7

Encouraging the Value of Energy

Efficiency in Residential Property

Transactions:

Strategies for Chatham County and

other NC Local Governments

May 2011

Prepared by the Environmental Finance Center for Chatham County

AUTHORS:

MARY TIGER

MICHAEL CHASNOW

MEGAN COLONEL

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Abstract

There has been recent interest by local governments to implement programs that assist

homeowners spread out the cost of energy efficiency upgrades and pass that liability onto a future

homeowner that will reap the bill savings from the energy efficiency. This has been some of the

excitement around programs such as PACE (Property Assessed Clean Energy).

This report focuses on local government initiatives that affect energy information exchange in

residential property transactions. This study analyzes a spectrum these program options using a

combination of case studies, literature review and opinions from focus groups with Chatham

County realtors and appraisers.

Introduction

The typical U.S. household spends about $2,300 in annual

energy costs, more than the average cost of property taxes or

homeowners insurance.1 However, a homeowner can install a wide

range of energy efficiency upgrades and significantly reduce this

ongoing financial commitment. While some of these upgrades are

inexpensive (i.e. weatherstripping and caulking), others can require

a significant upfront investment. If a homeowner stays in the home,

this expense can be recovered through energy bill savings, but

nearly half of the population in NC may move within five years.2 For

this group, the decision to invest in energy efficiency lies in whether

the costs can be recovered if the homeowner sells the property.

In theory, a home seller should be able to recoup his or her

investment upon sale because it will decrease the annual operation of the home. A study published

in the Appraisal Journal by the National Association of Realtors found that for every dollar saved

each year on energy bills, home buyers were willing to pay $10-25 more for a given home. The

average single unit home in the Triangle has about $2,000 in annual energy costs. If those bills

were reduced 20%, which is the average estimate from routine home retrofits within this Appraisal

Journal study, a home owner would on average save $400 per year. Given a conservative estimate

of a $15 increase in home value for every dollar reduction in annual fuel bills, the average Triangle

home should gain $6,000 in value from a 20% reduction in energy demand.

The study went on to note that nearly nine in ten buyers felt that a home’s energy costs were at

least somewhat important to their buying decision, with almost 40% stating that energy costs were

very important. Lower income buyers tended to place higher importance on energy efficiency. As

shown below on the bottom, 47% of buyers with incomes less than $45,000 per year stated that

heating and cooling costs were very significant to their home buying decision, compared to 29% of

buyers within incomes over $100,000 per year.3

Source: Institute for Market

Transformation, 2010

2

Figure 1

Figure 2

What is constraining the energy efficiency retrofit market?

However, at this point, theory is not reality in Chatham County (as well as many other North

Carolina regions). The vast majority of home buyers and banks are not considering the potential

energy demand of a home. As such homeowners are less likely to undertake home energy retrofits.

Why are these homeowner savings, and increase in home value, unlikely to be realized?

Source for both charts: National Association of Realtors, 2010

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According to Chatham County realtors and appraisers, there are a few reasons why this may be the

case.

Financial benefits from energy efficiency investments are difficult to quantify and compare.

The current housing market rewards low pricing, not quality of construction or lower future

operating costs. In other words, home buyers are looking for low upfront costs and banks

are unwilling to incorporate future operating costs into mortgage underwriting.

Incorporating more information about the energy use of homes can help overcome both of these

barriers. As the intermediaries between home sellers, home buyers and banks, realtors and

appraisers can use energy information to help educate homebuyers and value homes. Realtors are

the key connection between homeowners and homebuyers, and provide critical information about

a home, and its value. Appraisers define the value of a home, which influences the potential size of

mortgages and the ultimate selling price of a home.

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Methodology

North Carolina is not the only region in the country where home sellers have difficulty recovering

the cost of energy efficiency upgrades in the sale price of their home. The University of North

Carolina Environmental Finance Center (EFC) reviewed programs across the country designed to

overcome similar hurdles and to incorporate energy information into residential property

transactions. The following report introduces a few of those programs.

In order to gain perspective of how a program would resonate in Chatham County, North Carolina

(a rural county on the outskirts of a major metropolitan area, the Triangle), the EFC held two

separate focus groups: one with a group of Chatham County realtors and one with appraisers from

the same area. These groups were structured to gain perspective of the current state of energy

communication and valuation in Chatham County, as well as to solicit feedback on various energy

information programs. Although they were served soda and pizza, the focus group participants

were not otherwise compensated. They were told the objectives for the focus group upon invitation.

