Raising Value by Saving Energy

By admin . 14 Mar, 2016 . in Energy Efficiency

By Ben Block

The benefits of energy efficiency are well documented. A tightly sealed home, advanced insulation and a high-efficiency heating and cooling system often combine to save residents money, improve room-to-room comfort and enhance air quality.

Such benefits can also result in an increase in market price. Homes certified through recognized programs such as ENERGY STAR® or LEED have sold for 9 percent more than their noncertified counterparts.

With the vast majority of homes not yet certified, however, many within the real estate industry are working to find new approaches to ensure energy efficiency improvements are reflected in a home’s valuation. 

Greening the MLS

The challenge of making energy efficiency more transparent to the market begins when a home is first listed for sale. Real estate agents are limited by the format of the Multiple Listing Service (MLS) system that covers their market.

MLS systems are run by local REALTOR® chapters or other private organizations, and all have the ability to change what information they present. Currently, most MLS services ask only basic questions such as “Does the home have insulation?” An agent can write their own description of a home’s energy-efficiency features. But there is a limit on the amount of space to describe the home’s energy efficiency. Meanwhile, high-value features such as walk-in closets and eat-in kitchens likely deserve to be mentioned, too.

To better communicate energy-efficiency features, the National Association of REALTORS recently issued guidance for their members on how to “green the MLS.” The guidance reviews the energy efficiency data fields they can add to the MLS that would be compliant with the Real Estate Transaction Standard (RETS) Data Dictionary that sets definitions for the industry.

In addition, more real estate agents are seeking certifications that designate their specialty in identifying homes that have undergone energy-efficiency improvements. The National Association of REALTORs offers a “Green designation,” and EcoBroker International offers a certification as well.

Valuating energy efficiency

Once the MLS format becomes more dynamic, the next challenge is determining what information best captures the green features of a home.

The Appraisal Institute’s new Green and Energy Efficient Addendum does an excellent job of summarizing the multi-faceted benefits of energy efficiency. The addendum can be used to document a home’s efficiency features, covering details such as a home’s insulation, windows, day lighting, HVAC equipment and much more. Documenting such information assists appraisers when analyzing a property’s value. Plus it improves the likelihood that subsequent buyers will be informed that a past owner invested in an energy-efficiency upgrade.

The Addendum can be completed by an appraiser, builder, contractor, home energy Rater or a real estate professional. To simplify the reporting process, recent versions of software programs such as the Home Energy Rating Software, developed by the Residential Energy Services Network (RESNET®), automatically populate the Addendum’s data fields with results from a home energy assessment.

Making sense of it all

With these tools, buyers are more likely to receive information about a home’s various certifications and energy-efficiency features. However, many within the industry are concerned that the tools will fill what’s now an information vacuum with an overabundance of detail. The average buyer only wants to know whether the home will be comfortable and how much they will spend on utility bills.

In response, a new initiative led by Northeast Energy Efficiency Partnerships (NEEP) will develop a simple, standardized approach to providing information to the MLS services. NEEP’s Home Energy Labeling Information Exchange (HELIX), a first-of-its kind database scheduled for completion by 2018, will supply energy rating reports directly to the MLS services in New England and New York State.

In particular, HELIX will support expanded market use and recognition of the Home Energy Score rating system. The 10-point rating developed by the Department of Energy seeks to become the equivalent of the miles-per-gallon sticker found at car dealerships nationwide. A home that scores 5 is average, while a 10 indicates the home is among the most efficient on the market. The Home Energy Score complements more detailed ratings such as the RESNET HERS Index.

HELIX will be a major asset for states such as Connecticut and Vermont that are vying to become market leaders in creating transparency within their real estate industries. EnergizeCT’s Home Energy Solutions program, for example, plans to use the Home Energy Score to rate 14,000 homes per year.

Greater market transparency should help encourage the construction of more energy-efficient housing and stimulate demand for energy retrofits. Once the MLS services begin listing the green credentials of neighboring houses, homeowners will surely want to improve their scores before putting their properties up for sale.

Ben Block is a Marketing Manager for Clean Markets. He can be reached at bblock@cleanmarkets.com.