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Premiums Abound for Energy-Efficient Homes

Published: Oct 22, 2015 Finance & Real Estate | Blog Post

One of the best ways to encourage greater adoption of green construction and renovation is to demonstrate energy-efficient features are likely to increase the value of a home.

IMT’s new study, “What Is Green Worth? Unveiling High-Performance Home Premiums in Washington D.C.,” does exactly this—proving that high-performance homes (HPHs) marketed with green features (such as LEED certification or solar photovoltaic systems) sell for a mean premium of 3.46 percent compared to homes without energy-saving features.

IMT worked closely with Sandra Adomatis, a nationally-recognized residential appraiser who has extensive experience valuing HPHs, and her team of local appraisers to determine if HPHs in the District sold for more than their non-HPH counterparts. To do this, her team used an appraisal method known as a “paired sales analysis” (or sales comparison approach), which compares HPHs to non-HPHs of similar size and type within the same neighborhood.

Adomatis’ team researched 40 home sales in the District between February 2013 and June 2015—eight HPH sales and 32 non-HPH sales. This dataset was used to construct 32 paired sales, which supported these two primary study conclusions:

  • Twenty-nine of the 32 paired sales supported the existence of a green premium.
  • The average green premium was 3.46 percent.

Although these results may appear simple—they punched above their weight, holding up to close scrutiny by a team of appraisers and peer reviewers. Quantifiable evidence of residential green premiums has been scarce up to this point. Earlier this year Lisa Desmarais, SRA authored “An Early Look at Energy Efficiency and Contributory Value,” a report commissioned by the Colorado Energy Office, which also quantified the value of green home features on a case by case basis—it was one of the first studies to investigate the value of residential energy efficiency using an appraisal methodology.

Both Ms. Desmarais and IMT’s studies highlight that a lack of documented home energy performance data hinders the ability to properly value energy-saving features in the residential market.

The Multiple Listing Service (MLS) is an appropriate place for home energy data (for example energy audit reports, third-party certifications, and average energy costs) to be displayed, as prospective homebuyers should be able to view this information when searching for homes to make more informed purchasing decisions. Unfortunately, current MLS listings contain insufficient information related to HPHs.

IMT’s April 2015 report, “Greening the MLS: Bringing High-Performance Homes to Light in the District of Columbia,” found that between 2008 and 2013, only 14.8 percent of expected certified HPHs had third party-verified green fields populated in Metropolitan Regional Information Systems (MRIS), which is the MLS that covers the D.C. region. This scant amount of documented green home data both increases the time appraisers need to research HPHs and limits their ability to develop a credible opinion of contributory value for green home features.  

Multiple efforts are underway to increase the availability of HPH data, indicating a bright future for the HPH market.

The most notable recent initiative is the Department of Energy’s Home Energy Information Accelerator, launched in May of this year to make home energy information more accessible to potential homebuyers. IMT, MRIS, and over 20 other organizations are partners in this accelerator. In addition, MRIS released a new suite of green fields this summer to provide real estate agents with more options to market HPHs. By showing that there are sales premiums associated with HPHs, IMT’s newest study seeks to encourage agents to promote green home features in MLS listings.

As the evidence grows that HPHs sell for a premium, IMT anticipates that builders will become more incentivized to construct HPHs, more home sellers will upgrade their homes with green features, and real estate agents will more likely market HPHs. The transformation towards a greener residential market is underway, but it’s clear more work needs to be done to recognize the true value of energy efficiency.