As such, it is highly likely that it was a self-selecting group that has interest and knowledge in

energy efficiency. The opinions of the focus groups do not represent the opinion of all Chatham

County realtors and appraisers.

Our research focused on the residential real estate market because, in the opinion of one of the

focus group appraisers, “the commercial market already values the energy use of a building.” This

particular individual appraised both residential and commercial properties in the area. In his

opinion, commercial buyers inherently take into consideration the ongoing expenses of a property

in a much more “economically-rational manner.”

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Summary of the Chatham County Market from the Perspective

of Area Realtors and Appraisers

Property Communication via Realtors Realtors are hired and, as such, trusted advisors that help home sellers set prices that will maximize

sale price, minimize time on the market and help home buyers identify potential new homes.

Accordingly, realtors aim to provide valuable insight to clients, either on the selling or buying side,

to help clients meet their goals (e.g., sell their homes for a good price, buy a home that fits their

stated goals). A savvy seller’s agent might play up energy efficient features to increase the value or

increase the attractiveness of a home IF the home is noteworthy in its energy efficiency. A savvy

buyer’s agent might request energy information in the discovery process, BUT the request may be

met with various forms of data that could be difficult to compare. We found the extent to which

energy information is part of a real estate action in Chatham County is ad hoc, at best.

In the opinion of the realtors that participated in the focus group, the housing market in Chatham

County, North Carolina does not place an increased value on energy efficiency. An energy efficient

home may sell faster, but it will not sell for more. And in some newer neighborhoods where energy

efficient appliances are pervasive, the lack of energy efficient appliances may decrease the value of

the home. But if the reverse is true, it will not sell for more.

And while, home buyers seem to desire energy efficient homes, or at the very least seek value, home

buying can be a complicated and overwhelming process. The visible features of a home can carry

more weight in the purchase of a home. In the words of one participating realtor, “if perception is

reality, we’re [the real estate industry] loaded in reality.”

Property Valuation by Appraisers Property appraisal is an essential part of the mortgage underwriting process for residential

buildings, affecting how much money prospective homebuyers can borrow, and therefore affecting

home values. To determine value, appraisers can use many different types of valuation methods,

but two very common approaches are 1) Relying on comparables (“comps”), and 2) Using the cost

approach. With the comparable approach, residential appraisers utilize comparisons with similar

properties recently sold in the area to determine value. With the cost approach, ongoing

operational costs for a home can be integrated into the current value of a residence. Homes with

estimated lower ongoing operational costs would have relatively higher values, given the higher

estimated net operating income (NOI) of the home4.

We found that the former is by far the most common approach to appraisal in Chatham County. The

incentive structure for appraisers is to provide their service at a low cost and to appraise the home

at a low price. In order to meet the first objective (service at low cost), appraisers rely on “comps.”

Underwriters are driving the second objective and meeting it is made difficult by the recession and

the use automated valuation models (like Zillow and ValueMap) that are unable to value

subjectively. All four appraisers agreed that post-financial crisis lenders generally pressure

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appraisers to undervalue special features, including features like barn and what the group called a

“deep green” home.

Because they are relying on “comps,” the participating appraisers stressed that they were a

reflection of the market and did not have the autonomy to implant the value of energy efficiency

into an appraisal. The market really means the “mass market.” If the masses are not placing value

on energy efficient homes, then the appraisers are not going to be able to implant that value.

Without data, according to appraisers, energy information at best gets rolled into a “quality of

construction” component.

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Spectrum of Program and Policy Options

The following spectrum of program presents options for local governments to encourage energy information disclosure in residential

property transactions. Options found on the left are less costly to home sellers and/or require less outreach by a local government. As the

spectrum moves to the right, the programs become more costly to the seller and more time consuming to the local government, but

potentially more effective. Many of the options found below are derived from existing programs across the nation; the rest of this study

delves into more detail for each of the policy options.

