The Appraisal Journal published a study concluding that for every $1 decrease in annual energy costs, a homes value increase $20. Lets do the math. If you save $100 per month in energy costs, the savings equals $1200 per year. The homes value will increase $24,000. Typically energy cost increase 4% per year equalling another $960 per year in added value to the homes value. EEM’s will provide the following benefits:
Finance Energy Improvements
- Energy saving measures can be financed as part of the mortgage.
- Older less efficient homes can be upgraded upon purchase or remodel.
Increase Buying Power
- Increase debt-to-income ratio of loans qualified for EEMs.
- Qualify for a larger loan amount. Choose an energy efficient home for purchase.
- Qualify for a larger loan and buy an upgraded or new energy efficient home.
- Save money on utilities from day one.
- Realize the benefits of increased potential resale value from your energy efficient home.
- Sell your home more quickly.
- Achieve a higher sale price for your energy efficient home.
- Attract buyer attention in a competitive market.
- Utilize all the EEM benefits without moving.
- Apply improvements to the home which actually save money.
- Increase the resale value of the property.
- Tax deductibility of energy efficiency improvements vs paying by credit card or cash.
You will need a HERS report.
A HERS report provides and evaluation of the homes energy efficiency. These are prepared by a trained Energy Rater. The homes insulation, appliance efficiencies, window energy ratings, utility rates all factor in the calculation of annual energy costs.
The report will include:
An overall rating index between 1 and 250 to show its efficiency relative to a reference home built to just meet the Title 24 Building Energy Efficiency Standards’ prescriptive requirements. The lower the number the better the homes energy efficiency performance.
Recommended cost-effective energy upgrades
Estimates of the cost, savings and useful life of the recommended upgrades.
An estimate of the annual energy cost before and after the upgrades.
The HERS rating typically is paid by the buyer, seller or real estate agent. The cost varies between $300 and $800. I recommend a HERS report for all sellers contemplating listing their property.
California Civil Code Section 2079.10 requires the home seller or broker to inform the buyer about the existence of the California Whole-House Home Energy Rating Program. The law further specifies that if this booklet is provided to the buyer in connection with the transfer of real property, then this booklet is adequate in meeting the disclosure requirements.
On the topic of Green Mortgages, part 3 will look at why of green mortgages add value when utilized by Buyers, Resellers and Flippers.
Article written by Broker Associate, David Cooper who joined the Terra Firma Global Partners Sonoma Offices in 2014. With a long family history of real estate development and over 25 years of experience in the commercial arena, David now looks to focus much of his energies and attention to energy efficient, sustainable and healthier features in homes and buildings. David carries both the CCIM (certified commercial investment member) and EcoBroker Certified designations’ giving him significant skill sets to complement Terra Firma Global Partners current client services.