Is green good for home resale value?

August 26, 2011

Home energy efficiency and sustainability have been major policy priorities for the Obama administration, but lurking in the background are two pesky questions: Beyond the documentable savings on utilities bills, do such steps add to the resale value of a home? And do they make it easier to sell your property?

Housing groups and housing officials say definitive data covering multiple regions of the country are scarce. But some localized research projects in Oregon, Washington state and California offer promising hints.

In a study covering existing and new houses sold between May of last year and April 30 of this year, the Earth Advantage Institute, a nonprofit group based in Portland, Ore., found that newly constructed homes with third-party certifications for sustainability and energy efficiency sold for 8 percent more on average than noncertified homes in the six-county Portland metropolitan area. Existing houses with certifications sold for 30 percent more.

The raw sales data in the study were provided by the Portland Regional Multiple Listing Service. “Certified” houses were defined as those carrying Energy Star or LEED for Homes designations or Earth Advantage home certifications. (LEED stands for Leadership in Energy and Environmental Design.) The latest study was the fourth in an annual series conducted by Earth Advantage, each of which has shown clear price premiums for certified houses.

However, officials caution that using average sales prices from Multiple Listing Service data without attempting to measure “comparable” homes against one another may not yield conclusive results. For instance, newly constructed certified houses may be more expensive to start, and existing certified homes may be larger and more likely to be located in higher-cost neighborhoods, where homeowner adoption rates for energy-efficiency measures are higher.

Nonetheless, in four years of studies, “we can still see a consistent trend that third-party certification continues to result in a higher sales price, even during the past year, when home sales were down,” said Dakota Gale, Earth Advantage’s manager of sustainable finance.

A study conducted two years ago by the institute in Seattle and Portland identified what may be another plus: Homes marketed with energy-efficiency certifications appear to sell faster on average than those without. The study tried to come up with rough comparability, in appraisal terms, between certified and noncertified properties, and it found that in Portland, certified homes spent 18 fewer days on the market after listing than noncertified counterparts.

In Portland and Seattle, researchers documented price premiums — 9.6 percent in Seattle, 4.2 percent in Portland — in a statistical analysis with a 95 percent confidence level.

Meanwhile, a recent study of houses in San Diego and Sacramento, published by the National Bureau of Economic Research, took a different tack: When you install photovoltaic solar panels on your roof, how much do you get back in market resale terms, beyond monthly energy savings?

Researchers examined home sales in both metropolitan areas from 2003 to 2010 and found that, on average, installing solar panels costs owners $35,967 in a sample of homes in the $500,000 range. But with federal and state subsidies, the net average cost came down to $20,892. This net expenditure, in turn, yielded an increase in appraised value of $20,194, a 97 percent rate of recovery on the investment.

Although less than 100 percent, a 97 percent recovery rate is much higher than for most home improvements in the most recent “Cost vs. Value” study conducted by Remodeling magazine, well above major kitchen and bathroom renovations.

Kevin Morrow, senior program manager for green building at the National Association of Home Builders, said that although many newly built homes come with energy and sustainability certifications, banks don’t necessarily recognize their value when it comes to providing mortgage money.

For example, bank underwriters often do not include reduced monthly utilities costs in the household income-household expense ratios that affect the maximum mortgage amounts available to buyers.

“The case needs to be made [to lenders] that, hey, these [highly efficient] houses will cost less to operate, so they should be worth more,” Morrow said.

He said appraisers are part of the problem as well if they don’t have the training to recognize and credit extra value to houses that have money-saving solar installations, geothermal heating and cooling, Energy Star appliances throughout, water-conservation features and other green improvements.

The Appraisal Institute, the largest group representing that industry, says that it has sponsored “green” appraisal courses for 2,300 appraisers during the past two years and that it strongly supports efforts to better incorporate energy and environmental factors into mortgage underwriting and home valuations, including a possible congressional mandate requiring it.

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