Develop and use green market listing service to

recognize energy efficient attributes

(Green MLS)

Promote certification systems to differentiate energy efficient homes

on the market

Require 12 months energy bill disclosure by

home seller

Require home energy audits (and disclosure of

results) upon sale

Require a home energy rating system (HERS)

score for homes on the market

Strong

Spectrum of Energy Information Exchange Programs

Weak

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Review of Program and Policy Options in Practice

Across the U.S., city and county governments are beginning to test out policies designed to integrate

energy information into residential property transactions. Energy information is defined as historic

energy use, energy certifications, energy efficiency improvements (e.g. insulation, high efficiency

heating and cooling), and/or appliance descriptions. In this section, we take a detailed look at local

government initiatives in North Carolina and across the U.S., including:

• Green market listing service to recognize energy efficient attributes

• Promote certification systems to differentiate energy efficient homes on the market

• Require 12 months energy bill disclosure by home seller

• Require disclosure of home energy audits upon sale

• Require a home energy rating system (HERS) score for homes on the market

Green market listing service to recognize energy efficient attributes

Triangle MLS In July 2009, the Triangle MLS (TMLS) residential profile sheet was revised to recognize “Green

Building Features” and “Green Building Certifications.” TMLS is a regional multiple listing service

with a jurisdiction covering 16 counties in the greater Triangle region, including Chatham County.

At any given time, the TMLS possesses 20,000 active property listings, and incorporating energy

efficiency features into the system creates a lot of positive potential. Current features that can be

highlighted within the MLS residential profile sheet comprise of the following:

Green Building Features Green Building Certifications

Advanced framing/concrete construction Energy Star light fixtures and appliances Engineered wood products EPA WaterSense plumbing fixtures Rainwater collection Tankless water heater Solar water heater Fresh air ventilation Geothermal heating system (closed loop) No/low VOC paints & sealants Solar power (PV) Sealed crawl space

Energy Star Homes Leed-H Certified Green Home Builders of the Triangle Green

Certified Home N.C. HealthyBuilt Home Certified

However, it can be difficult for potential homebuyers to find energy efficient homes online.

Recently when searching for “energy efficient” homes in Chatham County on realtor.com5, the

Source: Triangle Multiple Listing Service (TMLS), July 2009

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search engine found no properties. This could be because realtors or the TMLS are not properly

entering this information to the searchable online database found on realtor.com.

From our focus groups with realtors and appraisers in Chatham County, the general consensus was

the large number of Green MLS features diluted their value. Moreover, there is no accountability to

accurately reporting information. Realtors sometimes do not fill out all the features, meaning home

buyers may or may not know about these features. Realtors may inadvertently (or deliberately)

misrepresent a property. If use of this is not widespread or wrong, it is difficult for appraisers to

integrate energy features to create a comparative analysis with other homes, as some homes

possess “green” features and others do not, and these features are different across each home.

Appraisers require consistency and quantifiable numbers (e.g., energy bills, home energy rating)

across homes to include these features in home valuation.

Despite its drawbacks, the infrastructure now exists, and combining this with comprehensive

application and education will increase the effectiveness of this effort. Other MLS groups in North

Carolina also include energy efficiency and green building features into their systems. However, at

this point, the Triangle MLS is the only known listing that specifically incorporates these features.

Promote certification systems to differentiate energy efficient

homes on the market

The value of third-party certification: Portland, OR & Seattle, WA

One way to signal the energy efficient features of a home is obtaining third-party certification. If

home buyers become aware of the energy, air quality (and possibly water) benefits of a home,

researchers argue that homebuyers would likely pay more. In Portland and Seattle, this premise

has been put to the test, as the Portland Multiple Listing Service (MLS) and the Williamette County

MLS have been tracking sustainability certifications, including this information in MLS

advertisements, and on the back end, tracking sales data of these homes. Using this sales data and

comparing sustainable third-party certified to non-certified homes, researchers compared sale

values across comparable homes during 2007 and 2008. Overall, price premiums ranged from 3 to

10% for sustainable third-party certified homes in the Portland and Seattle metropolitan areas.

In the Portland metro area, where certified homes were primarily Earth Advantage, or Earth

Advantage and Energy Star, these homes sold at a price premium averaging 4.2% and sold 18 days

faster (30% more quickly) than comparable homes. Ninety-two sustainable certified homes were

compared to 340 comparable homes in this analysis, and these findings are based on appraiser

qualified property comparable results done by Watkins and Associates. Watkins approved between

two and seven comparables for each home, and comparable properties were defined as residences

that possessed the following characteristics:6

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Sold with a closing date no more than 6 months

prior to the closing date of the subject property

Located within the same neighborhood or sub-

neighborhood

Constructed in a similar style based on

photographs and staff determination

Constructed to same degree of quality (e.g., design

and materials) and same age range

Approximately same size (15% smaller to 5%

larger in square feet) and value (20% below to 10% above)

