Resale value of ‘green’ home improvements hard to quantify

'Greenwashing' complicates appraisals

When you spend $30,000 to install a solar photovoltaic system or wind turbine on your property, will the real estate market recognize the energy-savings expenditures you’ve made and credit extra value to your house at resale?

Equally important: Will the appraiser hired by your prospective buyer’s bank recognize the value — or ignore it because there’s inadequate data on comparable houses in the local multiple listing service showing the higher sale price commanded by energy-efficient houses?

These are important questions facing growing numbers of homeowners — including myself and my wife — who want to do the right thing and go green, but who also don’t want to be penalized financially.

On the one hand, we’re aware of the major initiatives under way — tax credits, refunds and grants, at the behest of the Obama administration, Congress and some state legislatures — to encourage green homebuilding and improvements.

In our case, we’re considering adding solar panels, maybe geothermal heating and air conditioning, and possibly even a wind turbine at our weekend house in southern Maryland. Since it’s a south-facing, windy site on the water, we’d be delighted to become net generators of power, get off the grid periodically, save on monthly bills over time, and be better citizens environmentally.

We’re seriously attracted by the upfront incentives of a 30 percent federal tax credit and state assistance. But how will the market value our improvements? Will we get them back if we have to sell?

I began looking into this recently and ran into realities that are both sobering and encouraging. Many experts in the green building field will tell you that there is no easy answer to this question: Does upgrading green add to market value? There are no definitive national statistical studies, according to Kevin Morrow, senior program manager for green building at the National Association of Home Builders.

There are localized studies in Pacific Northwest — metropolitan Portland and Seattle — that have come up with positive correlations between green certification and home prices over several years.

But researchers caution that their results have not been scientific, as they compared average selling prices for green-certified homes against noncertified, rather than doing direct head-to-head comparisons of similarly sized and equipped homes, with and without green features. A study of sales in the Atlanta area reportedly found that certified homes sold faster on average than noncertified, and commanded smaller discounts from list price.

All of this suggests that "we’ve still got a ways to go" to demonstrate conclusively that green improvements yield valuation increments and sales benefits in locations around the country, and to convince lenders to credit lower utilities costs in underwriting mortgage, says Morrow.

Among the key challenges to accomplishing both of these goals: Persuading more multiple listing services around the country to include searchable green data fields in their listing formats so that potential buyers can shop for certified homes or properties with specific energy-efficiency features. That, in turn, will make it easier to measure how much incremental value buyers and lenders assign to green improvements in different parts of the country.

When I checked with NAR’s Green Resource Council, which is leading a campaign called "green the MLS" (www.greenthemls.org) with partners from the homebuilding industry and environmental advocates, I was pleasantly surprised to find that 80 MLSs have created searchable green data fields in their listing formats during the past year and 150 more are in the process or planning to do so.

This is encouraging, says Kristin Short, NAR’s managing director of green designation, but it may still not be enough to solve the toughest valuation issue of all: How to get appraisers to buy into the system and recognize the value added by energy efficiency and sustainability features and upgrades.

"Our residential appraisers are in a real pickle," she said in an interview. Even if the listing data shows that a house has green features, is there enough information available to provide the comparables appraisers need to assign it a value higher than recently sold similar — but nongreen — houses in the immediate vicinity?

Sandra K. Adomatis, an appraiser in Punta Gorda, Fla., who has run courses on green valuation for the Appraisal Institute, the industry’s largest trade group, says simply persuading MLSs to "think green" won’t be enough. She says that even when an MLS has added searchable green data points into standard listing sheets — as her own local MLS has done — appraisers are still confronting a problem she calls "greenwashing."

"There’s still a lot of misinformation out there about what green really is," Adomitis told me in an interview. "A lot of Realtors are calling things green that really aren’t." For example, when she searched her MLS for houses with listings claiming green certifications, she found on inspection that in fact only four of the 33 listings were correct.

Some claimed that a listing was an "Energy Star Home," when in fact it had only Energy Star appliances — not the far more extensive features of a house with the certification. About 1.2 million Energy Star homes have been built since the government-backed program first began labeling homes in 1995, and more than 110,000 homes have undergone "whole-house" energy-efficiency renovations that meet the program’s guidelines.

"Realtors are checking boxes (on listings), and they’re not accurate. We need some kind of accountability" — standardized, credible, verifiable data — before appraisers can begin to come up with the accurate comparables they need. "We can’t just add value simply because the (energy-efficiency features) are a better product. We have to have comps."

NAR’s Short says a move in that direction already is under way, typified by the Traverse City, Mich., MLS, which offers a four-page "green disclosure" statement that is signed and certified by sellers. The disclosure includes highly specific details on the types and dates of green certifications, the names and contact information of the companies that performed them, and information about all appliances and building features.

The disclosure amounts to a warrant by the sellers that the green features claimed for the house are for real and readily verifiable.

So back to my original question: Do energy-efficiency features raise property value?

Well, the answer is a little more complicated than I originally assumed. But appraisers, Realtors and builders are working on making sure the answer — in as many markets as possible — turns out to be a strong yes. Ultimately, it’s got to be.

Ken Harney writes an award-winning, nationally syndicated column, "The Nation’s Housing," and is the author of two books on real estate and mortgage finance.


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