A property’s energy demands: an evolving factor in marketing

This article correlates the real estate market with the energy consumption demands of property in an explanation about why energy will increasingly affect the pricing of a home and the activity of an agent when selecting which properties to list and which to show.

The future is green

As California’s energy supply struggles to adjust to unrelenting population growth and ever-advancing technology, the search is on for renewable local energy sources and innovative ways to further increase a home’s energy efficiency. Buyers and sellers of real estate are becoming progressively aware that a household is a heavy consumer of electricity, gas and other fuel sources, the use of which must be monitored and rationed wisely.

Utility bills have always been an important cost factor when considering homeownership. However, most individuals do not realize that the actual structure of the home they live in can have a positive or negative impact on the monthly cost of their energy consumption. More than just turning off unused lights or running the sprinklers fewer times a week, the way a home is built has a drastic impact on how much energy it needs and expends to lower or raise the temperature, heat water and power appliances.

Having an energy-efficient home is becoming increasingly important to discerning, budget-wary homebuyers. Utility costs are extremely volatile. A necessary change in the behavior of homeowners is at hand: one that will accommodate more “enlightened” energy consumption. Public policy encouraging collective sustainable energy use is shaping the real estate market — builders, brokers, lenders and buyers — into a loose contingent acting as a strong proponent of eco-friendly homeownership.

Fear of an energy shortage is driving the search for ways to use sustainable fuel sources. The technology industry has necessarily shifted its gaze toward the future availability of fossil fuels, electricity and other sources of power used minute-by-minute in the lives of every human being. In the nucleus of everyday life — the home — changes must be made to increase sustainability and efficiency to stave off a day in the distant future when the modern world runs out of energy.

Energy efficiency is a trending topic

Living a “green” lifestyle is a concept that has permeated the American psyche through more than just their current utility bills. Public policy, social media and general culture all encourage individuals to make eco-friendly lifestyle choices. The intensity with which the general public supports energy efficiency is a new occurrence in the 21^st century (a product of technological advancement), and the personal ramifications of environmentally conscious choices by individuals are only now coming to fruition.

Historically, the decisions people make with the most impact on their life involve where they work, live and raise their families. The cars they drive and the homes they buy are secondary commitments made to accommodate the primary ideals. Recently, however, American culture has placed greater emphasis on how individuals want to accomplish these goals more so than where. As a result, and with increasing frequency, people are choosing their cars and homes first, and then molding their lifestyles around their assets.

As a sustainable lifestyle has gained popularity as a symbol of affluence and social concern, energy efficiency in the home has gained momentum. The need for renewable resources creates demand for efficient homes and plays a more significant role in the education of homebuyers and the qualifications of a real estate agent. The visionaries advocating environmental sustainability — brokers and bidders — are looking at this shift in decision making as a nod toward the future of new and used home sales.

California energy consumption

The greatest road block for widespread energy efficiency is not the talk of change but the lack of follow-through. In 2009, approximately 33% of electricity use and 54% of gas use in California came from residential properties. Even in the midst of the economic downturn and more costly utility bills, the use of these resources in the home continues to increase with no sign of slowing down. That’s because unplugging electronics and taking shorter showers does little to decrease the cost of running a home compared to what energy-efficient renovations can do, and those renovations don’t come cheap.

In today’s post-Millennium Boom culture, homeowners are receptive to living more efficiently, but are not aware of the government programs sponsoring and subsidizing smarter consumption. It is up to agents and brokers to do their homework — learn — and keep their buyers and sellers well-informed about the subsidies and grants available for those who renovate their homes.

Building frugal habits is important, but the real game-changers in household efficiency come in the form of construction improvements. The federal government is developing a series of programs to encourage homeowners to make their homes more energy-conscious and motivate homebuyers to look for homes in locations and with improvements that consume less energy (or, better yet, produce more energy than they consume).

The federal Home Energy Score is being developed as a rating assigned to each home by an energy specialist. Using this rating system, buyers can determine how much energy the home expends and causes inhabitants to expend due to its current state and location. Homes with a high score require the expenditure of a large amount of energy, while homes with low scores are more efficient and better located. For homeowners and sellers, the specialist will suggest changes to improve the score.

Once every home nationwide is scored, buyers and sellers will be looking to purchase a home with a desirable Home Energy Score — adding another layer of competition between sellers and listing agents. Homes with low scores will be more desirable and thus more valuable than homes with higher scores. Builders will be motivated to construct new homes with the Home Energy Score in mind. They will be better able to compete with multiple listing service (MLS) resale agents who must encourage sellers to spend money on renovations in order to drop their energy score. [For more information regarding the California Home Energy Rating System, see the August 2010 first tuesday article, Energy efficiency in the home: Not just for hippies.]

If homebuyers want to improve the Home Energy Score of a prospective property by renovating, Fannie Mae, Freddie Mac and Veterans Affairs (VA) are offering the option of an energy mortgage. Energy mortgages provide funding for the purchase price of the property and the construction of energy-efficiency improvements that will save homeowners money on their utility bills. [For more information regarding energy mortgages, see the November 2010 first tuesday article, Energy mortgages: monthly savings take you from red to green.]

Homeowners can use the subsidies now available from the government and mortgage funds they receive to improve their home by:

• replacing windows with newer, better sealed double-panes to trap in warm or cool air;
• sealing doors, attics and other openings to trap in warm or cool air;
• installing solar panels on their roof;
• replacing their water heater with a more efficient tankless water heater; or
• replacing their water heater with a geo-thermal water heater.

Other states are well on their way to reducing the energy consumption of each household through mandated efficiency improvements. Hawaii, for example, mandates the installation of solar panels onto the roofs of every new home built — a paternal guidance from the local government nudging builders and homeowners to do what is best for the collective society. The cost is included in the price of the home — a one-time cash outlay no differently done than the cost of the roof on which it rests. This will save the resident money in the long run as they supplement the costly electricity from their utility company with the renewable energy they are receiving for the original cost of installation, no monthly charge involved.

The future influence of real estate professionals on energy efficiency

Presently, very few homebuyers are advised by their agent to base their decision to purchase a home on its sustainability and energy-efficiency. Essentially zero homebuyers receive any disclosures on this material fact affecting their ownership of a property. There is no discussion of the costs of operating it as a user of the property, or the costs of renovation for energy efficiency and reduced monthly utility billing. However, all signs point to this energy efficiency factor holding significant weight in the future of pricing for a resale when a home’s energy score is made public.

Most homeowners have no idea this option is even available. Unfortunately, most agents and their brokers don’t either. A forward-thinking MLS agent will see these coming shifts in consumer thinking as an opportunity to label himself as an expert in energy-efficient homeownership.

First-time Generation Y homebuyers, peaking in population during the coming decade, will certainly demand their agent know every option available and provide them with an informed, clearly stated opinion about what kind of home they need and type of financing they can use to pay for it. Energy efficiency will become a crucial component in their search for their dream home. Those agents who wait too long to learn about buyer options risk of being left by the wayside. [For more information regarding Generation Y homebuyers, see the October 2010 first tuesday article, The demographics forging California’s real estate market: a study of forthcoming trends and opportunities — Part I and Part II.]

first tuesday recognizes the importance of informing homeowners and homebuyers about their home’s energy efficiency now, and anticipates the significance energy will have as a real estate market volatility factor as homebuyers increasingly consider where they will buy and live based on a home’s impact on their consumption of resources. Just like the shift from gas to electric cars was only a wild dream up until recently, homes that produce more energy than they consume will one day soon rule our market.