Built with no distinguishing green features

In the Seattle metro area, certified homes sold for an average of 9.6% more than non-certified

homes, but certified homes remained on the market for an average of 5 days longer (40% more

time). The majority of certified homes were Built Green, and these numbers are based upon a

sample of 68 subject homes and 207 comparable residences.7 To create the valuation with these

comparables, Watkins and Associates again played the role of property appraiser, and used the

same appraisal methodology as described above. Taken together, sustainability certifications

created substantial price premium value, as summarized below:

Number of Sustainable

Certified Homes

Price Premium

Time on Market

Certification(s)

Portland Metro Area

92

3-5% 18 days shorter

(30%) Earth Advantage

& Energy Star Seattle Metro Area

68

9.6% 5 days longer

(40%)

Built Green

A key takeaway from these efforts in the Portland and Seattle metro areas is the need to increase

tracking of third-party certified sustainable homes. Doing so would help make these certifications

better known to homebuyers and enable appraisers to build comparables for valuation of

sustainably certified homes. Using existing MLS systems for this improved tracking would reduce

duplication of effort, and help embed sustainability certifications into the existing sales and

appraisal process.

NC HealthyBuilt Homes Certification Program

The NC HealthyBuilt Homes Program is a collaborative initiative that was started in 2005 by the

North Carolina Solar Center, the State Energy Office, NC Department of Administration and local

building professional organizations. The program targets small-to-medium sized home builders

that want to incorporate green building techniques, providing a certificate for homes that meet key

building envelope and insulation requirements. The program also provides builders with support

for meeting Energy Star requirements, which is a requirement of the HealthyBuilt Homes Program.

All homes must be audited to receive a HealthyBuilt Homes certification and to meet Energy Star

requirements, which includes receiving a score through Home Energy Rating Standards (HERS)

“Overall, price premiums

ranged from 3 to 10% for

sustainable third-party

certified homes in the

Portland Seattle

metropolitan areas.”

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Index. The program possesses a lot of momentum in North Carolina. For instance, several Western

Carolina counties have come together to create the HealthyBuilt Homes Program of Western

Carolina (WNCGBC) program to coordinate at the regional level. As of May 1, 2011 the WNCGCB

has had 508 certified HealthyBuilt Homes, with another 312 in progress.8

The Program’s primary focus has been on new homes, but in the past couple years NC HealthyBuilt

Homes has increased its focus on existing homes. According to Dona Stankus, NC Healthy Built

Homes Program Director at the NC Solar Center, the use of HERS for existing homes has increased

recently. Many recently retrofitted single-family upscale homes in Charlotte and Cary have used

the methodology, and Raleigh-based Builders of Hope uses the HERS Index for all of its retrofitted

affordable housing homes.

Require 12 months energy bill disclosure by homeowner

Montgomery County, MD

In 2008, the Montgomery County Council passed legislation requiring single-family home sellers to

provide electricity, gas and home heating oil bills for the 12 months prior to the sale. Initially, the

Council deliberated whether to include a mandatory home energy audit as part of a home

inspection completed in connection with the sale. However, the Council had concerns about

requiring energy audits because it would add to the cost of selling a home. Ultimately, the Council

decided that the County’s Sustainability Working Group should evaluate options to encourage

homeowners to conduct a home energy audit before the sale of a single-family home, but did not

make such audits mandatory.

County officials recognize that utility bill disclosure has some substantial limitations as a clear

indicator of a home’s actual energy performance. The inherent energy efficiency of a home is only

part of the equation. The way an occupant “uses” that home also influences the past 12 months of

energy bills. Nonetheless, they feel it is at the very least uniform information that can be included in

real estate disclosures9.

Eric Coffman, Senior Energy Planner for Montgomery County, explained that creating a partnership

with a key stakeholder for the energy disclosure bill, the Greater Capital Area Association of

Realtors, played a large role in its success (GCAAR). Specifically, the MCDEP worked with

representatives from GCAAR to construct a draft bill that both sides agreed to prior to bringing the

bill in front of the County Council. Having the largest realtor association in the County behind the

bill helped sway more “business-friendly” council persons, and also may have helped get the bill in

front of the Council more rapidly.

