Payback on Your Green Home Investment

• September 24, 2009
• 8 Comments

by Michael Kiefer

If you are in the market for a new home these days, you are likely seeing more options when it comes to energy efficient properties, and you are wondering what upfront premium those higher-performing homes will deliver in the near term. This is where a real shift in the real estate market is occurring.

In short, there will be some higher upfront costs if you purchase a green home, and if you are on the typical five-year real estate plan (i.e., hoping to sell and upgrade within five years) the “green payback” will fall outside that period.

However, there is another way to look at how you can recoup your investment. The life cycle of a high-performing home tends to far exceed that of a lower-efficiency home, and that advantage carries a value with it to the next owner who lives in the home. It is your responsibility as an owner to pass this knowledge on to prospective buyers so that they understand the extra value they would receive by purchasing a higher-performing home. If you do so effectively, you should be able to command a higher resale price.

Granted, that explanation might be too vague for those who want to see the savings quantified in hard dollars and cents. After all, saving money is part of the wave of energy-efficient measures sweeping across the housing market. I tour green buildings being built across the DC region weekly, and I can attest that these money-saving efforts are evident well before the drywall even goes up.

Developers now understand the value of increased insulation and some are even incorporating air sealing strategies throughout the building frame with internet-based building control systems for HVAC and lighting.  Air sealing is one of the most efficient ways to reduce the amount of conditioned air you pay for, increase the efficiency of the insulation and reduce the likelihood of weatherization damage due to condensation issues behind walls. These are all things that will save you money in the long term.

When it comes to saving money on gas and electricity, EPA’s Energy Star program pegs the average annual utility savings on a three-bedroom Energy Star-rated home between $200 and $400 per year. That may not seem like a lot, but it is important to remember that here in the Mid-Atlantic region utility costs are frequently well above the national average—and so the savings would be higher, too.

As more developers begin measuring green home performance with actual tests, we are seeing energy efficiency valuation take on real meaning for both consumers and appraisers. While payback on a green home investment is not always immediate, smart buyers will recognize the value and be ahead of the curve.

For additional information or questions concerning green building in the Washington region, feel free to send an email to .(JavaScript must be enabled to view this email address).

This article originally published at http://dc.urbanturf.com/articles/blog/payback_on_your_green_home_investment/1343

8 Comments

1. Ricardo Davico said at 2:12 pm on Thursday September 24, 2009:

   As a home buyer, I tend to fixate my value comparisons on price per square foot at a given location—similar to appraisers. I would love to buy green but how would one determine the premium to be paid given the various green improvements available?

1. Mike Kiefer said at 3:15 pm on Thursday September 24, 2009:

   Great point there Ricardo and you are correct it presents a challenge for buyers and appraisers when assessing the value of a “green” home. Many appraisers now are taking into consideration the value of energy efficiency although it needs to be quantified or clearly pointed out in some way either via an energy audit or complete list of features.  So again it comes down either the developer or Realtor having the information on hand to share with everyone. With more developers providing energy audits in order to differentiate their product and sales following them we will have quantifiable data that industry professionals will be able to use in valuing “green”.

1. LookingtoBuy said at 3:33 pm on Thursday September 24, 2009:

   Mike, as a home buyer, when you go to look at a new home is there a label or indication that mentions that the home meets various green standards? Aside for being Energy Star certified?

1. Mike said at 4:07 pm on Thursday September 24, 2009:

   Energy Star Certified
   USGBC - LEED
   National Assoc. of Home Builders http://www.nahbgreen.org/
   EarthCraft http://www.earthcrafthouse.com/

   Are some of the more common certifications you will see across the Mid Atlantic region.

   The one thing to understand here is that once a home is certified it doesn’t necessarily have to be retested so with all good homes maintenance and keeping things in check are essential to keeping that performance high.

1. Robert said at 5:15 pm on Thursday September 24, 2009:

   Ricardo,

   If you have to provide some justification to a lender or other financial partner you could look at the premium would be a present value calculation of the stream of savings that are expected from the energy upgrades. Also, over time you would get more rent from a comfortable property than from one that is drafty and cold in the winter and either sweltering or over-air conditioned in the summer. In all my various experiences with energy efficiency, the work not only results in cost savings, but in increased comfort as well.

   So the present values of the stream 1) expected savings and 2) expected increased revenues could serve as a proxy or a benchmark for a green premium if someone is demanding that you articulate a justification.

   But if you are only answerable to yourself financially the level of “green premium” would depend on your risk tolerance for increased energy costs in the future. This speaks to the “expected savings” I mentioned above. The green premium then would be your hedge against higher utility bills in the future and this would be a matter of your judgment. The chart of natural gas prices gives a good basis for formulating that judgment. Natgas is trading at just about $4 right now, which is up quiate a bit from the short dip it made to $2.50 a few weeks ago. (See chart in link below.  If you study the chart you will see that $6 was a resistance and then a support price until the recession hit last year.  In other words, the bottom line is that natural gas is on a long-term upswing (the $4 price is double what it was in the 1990s). It took the worst recession since the Depression to knock the price down from the roller coaster ride of the last eight years, so we need to guard against thinking natgas will stay low. Electricity is generally going up at a steady pace although some jurisdiction get big jumps now and again.

   Ricardo, it is good that you are thinking green and giving it a good critique. As you sort out your options and move on the better ones I’m sure your real estate investments will pay off better in the years to come.

   http://futuresource.quote.com/charts/charts.jsp?s=NG&o=&a=W&z=660x300&d=medium&b=bar&st;=

1. Agnes Pawelkowska said at 8:30 pm on Thursday September 24, 2009:

   Mike, I think you included some valuable observations in your article. It will take time however for people to “switch to green” and to understand the full advantage of green homes. As with any aspect of life, change requires time and appropriate education. You are taking care of the second aspect to the best extend you can. Congratulations on your hard work!

1. Paulina Migalska said at 10:15 pm on Thursday September 24, 2009:

   Thanks for this interesting and informative piece. I like your point about the long term benefits of investing in green solutions. By benefits, I mean more than just the financial side of the coin. It reminds me of a similar point made by a very wise man I had a chance to hear live today – Jeffrey Hollander, co-founder and chief inspired protagonist (yes, that is his real title) of Seventh Generation. Why generation, why seventh, why not simply eco or green (i.e., a name that is more closely related to the world of “green”)? According to Hollander it’s simple, let’s live our lives, let’s use the earth’s resources with at least seven generations into the future in mind. This way we can at least begin the shift towards a more sustainable use of the limited resources that our planet provides us.

1. Joe said at 7:22 pm on Thursday October 1, 2009:

   It’s so refreshing to see the industry and vanguard professionals, like you Mike, and greendcrealty, who actually complete that connection between being green and the financial rewards for everyone.  As you say, I hope the trends continue until this all becomes common knowledge some day.

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