Quick Turn Quality Appraisals has been selected as one of 3 participants in a panel discussion at the National Convention of the National Association of Realtors® on November 11 in Anaheim CA. The panel topic, "An Update on Greening of the MLS" focuses on the efforts to add "green" data to MLS systems across the country, and looks at the impact on Realtors®, lenders and appraisers.
Moderated by Dave Porter of PorterWorks, a nationally-recognized advocate of green construction, this panel will examine the progress made to date and the pitfalls remaining. Quick Turn will describe the benefits realized as a result of the leadership demonstrated by the Triangle MLS and will provide local market statistics derived from a "green" MLS database.
What's your HERS?
What?? HERS??? Should you care????
You NEED to ask! Your home could save you more than it costs!
HERS is like MPG for your home; it helps you decide which home is more efficient.
Everything else being equal, you'd want the greatest efficiency, whether it's your car or your home. A more efficient car saves you money on gasoline; a more efficient home saves you money on utilities. With energy costs similar to, or higher than, gasoline expenses for many people, those savings are really appreciated. So how can you tell how efficient your home is?
The HERS (Home Energy Rating System) score was developed to provide information, similar to MPG, about how efficiently a home uses energy to heat/cool. A score of 100 is the efficiency of a home built to the 2006 International Energy Efficiency Code (IEEC). Lower scores indicate greater efficiency. A home with a HERS of 85 uses only 85% of the energy of the 2006 home, saving 15%. An older home with a rating of 125 uses 125% of the 2006 home, using an extra 25%. The lower the score, for a comparably sized home, the less you spend on utilities.
To qualify a home for an ENERGY STARTM certification, the EPA requires a HERS score of 85 or lower. "Green" certifications, like LEED and NGBS, have varying requirements, but also rely on the HERS score.
Wouldn't everyone want to know this? Shouldn't they be told? Unfortunately, you're typically going to have to search for this little piece of information. A vehicle's MPG rating is REQUIRED by the EPA. When you're shopping for a car, one of the things you want to know is its fuel economy. The HERS score is NOT REQUIRED for any home, not even new homes. This is an OPTIONAL evaluation ordered separately by the owner or builder. Any home could get a HERS score, but a score is only required when the home is to be certified. Even if a home has been rated, there is NO REQUIREMENT to post the result or even inform potential buyers. So, many times you'll have to ask!
But, don't they cost more?
High performance homes typically cost only slightly more than code-built homes. They have the same granite counters, trim, and features as the traditional home, but they offer significant energy savings that more than offset the extra cost. Say that the extra charge for performance is $2,500; your mortgage will be about $15 higher (gasp!). However, an ENERGY STAR certified home uses less energy - at least 15% less. If your average energy bill is $150 a month, you'd be saving over $20 (tax free), paying that extra mortgage, with money left over. And that's the least you can expect. Many homes HERS scores are now in the 65-70 range (30-35% more efficient).
Does that energy efficient home cost more? Is it worth the extra cost? Ask your builder or real estate agent about the HERS scores for the homes you are considering. Beyond those granite counters and crown molding there is the equivalent of an ATM machine handing out cash EVERY MONTH you own an efficient home. Savings between a traditional and "high performance" home often exceed $50 a month, and we have seen instances up to $150 per month. If the home costs more, the savings are likely to more than cover that additional cost; the rest is yours to enjoy.
Be an informed buyer: ASK for HERS ratings! Even new construction will have a projected HERS value. Ask your agent and/or your builder; they should be able to give you this key information. It's your money and you're entitled to get the most for it!
We've been busy! And we appreciate the patience of everyone who's been waiting for this.
Over the past few months, we've been developing a proposed training program targeted at real estate professionals. Rather than the "typical" green training program focusing on construction, this program concentrates on how a systems planning approach and integrated practices add value, and how that value can be monetized and captured for your clients.
The program, "Valuation of Green and High Performance Homes", has been submitted to the NC Appraisal Board for approval. Approval will provide appraisers with 7 continuing education units. A modified version will be created shortly for real estate agents and mortgage lenders.
We plan to begin sessions in early May, following approval. We'll be sure to let you know when things get fired up!
