Appraising green properties in a growing market
Concern for the environment is becoming widespread , especially as technology becomes more energy efficient. The effects of this movement toward "green" engineering can be seen in nearly every aspect of life, including real estate. According to analysis from McGraw Hill Construction, 62 percent of firms building single-family homes reported more than 15 percent of their projects in 2014 were environmentally friendly. This proportion is only expected to increase as consumers become more wary of the effects of climate change from fossil fuel use, not to mention concerns over water access and hazardous materials.
"Homebuyers of green properties are willing to pay a premium for green technology."
Green values growing
As the market changes, real estate appraisers must adapt to growing trends. The available evidence suggests professional valuations are already picking up on the robust interest in green real estate. A recent study from the Institute for Market Transformation and the District of Columbia's Department of Energy and Environment suggested that homebuyers are not only very interested in Earth-conscious property, but they are willing to pay a premium for it. The study honed in on the Washington, D.C., real estate market, focusing specifically on homes that were LEED certified or otherwise built in an environmentally conscious manner. The study's researchers found homes with these characteristics sold at a premium of 3.46 percent more on average when compared to similar properties. The study also placed these compelling findings in context, with even more good news for the green real estate industry.
"Not only do these homes mean lower monthly energy bills for homeowners, but our prior research has also found that homeowners of energy-efficient homes are 32 percent less likely to default on their mortgages," IMT Executive Director Cliff Majersik said. "This study further emphasizes the value of high-performance homes and showcases that home sellers, realtors, and appraisers who are not factoring in energy efficiency when selling a home are leaving money on the table. This is important not just in the District of Columbia, but across the United States."
Solar power energizing markets
Proving that these findings represent a trend rather than an anomaly, the Department of Energy conducted its own study on the final sales prices of homes with solar energy capabilities. Also known as solar photovoltaic systems, these devices can supplement a home's utility-supplied energy with electricity produced from sunlight. Having analyzed home sales throughout several states, the DOE study found buyers were willing to pay around $15,000 more on average for a solar power-equipped home when compared against similar homes without this option. The study also saw no significant difference in price between new and existing solar-equipped homes.
This information is valuable for appraisers who need to make accurate judgments on how green homes should be valued. It's important to also consider not only how desirable green certifications or attributes are among the home-buying population, but also how much money those buyers stand to save with the help of more efficient systems. As a Quicken Loans article from 2011 noted, valuations on green homes up to that point did not account for the big picture of these qualifications. The DOE report on green home values attempts to fill that gap. The study not only utilized regression pricing to capture the scope of the market, but also accounted for the financial and long-term incentives of green homeownership, which include tax benefits and reduced utility costs.
The important takeaway from this research indicates appraisers might need to perform additional legwork to get the best and most accurate values on green homes. As a market segment that is quickly evolving and gaining popularity, this may represent one of the most important developments for valuation professionals.