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The Quick Green Blog - An Appraiser View

Hi Performance = Energy Efficiency = REAL $$
June 14th, 2010 12:51 PM

If you're in the market for a HI-PERFORMANCE home, you expect:

  • Reduced monthly utility expenses
  • Increased value

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.


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Posted by KARIN ARGERIS on June 14th, 2010 12:51 PMPost a Comment

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