The energy bill disclosure rule took effect January 2009, and applies to owner-occupied single

family homes and condos that are individually metered. The law requires that the following must

occur before a home contract is signed10:

Seller must provide copies of applicable electricity, gas and home heating oil bills, or a cost

and usage history for the 12 months immediately prior to sale. If the home was only

occupied for part of the past year, energy bills are required for the months that the home

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was occupied. Disclosure is not required if the home was previously unoccupied for the

entire 12 month period.

Seller must provide buyer with approved information to assist home buyers in making

energy-conservation decisions. Information should include documents discussing the

benefits of home energy audits, and energy efficiency improvements (e.g., insulation,

heating and cooling, financing etc.)

According to Mr. Coffman, the majority of realtors provide utility bill information in the initial

packet provided to prospective buyers. However, realtors sometimes only provide the information

at close of sale; the legislation did not require a specific time that a prospective homebuyer must be

provided with energy bill information.11 A lack of clear enforcement mechanism limits the

program. Mr. Coffman noted that the law could be enforced as part of the County’s general real

estate disclosure laws, but this is reactive and takes effect only if an individual is denied the right to

the disclosure.

Currently, the County does not have a tracking mechanism to determine if the information is being

shared and if the information is useful to the consumer. In the future, the County would like to

learn if the disclosure has actually increased the value of homes with higher efficiency levels and/or

had an impact on the mortgages of homebuyers.

Require home energy audits (and disclosure of results) upon

sale

Austin, TX Time-of-sale disclosure requirements derive from the idea that access to energy consumption

information will change real estate transactions, by integrating the ongoing operational cost of

energy into property values. That said, instead of requiring specific home retrofits, which could be

politically unpopular and also more expensive to the homeowner, the city of Austin decided to

require energy performance disclosure. Just as a home must have a termite inspection and disclose

results, homes in Austin now must have an energy audit, which typically costs between $200 – $300

for a typical 1800 – 2200 square foot home.12

The legislation, entitled Energy Conservation, Audit and Disclosure Ordinance (ECAD) took effect in

June 2009, and was the first audit-based disclosure policy in the United States. To create a policy

that would work well in the typical real estate transaction process, the city created a task force of

25 stakeholders to create the policy. The Austin Board of Realtors (ABOR) advocated for making

audit results part of the standard real estate disclosure process, instead of creating a standalone

initiative, and the task force agreed. Specifically, the Austin Ordinance requires for the following for

residential homeowners: 13

If a single-family home was ten years or older on June 1, 2009, the owner must hold an

energy audit before selling. The audit will include a walk-through evaluation and duct

pressure testing.

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Owner must disclose the audit report to the buyer when title documents are filed with the

County.

Owner must send a copy of the report to Austin Energy 30 days after audit completion.

Beginning in June 2011, multi-family units ten years or older (as of June 2009) must hold an

energy audit before selling. Results of the audit report must be posted in prescribed

building locations, and provided to individual tenants.

As of June 2010, 4,075 Austin residential homeowners have had their properties audited for energy

consumption, and disclosed findings to prospective buyers. The city expects about the same

number of audits each year. The program has helped increase participation in DOE’s Home Energy

Rating System (HERS), and energy efficiency has become more prominent in the real estate

marketplace. However, the timing of when audit results are provided to prospective buyers is

currently towards the end of the buying process – practitioners at Austin Energy suggest moving

disclosure of audit results earlier in the process to further assist homebuyers in evaluating home

energy performance.

Require home energy rating system

(HERS) Index score prior to sale

The Home Energy Rating Standards (HERS) Index is a

scoring system established by the Residential Energy

Services Network (RESNET). The average home (based

on the 2006 International Energy Conservation Code)

scores a HERS index of 100, while a net zero energy

home scores a HERS Index of 0. The lower a home’s

HERS Index, the more energy efficient it is in

comparison to the HERS average home. Specifically,

each 1-point decrease in the HERS Index corresponds to

a 1% reduction in energy consumption. Accordingly, a

home with a HERS Index of 85 is 15% more energy

efficient than the HERS average home, and a home with

a HERS index of 125 would be 25% less energy efficient

than the HERS average home. Only contractors that

have undergone HERS-specific training can calculate

a HERS Index. One large advantage of the HERS Index

system is the straightforward scale, which allows for a concrete comparison of energy efficiency

between homes.

