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
1
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
3
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.
13
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.
15
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
17
(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.
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