How to get the real estate market to value green homes for what they’re really worth

In this photo taken March 23, 2010, installers assemble solar electrical panels on the roof of a home in Glendale, Calif.  (Reed Saxon/AP)

From installing rooftop solar panels to putting in new triple pane windows and EnergyStar appliances, people today make all kinds of home upgrades that save energy and lower their utility bills.

But when they opt to sell their “green” home, it’s often less than clear how such upgrades are valued in the real estate market by appraisers, lenders, or purchasers — or even how information about a home’s energy characteristics should be conveyed to real estate agents and potential homebuyers.

“People do upgrade [for energy efficiency], but the problem is, a lot of that information on what they’re doing doesn’t get to the marketplace, doesn’t find its way into the real estate transaction,” says Maria Vargas, who directs theBetter Buildings Challenge program at the Department of Energy.

The department aims to change that with a newly announced program. The agency’s Better Buildings initiative, which seeks to slash overall energy use across U.S. buildings by 20 percent in 10 years, has already been successful in the commercial sector, but now it is turning to the residential arena — with a focus on advancing home energy efficiency.

One surprising strategy for doing so will be helping to improve the flow of information about home energy efficiency (and its effect on driving lower utility bills) in the real estate market — thus helping it to be better valued in markets. To do so, the Energy Department is partnering with those who spread and use this information, including the Appraisal Institute, a professional association for real estate appraisers, the Council of Multiple Listing Services — which ties together the large number of local MLS organizations that provide informational databases of real estate listings — and the National Association of Realtors’ Center for Realtor Technology.

“We want to move in, move out, in a few years, to really accelerate this market,” says Vargas, “so we are better enabling homeowners, and the whole transaction process around selling a home, to include energy efficiency information.”

For now, say real estate market observers, energy efficiency information is kind of scattershot in the context of home sales.

At present, says Shelley Specchio, 2015 president of the Council of Multiple Listing Services and CEO of the Northern Nevada Regional MLS, the availability of information about an on-market home’s energy efficiency has “been on a local MLS case-by-case basis.”

“If you’re in Reno, Nevada, then we’ve created certain fields that can be included if those features have been in a house, and we can articulate that locally to our members,” says Specchio. “But it hasn’t left our system into a more global world.”

Meanwhile, it’s a complex situation facing homeowners — who have to calculate how much they get back in power bill savings from energy improvements, and also how much those may help their home’s resale. It seems to vary a lot, depending on the actual type of upgrade.

For instance, the Pacific Northwest National Laboratory paid $ 6,243 for 196 square feet of highly efficient triple pane windows in 2013, and found that they led to a 12 percent energy bill savings — but that it would take many years to totally recoup the dollar cost of the windows. How such windows add to a home’s value then becomes another question, which the study did not address.

For solar panels, one recent study by Lawrence Berkeley National Laboratory found that the average installation adds $15,000 to a home’s value — thus potentially recouping a major part of the cost of installation — but also that the panels “significantly depreciate” as they age. (According to installer SunRun, a 4 to 8 kilowatt solar system can cost between $ 15,000 and $ 29,000 in total.)

Beyond listing information, another aspect of the home buying and selling process where energy efficiency comes into play is the home appraisal. “When appraisers appraise a home, there are a few different way that they can do that, but the vast majority of underwriters require that the valuation from the appraiser be based on comparable properties in their neighborhoods,” says the Energy Department’s Danielle Sass Byrnett, who supervises the residential side of the Better Buildings program. “And at this point, there’s really no way to see if there are comps that have energy saving features.”

From the realtor perspective, adds 2014 National Association of Realtors president Steve Brown, the availability of this information will greatly help homebuyers with assessing what a new home will actually cost to live in.

“I think what the recession taught us is that home ownership stability is every bit as important as writing the contract and buying your first home,” says Brown, who is a realtor in the Dayton, Ohio, area.

Brown thinks that energy efficiency improvements will, in the future, help homeowners in two ways: “make the property more appealing, more marketable to a future buyer, and secondly, make the property a little bit more valuable than other homes that don’t have these energy efficiencies that are in place.”

Steps around the country to make this happen have already begun — the Energy Department is just seeking to better coordinate them.

For instance, recently, the Washington, D.C., Department of the Environment commissioned a study of the market for green homes in the district. That included assessing the effect of including entry fields specifically dedicated to providing information about a home’s energy attributes — so-called “green fields” — in the listing database maintained by the Metropolitan Regional Information System, the D.C. area MLS. Such information could help homebuyers better identify “high performance homes” — those that have been certified by an outside party for their energy efficient features.

The result was that the study found that “listings which utilized available green fields performed well in the market.” But there’s also a long way to go, it noted. “The likelihood is that most certified homes sold in the District in 2013 were not marketed as such in the MLS,” the study found, “often suppressing their sales prices, leaving cash on the table from the seller’s perspective, depriving buyers of useful information, and muffling a market signal that would prompt homeowners and home builders to invest in sustainability.”

Indeed, a common theme of this process is that green home upgrades likely increase a home’s value – especially if they lower its utility bills — and it’s just a matter of getting the market to better recognize that by providing more complete information. And the D.C. and federal energy policymakers are interested in helping to improve that informational flow because it will also help them promote home energy efficiency overall — and thus, lower the aggregate footprints and greenhouse gas emissions of homes.

“When you’re looking at whether or not you’re going to buy a house right now, you’re just looking at the price,” says Specchio. “If you could also put into that same analysis, how much this house is going to cost to live in comfortably, it would help you make a better decision about your future homebuying, and that’s really the heart and soul of what we’re trying to get to.”