It is obvious that an energy-efficient house is worth more than another one that is not energy-efficient. But, how much is the energy-efficiency worth?
Let’s say we expect to pay $300 a month more on average to heat and/or cool a particular house in comparison to another one. That extra $300monthly cost is the same as adding $300 to your monthly mortgage payments. At 5% interest rate, this extra monthly payment corresponds to a principal of $55,885. In other words, as far as you are concerned this energy- inefficient house should be worth about $56,000 less than the other one that requires $300 per month less to heat and/or cool.
Useful lives of houses are a lot longer than 30 years, and when you sell your house someone else will keep paying the extra energy costs. So, it might make more sense to consider the $300 a month as payment of a perpetuity, where the payments would continue indefinitely. At 5% interest rate, the present value of this perpetuity would be $72,000.
In reality, the true value of the energy efficiency would be somewhere between these two numbers, and it might also vary depending on the prevalent interest rates and future increases in energy costs. As a rule of thumb, though, it would be reasonable to assume that each $100 per month savings in the cost of heating and/or cooling a house would add about $20,000 to its fair value.
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Realizing the true benefits of an “Energy Efficient Home” by creating a better insulated structure by adding, or increasing, the insulation in walls, ceilings, and floors; putting in dual-pane insulated windows; sealing/caulking leaks in openings to the exterior; installed a more efficient furnace and ductwork system if the current is antiqueted; etc. would the average homeowner reap these kind of ‘increased values’ at a time of selling the home?? Generally these items, along with a modernized/upgraded kitchen and baths, etc., are often ‘lost’ in the appraisal of a home given that property appraisals are made based on comperative values of homes sold recently in the given areas. Would it, in today’s marketplace with all the ‘green washing’ is there a ‘true financial benefit’ to the homeowner that along with the above mentioned items, gain an increase in their homes value by adding such major items as photovoltaic systems, solar water-heating, or tankless water heaters, etc.?? My understanding is that a ‘sound’ home appraisal may take these elements into account, but will not necessarily provide an ‘increased value’ to the home for marketability purposes. Is it worth the expense to do such upgrades to maximize the potential selling costs?? This is assuming that the owner will live in the residence for some period of time before actually selling the property.
Bill, you have a good point, but you are ahead of me. My next article will be on the “Value of Structure.” I will follow that with a discussion on how these important factors are overlooked in the usual “CMA” done by most real estate agents. If you are the homebuyer, a good real estate agent should be able to consider these factors when making a recommendation on how much you should offer for a particular house. Basically, the offer should reflect the discounts for energy-inefficiency and poor structural systems. Should the offer be accepted, those savings can be used to make the house more energy efficient and more structurally sound. If the offer is not accepted, you should look for a house where you would get the right value for your money. In the case of selling your house after a retrofit, your agent should account for your investment in determining the listing price and highlight the benefits (and the value) of the retrofitting when he is marketing the house.
Thanks for response, Onder. I’ll look for your next article, as well as, the one you just referenced below. Later.
Here is the link to an article on “going green without breaking the bank.”
http://westchestergreen.wordpress.com/2008/07/03/5-ways-to-go-green-without-breaking-the-bank/
Basics – YES. The smart homeowner should take advantage of ALL these basic scenarios, if not pursued already. Low $$$$$ $mart$. And, relatively small on the pocket book damage – except for the windows. However, this item is a major area of consideration along with the insulation in walls, ceilings, and floors. And, in the long haul well worth the investment.
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