you are ready to sell your home. Documentation to communicate the value of your investments to your REALTOR® is essential so they can correctly enter the information into the MLS (Multiple Listing Service) to accurately inform other agents and excite prospective buyers.
Your buyer must then be sure their mortgage company selects a qualified appraiser, one with the experience to know how to incorporate the value of green features explains Woody Fincham, an appraiser with Valucentric and an expert in valuing green homes.
In particular, the appraiser requires sufficient detail about your green features so they can include their value when comparing your home’s price with others that are similar but less green.
High Performing Assets
The concept of green has been popular for years and we all “kind of” know what it means. When it comes to computing value, however, this term is not very useful because it can refer to everything from upgrading your windows, to insulating your walls to replacing your carpet in order to reduce exposure to toxic chemicals.
For this reason, more descriptive terms such as “high-performing assets” or “high-performing homes” have come into use along with rating systems that rank the contribution of critical variables to the overall well-being of a home and its occupants.
HERS (Home Energy Rating System) is a nationally recognized program for rating homes based on their energy efficiency. If you are an existing homeowner you can have a HERS certified rater evaluate your home and give your house a score. The lower the score the better.
According to the U.S. Department of Energy, a score for a typical resale home is 130, while that for a new home is 100. If your house gets a rating of 120 that means it is not as efficient as a typical new one, but is more so than an average resale home.
Your rater can make suggestions about what steps to take to improve your score. Scores are recorded in a national registry and available to appraisers and the public along with the date of the rating and who rated it. Visit resnet.us for HERS scores and a list of certified raters.
Another rating system comes from Pearl Certification, a Virginia-based, national organization “that provides third-party certification of high-performing homes: homes with ‘performance assets’ that make them healthy, safe, comfortable, energy and water efficient.”
Pearl uses approved contractors to evaluate and document a home’s high performing assets, and their point system gives an overall score that takes into consideration a variety of variables. For example, the higher a home’s R-Value the more points it receives. Similarly, the points awarded for triple pane windows exceed those for double pane and an Energy Star® HVAC system gets more points if it comes with a quality install.
Qualifying homes receive a rating of silver, gold or platinum depending on the number of points achieved, and this information can be used when marketing the home.
Pearl qualified contractors will also consult with you on the renovations that will help you qualify for different levels of certification and will revisit your home after updates are complete to verify your improved score. More information is available at pearlcertification.com.
If you are a home owner planning to update your home’s energy and water efficiency, comfort or safety, start by calling a contractor trained to evaluate high performing assets. With this information in hand you can choose the upgrades that make the most sense for your home.
Demand for Green
If you purchase an energy efficient new home or upgrade your present house with high performing assets, you can expect immediate benefits in the form of energy efficiency, lower utility bills and greater comfort. Further, many consumers derive satisfaction from knowing they are contributing to a greener, more sustainable planet.
As more and more home buyers become knowledgeable about the benefits of high performing homes, the demand for them will increase causing their price to rise and assuring a good return on investment in green features.
A 2018 study of REALTORS® and Sustainability reports that 61 percent of participating agents said their clients were at least somewhat interested in sustainability.
As this trend intensifies there will be increasing pressure on existing homeowners to upgrade their homes in order to compete effectively. This is especially the case for houses in the same price range as new homes that are often marketed with an impressive list of high performing assets.
“With each passing year, I find the demand for higher performing homes that cost less to operate on a monthly basis to be growing,” says Greg Slater with Nest Realty. He adds that “The builders in our market embraced this early on and remain focused on these better building practices. It has become very common for buyers to want to know more about the utility costs of a home in their evaluation of their housing options.”
“Green building is hot,” agrees Jodi Mills with Nest Realty, who represents Stony Point Design/Build. “It’s what everyone is expecting.”
A recent study by Dodge Data & Analytics in partnership with the National Association of Home Builders (NAHB) reports that “green homes are continuing to gain market share,” with one-third of builders surveyed stating that green building made up “more than 60 percent of their portfolio.”
The NAHB study also reports that demand for green homes is impacted by a greater availability and lower cost of green products. Another critical factor is the increased recognition of the value of high performance assets by appraisers.
Third Party Certification
The growing demand for high performance homes and the availability of nationally recognized rating systems makes it easier to quantify the impact of high performance assets on a home’s value.
However there is still a need to communicate this information effectively to REALTORS®, mortgage companies and appraisers. An easy way to accomplish this is to use a third party certification company like Pearl.
Pearl’s website states it “was founded by energy efficiency and residential construction experts with a goal of a developing a simple way to help homeowners make their homes more comfortable, healthy and energy efficient. Pearl also works closely with real estate agents and appraisers so the energy efficiency improvements are visible at the time of sale, and add value to the home.”
How important is third party certification? Fincham says certification “is imperative if you have a green home.” He explains that appraisers need data to back up their estimates of value, including details such as the type of equipment or appliance that was installed and how it was installed.
The report from the third party certifier provides all of this making the appraiser’s job easier and the report more accurate. He adds this is especially important as many appraisers have no experience evaluating green upgrades and, without good data, may even give them no value in their report.
The process is greatly simplified when working with a certified home. “The Appraisal Institute created what is known as the Appraisal Addendum for Green Features that is provided by Pearl when they certify a home,” Slater says.
A Pearl certification is also essential for REALTORS® in order to effectively incorporate the value of green into the description of a listing. “If buyers and appraisers are not aware of these features, how can we know if they are being valued in the sales process,” Slater asks.
He adds that “Pearl highlights the energy features of a home and makes them readily noticeable in the sales process. They identify them in the showing process but also document them in a way appraisers can use.” They even “include a list of fields within the MLS that can be checked to help the listing agent.”
A recent article in REALTOR® Magazine cited Cynthia Adams, CEO of Pearl. She emphasized the marketing importance of including information about high performance assets in the MLS when REALTORS® list a home. “If it’s not on the MLS, it basically doesn’t exist,” she said.
Is all of this documentation worth it? Absolutely. Adams referenced a recent appraiser-authored study on Pearl Certified homes “that showed a 5 percent premium when the homes were marketed correctly.”
The process of valuing green features in homes is still in its early stages. However, as the concepts of value and certification catch on it will become increasingly important for buyers and sellers alike to be aware of the most cost-effective features and how best to be certain they are included in the sales and appraisal process.
If you are a home buyer take advantage of the information and tools now available to be sure you get the high performing home that suits your needs. If you are getting ready to list your home for sale, ask your REALTOR® about certification so that you get credit for any and all green updates in your present home.
Celeste Smucker is a writer and blogger who lives near Charlottesville.