Do energy efficient features increase a home’s selling price?
- Yes. (72%, 13 Votes)
- No. (28%, 5 Votes)
Total Voters: 18
This article explains how to effectively market a property’s energy use to ensure a desirable listing in today’s recessionary housing market. See Part 1 for more information on listing energy efficient properties.
Strategies when selling
Homes with an energy efficiency rating sell for 2.7% more on average, according to Freddie Mac. Simply having an energy rating doesn’t mean that a home has energy efficient improvements, just that an energy audit has been conducted on the property.
Thus, it is homeowners with energy efficient features to show off and enhance the value of their property who are more likely to order an audit at their agent’s request. For the seller’s agent, this is one more advantageous marketing tool in the packaging of the property for prospective buyers — a green arrow in the quiver.
The Home Energy Rating System (HERS) index is the U.S. standard rating system for energy efficiency in the home and one that real estate professionals often run across.
The baseline rating is 100. A score higher than 100 means a home is less efficient, and thus more costly to own and operate. A score lower than 100 means the home has more energy efficient features and thus costs less to operate.
For example, a HERS score of 50 means the home uses 50% less energy to operate than a newly built home using roughly 80% less energy to operate than the typical resale home. A negative number means the home puts more energy back into the grid than it takes, and the home is designated a positive energy home.
To find a certified HERS rater in California, visit the California Energy Commission.
Nationwide, homes with solar panels have an even greater premium, selling for 4% more than comparable homes without solar in 2019, according to Zillow. Here in California, the premium is slightly less — likely due to the ubiquity of solar — but solar homes still sell for 2%-3% more than comparable properties depending on the metro area.
Sample buyer operating costs sheet
| Without energy improvements | With energy improvements | |
| Home price | $600,000 | $619,300 |
| Mortgage amount | $540,000 | $557,300 |
| Monthly payment | $3,960 | $4,090 |
| Energy bills | $295 | $130 |
| Energy bills + monthly payment | $4,255 | $4,220 |
| Monthly savings | — | +$3,535 |
| Savings over a ten-year period | — | +$4,200 |
However, to obtain a higher price, the seller’s agent first needs to inform potential buyers about the listing’s energy-saving improvements through their marketing efforts.
To best do this, ask your seller to authorize you to order an energy audit. Then advertise this green condition and the rating when marketing the property to locate a buyer. Provide it to prospective homebuyers at an open house when negotiations begin — on their further inquiry into the property details as they are then identified as a prospective buyer.
When your seller refuses to order a full energy audit, ask for their detailed cost-of-utilities information. With the data, prepare a cost-comparison sheet so buyers can compare the energy cost of your seller’s energy-efficient home with a similar energy-inefficient home down the block. Circle or highlight the monthly savings to bring it to the attention of potential buyers as justification for paying a higher purchase price. Prospective buyers who think green will be more likely to pay top dollar. [See RPI Form 150, §12.h]
While a cost-comparison sheet is better than nothing, sellers in today’s recessionary environment need to be extra competitive and willing to take extra steps to impress homebuyers. Sellers who are unwilling to budge on releasing their homes’ operating costs during a buyer’s market will inevitably find their home sitting on the market.
Agents may well consider cutting these types of sellers loose, or otherwise risk expending time, talent and money on a dead-end listing.
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Listing an energy efficient home
When given the opportunity to list a home with energy-efficient features, proper marketing is helpful to more effectively locate a buyer who is willing to pay the listed price for the property. Curiosity also stimulates the minds of those buyers to inquire further into energy efficient homes. When aware, they will likely be more interested — energy efficiency has to do with money.
Seller’s agents need to demonstrate how the listed home stands out over other homes on the market. Essentially, how the home is uniquely different from the pack of other homes for sale in the area? The home’s neighborhood is pivotal, as every home in a neighborhood is going to trend toward an average price per square foot.
The marketing task of the seller’s agent is to communicate to potential buyers that the energy-efficient home is actually a better deal than comparable homes lacking energy efficiency. To best accomplish this, a property operating cost analysis worksheet is prepared, itemizing data on the seller’s monthly operating expenses a buyer will likely experience as owner of the property. [See RPI Form 306]
Related FARM Letter:
Comparing investments
For most families, buying a home is an emotional event in addition to a financial one.
However, cost data on a worksheet speaks louder than feelings. Buyers who are well-informed about the conditions of a property by the seller’s agent feel more certain they are getting the most for their money.
Communicate the savings to potential buyers by comparing the operating costs of an energy-efficient home with that non-energy-efficient home down the street. This will show the buyer exactly how much they will save in ownership costs each month – real savings illustrated with real numbers. An alert agent will further demonstrate the long-term savings the buyer will receive over the years. [See RPI Form 306]
An operating cost sheet, together with a Comparative Market Analysis (CMA) presentation, demonstrates a more expensive house with the right energy features absolutely pays off in savings over the long run. [See RPI Form 318]
A little effort is required of the seller’s agent and the seller to gather the energy cost data on the listed property. However, with the help of the energy company, an agent can determine the monthly energy savings for energy upgrades. Presently, much effort by a buyer’s agent is required to get sellers’ agents to release the energy costs incurred by their sellers which do not have energy-efficient improvements.
The seller’s agent needs to encourage the seller to give them authorization to order out a home energy audit from a Home Energy Rater certified by the Department of Energy.
Check out the fees charged by home energy raters. Be prepared to show the seller how they can help you assemble a comprehensive marketing package on the property.
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Making it easy for clients
The ostensible goal of a seller’s agent is to make the home buying process as simple as possible for prospective buyers of the listed property.
All too often, seller’s agents throw up their hands when dealing with inquiries from buyers and buyer’s agents into the operating details of a property, claiming, “It’s not standard practice for the seller’s agent to get you this information.” That’s a punt. When a seller’s agent shirks this duty, the buyer heads out the door and down the street. Most likely, they will find another house offered by a more proactive agent who has done their homework — more buyer-friendly — and has the information in printed form ready to hand to them.
Further, first-time homebuyers will certainly look for an agent who knows every option available. One who will provide them with an informed, clearly stated opinion about operating costs, backed by real numbers.
But what if the listed home is anything but energy-efficient — complete with minimal insulation, behemoth water heater and drafty windows?
Marketing the energy-inefficient fixer-upper
You may have seen the flashy TV show: a buyer visits multiple run-down listings with an agent and contractor in tow. The contractor informs the buyer how much improvements would cost, and what can be improved within their budget.
However, most buyers cannot afford to hire a personal contractor to accompany them to each house they’re interested in. Further, seller’s agents typically fail to invest time researching their listed property’s energy efficiency, and buyer’s agents are functionally not in a position to do so beyond asking for the information.
Seller’s agents of properties with built up deferred maintenance needing renovation need to be made to understand they have legwork to do. By working with a contractor to find out how much it will cost to install energy-efficient improvements, the seller’s agent takes the guesswork about the property out of the equation for buyers and their agents — work done on behalf of the seller, the client.
The cost of energy-efficient improvements offers a higher rate of return than other, more cosmetic improvements. Thus, buyers can feel comfortable about installing suggested improvements.
Editor’s note — In California, solar panels owned and operated by the homeowner create on average a 97% return on investment through an increase in property value — pricing — after accounting for federal and state subsidies. This price gain is in addition to the actual energy costs saved each month.
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