Still not sure if there's a real market for green (or high performance) homes, or that they have a real value premium? We just did a quick analysis of new construction listings in the Triangle MLS.
The take-away? In 2010, certified homes (indicated in the MLS as ENERGY STAR, LEED-H, NC HealthyBuilt, and/or NGBS GreenBuilt) sold for over 10% more per square foot and in nearly 1/3 less time. There's GREEN in Green!
Here are our findings for new construction home sales that closed in 2010. Comparing certified homes to non-certified properties, both sold at about 98% of their listing price, with similar square footage. Average figures for the past year:
CLOSED IN 2010
Certified (N=922; 22.5%)
Non-Certified (N=3178; 77.5%)
Note that we also are seeing the market penetration of high-performance homes steadily increasing. For listings in early 2011, over 30% of the new construction now has at least one certification listed! That's up from less than 20% in 2009.
Many thanks to everyone who has been "Greening the MLS"; we now have some data to work with, not just anecdotal evidence.
WSJ.Com 1/14 - No McMansions for Millenials
Guess what? Babyboomers aren't the only market out there! According to this Wall Street Journal article, Gen Y (Millennials - 1980-2000) represent an even larger market than boomers (80 vs 76 million), and they're just coming into their own.
But apparently they don't want those suburban big lawns and big homes. They want amenities and conveniences. They like walking, and are willing to pay for it. They want to be able to "congregate"; common areas and shared facilities are important.
They seem to be urbanites, but without the budget for big-city living. The recession is going to keep budgets smaller than what might have been expected. Small places - with lots of inexpensive amenities.
Green Builders - does this sound like an opportunity? Urban villages? Small homes, walkability, limited landscaping, higher density? Do these sound like green points?? Capturing Millennials may be easier than you might think, given these criteria.
Creative infill and imaginative development may be your ticket with this demographic!
Thanks to Dave and Anna Porter of PorterWorks, our entire staff are now certified GreenValuation Specialists®. This designation involves 14 hours of training on the principles of green construction, along with the considerations involved in valuation and lending for these properties.
We are really pleased that there is now a program available to appraisers, lenders, and agents to become certified. This is an area that has seen little in the way of guidelines and standards; now we have at least some baseline to begin to distinguish trained professionals who have taken the effort to understand the essential features of "high performance" properties.
Quick Turn has been actively campaigning for greater education for appraisers, agents and lenders to become familiar with this growing market segment. Nearly 25 percent of the new construction listed in the Triangle MLS is now certified as energy efficient and/or green, yet many professionals still don't know what that means. Certification requirements, and even the terminology, are not yet understood. This often means that there is seldom any enhanced market information provided about these homes.
Consequently, these professionals have no idea how to value a "High Performance" home. Some (many?) appraisers feel that because there is no perceived value in the market. We believe that this may because there has been no effort to educate buyers, agents, and lenders about energy and operational efficiencies that they can expect from these homes.
The statement is often made that a buyer would not pay more for a high performance home, and that this reflects the market opinion. However, if rephrased as which home would you buy for a given price, green or traditional, everything else being equivalent, we suspect virtually everyone would opt for the green home. In fact, they would demand a discount for the traditional home, indicating that they do perceive a value for green.
Even the most basic EnergyStar certification requires a 15% reduction in the Home Energy Rating System (HERS) score (a measure of energy efficiency, determined by a number of factors - including a "blower door" test for air leakage), compared to a code-built home. This HERS rating of 85 translates roughly to a 15% decrease in energy costs, and qualifies the buyer for additional tax incentives and special reduced utility rates.
We are finding that actual ratings for many homes are 30-40% lower than code-built, and some custom builders commonly have HERS ratings of 50 or lower (using 50% or less of the energy). Yet the potential savings never get considered by many lenders or appraisers, even though they may exceed $100 per month in many cases.
We believe it is now essential that all real estate professionals recognize that green/"high performance" properties have enhanced value. Now that we have certification programs available, it is even more essential that they recognize that enhanced training is required for properly marketing and valuation, and DEMAND that certified professionals perform these functions.