Although the HERS Index was originally developed for new homes, the system can also be used for

existing homes if HERS accreditors can 1) visually see the insulation in the attic and walls to assess

whether insulation is installed properly and 2) assess the air leakage rates around windows and

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doors. In North Carolina, the use of HERS for existing homes has increased recently. Many single-

family upscale homes in Charlotte and Cary have used the methodology, and Builders of Hope uses

the HERS Index for all of its retrofitted affordable housing homes. As of February 2011, nearly 1.2

million homes have a HERS Index score nationally, including 22,759 in North Carolina14. At this

time, the number of existing homes that have received HERS Index scores has not been tracked at

the national or state level.

Summary of Focus Group Program Perspective

Our research team discussed the possibility of requiring a HERS Index score for homes being sold

with the two focus groups; both appraisers and realtors liked the idea. Importantly, both realtors

and appraisers knew what a HERS rating was without explanation. Their main reason for

supporting such a program varied. Realtors liked the idea of having a straightforward score to use

to explain energy efficiency to prospective homebuyers. One realtor noted that they needed a

“miles-per-gallon” equivalent to talk about the energy use of a home. HERS got close to that.

Appraisers look for quantifiable numbers to use for comparables and valuation analyses, and the

HERS Index could fill this need if all, or at least the majority, of homes possessed a HERS score.

Given the need for broad use and understanding of the HERS Index for it to be very useful to

realtors or appraisers, making HERS a requirement – compared to voluntary – would likely have

more of an effect in integrating energy efficiency into home values.

But getting a HERS rating would be an additional cost to home sellers, and in a strained housing

market, this concerned realtors. Audits would also be costly, and one realtor noted that old NC

farmhouses would fail a blower test even though they were built to be fairly energy efficient (i.e.

passive solar).

As such, both groups narrowed on the disclosure of 12 months of energy bills as an indicator of a

home’s energy demand. Although the realtors noted that energy bills are as much a reflection of

human behavior as the inherent energy demands of a home, it represented a low-cost, easy-to-

understand and fact-based measurement. The appraisers appreciated the hard numbers that

would enable comparisons between homes to be quantitatively made, providing a potential

mechanism for incorporating energy efficiency into comparables analysis.

One realtor suggested an improvement to this approach. This realtor in particular worked with

elderly people and felt that they would have a hard time retrieving this information. It would be

better if the county could partner with the energy provider to directly provide that information to

the realtors. Although realtors in the focus group bemoaned the thought of more paperwork, they

noted that it would simplify the process if the realtor was able to directly request/receive energy

bill information from the utility. The Montgomery County website links to a utility company contact

list to help home sellers obtain information on requesting energy usage and cost information.

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This is a real opportunity for public power providers. “Electricities” (as they’re referred to in North

Carolina) could develop an energy efficiency program around the requirement and easy provision

of energy bills to home sellers and their agents.

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Recommendations for Program Design

The above analysis demonstrates that there are a wide range of options for trying to incorporate

the value of energy efficiency into home values. Using our analysis as background, we recommend

requiring 12 months of energy bill disclosure early in the home buying process (i.e. most likely in a

homebuyer’s initial packet of information about a home), either by the homeowner or utility. Key

reasons for this recommendation include:

Requiring energy bill disclosure does not add to the costs for either the homeowner or

homebuyer.

Appraisers need consistent and quantifiable numbers for comparable analysis and

ultimately valuation. Only widely-provided energy bill data or a HERS rating would fulfill

this need.

Realtors and appraisers speak about the need for the “general market” to understand and

feel impacted by energy costs to integrate energy efficiency into home values. Widespread

dissemination of energy bill data will as part of home buying process will tangibly increase

awareness.

Ultimately, the focus group participants stressed the need for a comprehensive, mandatory and

quantifiable approach.

The realtors agreed that the use of formalized policies could help organize and standardize the

market. An overarching policy could help sellers know what they could expect, anticipating the cost

recovery for energy efficiency investments, and would allow buyers to shop and compare,

integrating energy information into their home-buying decision.

With regards to the voluntary vs. mandatory program debate, appraisers highly value certainty and

consistency. Every home has a certain number of bedrooms, and if every home had a certain HERS

Index score or provided energy bill data, then it could more likely be incorporated into the

appraisal process. Moreover, if all homes in a given region possessed a certain energy efficiency

characteristic (e.g., HERS Index, energy bill data), appraisers would be able to more easily explain

the given characteristic to lenders, and why it should be included in a home’s valuation. Moreover,

if consistent and clear, the energy data could be better understood by realtors and homebuyers.

