Momentus 2013 for Residential Green Building Movement

The momentum created in 2013 towards a healthy residential green home market can be best summarized by four documents, 2 studies and a piece of  proposed bipartisan legislation. 

It is impossible to value green homes without data that accurately details home features designed to increase energy efficiency, sustainability, or healthy living. For property owners in the US, most home sales data is recorded through the Multiple Listing Service (MLS). There are over 900 independently owned MLSs collecting data fields on properties across the country. These independently owned MLSs are, quite literally, the brains of the residential and commercial real estate transaction. In the largest metro areas of the US, multiple listing services include data fields that reach for higher standards of home energy efficiency and sustainability. Version 1.2 of the Real Estate Transaction Standard Data Dictionary was published in November, 2013, and includes clear definitions of green fields for MLSs to implement.  The MLS Green Implementation Guide offers additional guidance to MLSs that have not taken the opportunity to upgrade green property data fields. It will also assist MLSs that wish to migrate to green data fields which have been documented in the Real Estate Transaction Standard Data Dictionary as part of an overall data dictionary compliance strategy. These documents will serve as guidance for specific and consistent green data sets for MLSs nationwide.

The Valuation of Green Buildings: Background and Core Competency was produced by the Appraisal Practices Board (APB) as a first exposure draft to stakeholders in July of 2013. It is the first document that clearly establishes best practices for appraisers to value green buildings in an ethical and competent manner. Although the document will not be finished until 2014, the first exposure draft was open for public comment in July of this year. One of the most intriguing notes referred to appraisers having to pay attention to the potential for a “brown discount” to establish the correct valuation of properties. Homes subject to a “brown discount” are homes in active green markets without green upgrades and subject to obsolescence.

Another document that further reinforces the need to accurately account for the green premium of high performance homes was Unlocking the Value of an Energy Efficient Home; A Blueprint to Make Energy Efficient Improvements Visible in the Real Estate Market by CNT Energy and the National Home Performance Council. This document created a blueprint for addressing the disconnect that exists between the energy efficiency program administrators, the real estate community, and the homebuyer and seller. A common issue among real estate agents is that selling a home with a granite countertop and new kitchen cabinets is easier than selling energy efficiency improvements. Energy efficiency improvements may be invisible to potential homebuyers; the essential question is how does an agent sell the invisible? Unlocking the Value of an Energy Efficient Home; A Blueprint to Make Energy Efficient Improvements Visible in the Real Estate Market seeks to find ways that energy efficiency programs can create stronger linkages in order for the real estate industry to be able to feature consistent, standardized data about energy efficiency features in existing homes that can be taken into account by buyers, appraisers, lenders, and others during the home sales transaction.

In Mid-March of 2013 a ground breaking study of energy efficient homes and was released by the University of North Carolina at Chapel Hill Center for Community Capital. In the study author Dr. Nikhil Kaza states that owners of energy efficient homes are 32% less likely to default on their mortgages and that "the mortgage-lending process does not include the financial benefits of energy efficient savings in its underwriting decisions."

In a year of great import for establishing the value of green homes, Exploring California PV Home Premiums was released on December 12^th. A new study from Lawrence Berkeley National Laboratory found that houses with rooftop solar panels sell for higher prices than comparable non-solar homes. California home buyers are willing to pay a premium for solar PV installed on resale residential properties.

Among the houses studied, that value of homes with solar PV systems had a premium of $5,900 for each kilowatt that an array can generate. Most home solar systems included in the study produced between 2 and 5 kilowatts of electricity. Older PV systems sold at less of a premium than new systems. 

In addition to the industry momentum towards accurate valuation of green homes, the SAVE ACT, a bill aimed at encouraging home energy efficiency improvements by establishing underwriting guidelines for mortgage lenders that factor in cost savings for homeowners, was reintroduced to Congress in 2013.
The Sensible Accounting to Value Energy Act of 2013 is sponsored by Sens. Michael Bennet, D-Colo., and Johnny Isakson, R-Ga. The bill has been referred to the Senate Banking Committee and has the support of many real estate industry trade organizations.  

These documents, studies and legislation are excellent markers of the national momentum towards ensuring that the high performance home market is accurately measured both in terms of the data fields that are available to buyers, real estate agents, and appraisers, as well as correct valuation of the green premium. That all of the documents were created or produced in the same year is clear evidence that 2013 was significant to the high performance home industry.

 

 

The effects of uncertainty

I have been invited to be a panelist for ISO New England’s Consumer Liaison Group meeting on December 5^th.  The panelists have been asked to give their thoughts on Impacts of ISO and Government Decision Making on Retail Rates.

As you may know, ISO – NE is the non-profit market monitor of New England’s power grid. Their job is to make sure that the lights stay turned on, as well as make sure that the wholesale power market is operating in a fair and transparent way. 