If we fail to demand qualified professionals, any efforts to educate the public about buying more efficient homes will fail, as well. Even willing buyers can be sabotaged by lenders and appraisers who refuse to believe that the market can see what they cannot.
Let's see. Green is:
Not today! High-performance homes (including Energy Star and GreenBuilt) are available in traditional styles and in all price ranges. You need to see this for yourself, and the Parade of Homes is the perfect opportunity! This year's Parade is on the first 3 weekends of October.
Things to look for (besides price, location, and style):
Some features to check out are radiant barriers, foam insulation, tankless heaters, low-e windows, low-VOC paints, and local materials. Check out building practices such as waste reduction, site preparation, and advanced framing materials and techniques.
Finally, ask about Energy-Efficient Mortgages and tax credits. It's worth your while - save money on your purchase, at the same time you cut your monthly energy expenses!
I'd love to get a regional breakdown of this! Because I don't believe that this is true, at least in the Triangle. Let me know what you think!
In an unscientific, voluntary national poll, appraisers were asked if they had appraised "high-performance" homes, and if so, whether they felt that those homes carried a premium value in their market.
First, over 50% had never appraised one and 10% had no idea what a high-performance home was (that's "green/EnergyStar" for neophytes). Given the emergence of green in the Triangle (nearing 20% of new construction according to MLS), I'm not sure that reflects our local appraiser population; however, there are probably a significant number who have not encountered such homes.
Secondly, of the approximately 40% who had performed these appraisals, 30% (or three-quarters of this group) did not believe a high-performance home carried a market premium, despite the significant and demonstrated operating costs from energy savings and reduced maintenance. I find this disturbing, because I believe it reflects an obsolete view of valuation criteria.
It appears that, since no requirements have been defined for valuing these new construction methods, most appraisers are ignoring some very material factors. We certainly do need guidance in this area, but we can justify some basic approaches to valuation, such as capitalizing the projected savings.
I believe it is time for appraisers to step up to this challenge and recognize the true value of high-performance homes. The value is real, not cosmetic fluff, and should be considered in the appraisal. Buyers (and their lenders) should insist on the use of appraisers experienced with high-performance homes and/or suitable analytic methods so that their mortgages are not jeopardized by inadequate valuations.
If you're in the market for a HI-PERFORMANCE home, you expect:
Energy savings of 50% or more are possible, when compared to a home built before 2005. The technologies (and building codes) are vastly superior to those of just a few years ago; more and more buyers are now demanding energy efficiency in their new homes. And it's not just specialty homes anymore - high-performance homes are available in virtually every price range!
The HERS (Home Energy Rating System) rating is the standard measure of energy efficiency. Determined by a third party inspector, this value is derived by physical inspection and testing. A value of 100 is the standard - this is equivalent to a basic home built to the 2006 International Energy Conservation Code. Lower scores indicate greater efficiency (lower energy consumption); to qualify for an EnergyStar certification, the HERS rating must be 85 or lower, indicating at least 15% greater efficiency than a basic 2006 home. Older homes may have HERS ratings of 125 or greater.
Assuming that energy costs are proportional to energy efficiency (the HERS rating), monthly savings can be determined using the ratio of your future and current HERS ratings. For example, if you are currently living in an older home with a HERS rating of 125, and you buy an EnergyStar certified home with a rating of 85, your cost ratio is 0.68 (85 / 125), meaning your new energy bills would be approximately 68% of your current energy bill. If you currently have monthly energy bills of $200 you could save an estimated $64, or $768 a year.
How much additional value is there in this high-performance home? What if you could capitalize the savings and incorporate them into your mortgage? As an appraiser I make adjustments for energy efficiency, capitalizing these savings to determine the incremental value. That monthly savings of $64 a month, applied to a 5% mortgage, would allow you to add almost $12,000 to your purchase. I make adjustments on this basis for each of the comparable properties used in your appraisal.
There are also various Energy Efficient Mortgage and tax incentive programs, allowing your lender to modify loan requirements based on factors such as the HERS rating. You may be able to add energy improvements to the loan, modify qualifying ratios, or incorporate credits as part of the mortgage.