Appraisers were partial to mandatory program options that included quantification of energy costs

or savings, rather than voluntary or rebate programs. One expressed reason for this bias to

quantification is appraisers really need hard data for comparables to even think about

incorporating a given housing characteristic into their valuation models. Along this line of thought,

the appraiser focus group participants more strongly supported policy strategies such as requiring

disclosure of energy bills for a given amount of time (e.g., 12 months) or requiring homes to get an

energy rating, such as the HERS Index.

With comparables, having 10% of homes that provide such energy documentation could be

marginally helpful, but broader usage consistency within a given region would be particularly

useful. Appraisers always have information in Fannie Mae’s Uniform Residential Appraisal Report

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(URAR) on square footage and number of bedrooms in a home, and possessing consistent and easily

comparable numbers relating to energy efficiency and energy use would simplify and standardize

integration. Without consistent energy usage information, residential appraisers are likely to

continue to rely on other key home features (e.g., square footage, bedrooms, kitchen appliances

etc.) when making valuation decisions.

Recommendations for Moving Forward

Evaluate the impact of the GreenMLS and 3rd party certifications

Although the realtors and appraisers anecdotally dismissed these two modes of

communicating energy information, quantifying their use and impact would better confirm

or refute their feelings.

Research methods and legality of intervention

Our research focus on potential structure and design elements of an energy information

program. Should Chatham County choose to implement an energy information disclosure

program, it will need to understand its legal authority to do so. The Environmental Finance

Center will work with Chatham County on this investigation.

Work closely with realtor associations to develop a policy on which both parties

agree

Both Austin and Montgomery County cited a close, working relationship with realtor

associations as a key to implementing their program. No matter what the approach, it will

be important to communicate and coordinate with these critical stakeholders.

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ACKNOWLEDGEMENTS

This report was a collaborative effort within EFC and with several supporting organizations. We

extend special appreciation to our generous funder, the Z. Smith Reynolds Foundation. We thank

Sybil Tate and the Chatham County Green Building and Sustainable Energy Board for their support

and feedback during the research process. We also thank the following realtors and appraisers that

spent an evening discussing energy efficiency with us.

1 “The Save Act: Factoring Expected Energy Cost Savings into Loan Underwriting”. Institute for Market Transformation. 2010. 2 Census Quickfacts: 53% of North Carolinians lived in the same house in 1995 and 2000, pct 5 years and over. http://quickfacts.census.gov/qfd/states/37000.html 3 “Importance of Energy-Efficient Features to Buyers”. National Association of Realtors. Dec. 2010. Accessed at: http://www.realtor.org/research/economists_outlook/commentaries/commentary_energy_eff

4 Adomatis, Sandra (SRA). “Valuing High Performance Houses”. Appraisal Journal. March 2010. http://www.thefreelibrary.com/Valuing+high+performance+houses.-a0226632591

5 Authors searched realtor.com for a home within 20 miles of Pittsboro, North Carolina that was designated as an energy efficient home. May 24, 2011. http://www.realtor.com/realestateandhomes-search/Pittsboro_NC/type-single-family-home,mfd-mobile-home,condo-townhome-row-home-co-op/pfbm-1000000000000000?ml=4 6 Griffin, Ann. “Assessing the Market Impacts of Third Party Certification on Residential Properties”. Earth Advantage Institute. May 2009. 7 Ibid. 8 “HealthyBuilt Homes of Western North Carolina”. Western North Carolina Green Building Council. Accessed May 1, 2011. http://www.wncgbc.org/healthybuilt/

9 Email exchange with Eric Coffman, Senior Energy Planner (Montgomery County, MD). May 23, 2011. 10 “Disclosure Fact Sheet for Consumers”. Montgomery County Office of Consumer Protection. Accessed Dec. 2010 at: http://www.montgomerycountymd.gov/content/ocp/Energy/pdf/disclosure_consumers.pdf

11 “Conversation with Eric Coffman, Senior Energy Planner (Montgomery County, MD). Jan. 6, 2011. 12 “ECAD Ordinance for Single-Family Homes”. Austin Energy. Accessed January 2011 at: http://www.austinenergy.com/About%20Us/Environmental%20Initiatives/ordinance/single-family.htm

13 “Using Energy Information Disclosure to Promote Retrofitting”. Climate Academy Network. June 2010 14 Conversation with Service Representative, Residential Energy Services Network (RESNET). March 2, 2011.