The impacts of how the power market is legislated, planned, and monitored certainly have a powerful impact on retail power rates. The real impact however, is not so much on the retail rate, but on the end user. The impacts are on family owned businesses here in New England, on business decision makers that are asking themselves questions like: Should we hire more people? Should we expand our product? Should we drop our prices to compete more effectively? Should we cut a shift? How low can our margin drop before our business is still viable?

Granted, we are existing in an environment in which there is a true energy paradigm shift. The decisions being made today about how we how create energy, and how we consume power are ones that will have long lasting impact. Questions about the value of renewables and distributed generation, of the true cost of carbon and fossil fuels, of the investment in our power grids infrastructure and security are deep and inevitably will create uncertainty for business decision makers.

The uncertainty before us, unfortunately, is not just limited to the production and consumption of energy. Coupled with deep political and economic uncertainty we have created an environment for business decision makers that is very difficult to function in. Our leaders owe them more than deep uncertainty.December 5th Meeting ISO New England

Green building litigation coming to a state near you

A lawsuit in Colorado illustrates some of the challenges that Massachusetts real estate agents, builders, appraisers, and lenders should all begin to pay attention to as the high performance home market in this state matures.

As I understand it, the suit alleges that the builder and listing broker marketed the property as LEED certified. The builder had completed a HERS rating test prior to the sale; the home’s HERS rating* was exceptional (at least from an energy efficiency perspective).  However, the builder registered the home with the US Green Building Council (USGBC), the administrator of LEED performance, but never completed the formal certification process.

The new homeowner alleges that the property was misrepresented in its marketing materials. Misrepresenting, whether knowingly or unknowingly, “green” products by marketing them as being more environmentally friendly than they actually are is known as greenwashing.  The outcome of the suit will be of interest to all of us involved in the green building industry. Certainly, with a HERS Rating of 13, the home clearly fits into the high performance category. However, the marketing of the property as LEED certified is a clear misrepresentation.

I am of the belief that any building that has been, or is in the process of receiving; a green certification should be listed by a real estate broker who is a National Association of Realtors (NAR) GREEN Designee. The NAR GREEN certification is rigorous; the course load covers nationally recognized green building certifications as well as appropriate marketing of high performance/energy efficient/green homes.

*A HERS rating of 100 is an average new construction building, most old housing stock in the US averages around 130, and a home that provides as much energy as it uses (usually with the aid of a  PV solar system) achieves a 0 HERS rating, often referred to as a net-zero home. The Colorado home was HERS rated at 13.

The Benefits of a High Performance Home

As the market is picking back up, we're seeing more and more new home construction and a flood of new buyers. In fact, recent studies from McGraw-Hill Construction show that one in five homes built in 2012 were considered 'green'.

The benefits of more sustainable homes come in many forms. Living in a high performance home provides a healthier indoor environment for families. Home owners can also expect cost savings due to durability and increased efficiency, and overall a more comfortable place to live. People say you can actually feel the difference when inside a home that's been built with sustainability in mind. 

It certainly doesn't hurt that studies also show home owners looking to sell a high performance home can expect to see a boost in the sales price. Single family homes with a green certification actually sell for about 9% higher than their non-green alternatives. So if you're looking to buy or sell your home soon, take a look at these numbers and studies to gain a clearer perspective on how sustainable features could benefit you and your family. If your home is newer, you may have a good number of efficient features already present!

Upgrading to a green home may be an option for you, but remember most of the housing stock here in the Northeast was built before 1940 when building codes didn't factor energy efficiency and sustainability. It is possible, through thoughtful retrofits, to make a brown home more energy efficient. This may be an excellent way to increase the value of your brown home. In a recent draft of new national guidelines for bank appraisers to establish proper valuation of green buildings the Appraisal Practices Board states that appraisers should be aware of "a brown discount for existing buildings that don't green up."

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National momentum on green building valuation grows...

Team work. This graphic of the players needed in the green build and sales process (courtesy of NAR and the MLS Green Toolkit) expresses the team of professionals needed to establish the proper value for high performance buildings.

The great news for us in the green home building and sales market is that there is significant national momentum towards building the professional teams in the graphic above.

On July 15th the Appraisal Practices Board released a first exposure draft of Valuation of Green Buildings: Background and Core Competency. In the draft the APB says that this will be the first of three advisories on national best practices for appraisers hired to establish value for a green building. One quote from the draft, "The transistion towards green buildings, green building codes and technologies, and the growing awareness of the relevance of sustainability to the marketplace...can be viewed as part of the natural evolution of the real estate industry as it adapts to environmental, societal, and economic changes."

The NAR Green REsource Council is close to releasing the Green MLS Implementation Guide v1.0 in tended to help the 860 or so privately owned Multiple Listing Service organizations in the US have guidance on adding green data fields for listings. Important to note is that in 2009 only a handful of MLS vendors offered fields for green or high performance homes.

To the team of people and organizations within the real estate industry that are working to make our home or businesses energy consumption part of a solution to reduce stress not only on our own utility bills, but also the environment and the energy grid: Keep up the great work!