Energy Efficiency and the Real Estate Market

The issue of energy efficiency is increasingly in the minds of homebuyers and finding its way into governmental regulations. However, the lesser known but greater market impact of energy-efficient homes is in improved home quality and value. These translate into greater satisfaction with a home purchase and homebuyer qualification for energy-efficient loans designed to recognize the utility savings of energy-efficient homes.

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Increased Home Value. An energy-efficient home has a higher value than a similar home that is less efficient. Studies published in the Appraisal Journal in 1998 and 1999 documented an approximate $20 increase in a home’s market value for every $1 decrease in annual energy costs. The decreased utility usage appeals to all kinds of homeowners whether their motivation stems from reduced environmental impact or home operating savings or a combination of each.

Expanded Purchasing Power. The secondary mortgage market, including Fannie Mae, Freddie Mac, FHA, VA, Rural Development, and CHFA, has acknowledged the added value of energy-efficient homes by offering homebuyers the Energy Efficient Mortgage (EIM) and the Energy Improvement Mortgage (EIM). Both of these mortgages credit the lower utility costs of the home, increasing the mortgage amount offered, thus allowing homebuyers greater purchasing power. For lower income or first time potential homeowners, this added purchasing power might even make the difference in qualifying for a loan.

Quality and Customer Satisfaction. Energy-efficient homes are also higher quality homes that produce greater customer satisfaction in the new homeowner. While home buying may be all about location, a homebuyer’s post-sale satisfaction is attributable to many other factors, as presented by J.D. Power at the 2002 Energy and Environmental Building Association (EEBA) National Conference. In fact, new homeowners’ satisfaction hinges largely on issues related to the builder’s customer service and quality of workmanship. The City of Fort Collins 2002 study of energy efficiency indicated increased complaints and comfort issues in homes meeting only minimum building standards. Selling energy-efficient homes can help realtors improve their customers’ satisfaction, thereby promoting referrals and return business.