More than 80% of the US housing stock is made up of existing homes, of which approximately 80% are in need of energy upgrades. Sounds like an opportunity, if I ever heard of one, right? If only…
This opportunity essentially has one big hurdle to overcome: how to effectively translate the value of energy improvements into home value, homeowner equity, and marketability. According to the National Association of Realtors, the number of single-family homes sold in the US in 2008 was approximately five million, a decrease of approximately 24% from the previous year, while real estate accounted for more than 11 % of Gross Domestic Product (GDP). The results for 2009 and 2010 do not show a significant change in these trends.
In examining the opportunities to improve the existing housing stock, let’s classify one- to four-family homes into four broad opportunities. The first opportunity is the foreclosure market, where HUD or other institutions that own foreclosed homes have the ability to perform energy upgrades and turn over or “flip” homes. In fact, that is happening to some extent, where energy measures are affordable, but the extent of the upgrades is not clear, nor is there any quality assurance procedure to verify that the upgrades were done correctly.
The next opportunity is the homebuyers’ and sellers’ market, where improving a home’s energy efficiency can make a difference in its marketability. While the financial benefits of energy upgrades are known and can be quantified, they are still considered speculative by the real estate market and are often outweighed by aesthetic upgrades such as kitchen and bathroom renovations.
The third type of opportunity comes from the informed homeowner who is familiar with energy concepts through various channels, including the Internet, social media, and other public outreach efforts, and recognizes the economic and environmental benefits of energy improvements to their home.
The remaining category of homeowners are primarily people who are not in the market for any home energy improvements due to lack of finances, time, resources, awareness, or just plain apathy.
That was the homeowner’s side of the fence, now, on the professional side, where there are big issues to deal with. There is a huge disconnect here between real estate agents, property managers, bankers/lenders, insurance companies, appraisers, inspectors, engineers, architects, contractors, tradesmen (plumbing, HVAC, electrical, insulation, etc.), home service contractors, home and home centers; that is, taking a set of proposed energy improvements and attaching REAL AND RECOGNIZABLE VALUE to the home, and encouraging owners, buyers or sellers to consider these improvements with the same sense of urgency as cosmetic improvements.
This disconnect is often due to the level of knowledge about home energy concepts and the lack of knowledge to turn the energy efficient features of a home into a market advantage. While there are courses that familiarize professionals with green concepts, most serve as an overview of energy efficiency and renewable energy, and familiarize the user with the technologies and their potential applicability. More advanced courses offer information on green building materials for interior and exterior use, energy-efficient equipment and appliances, and construction techniques (often geared toward new construction). Very few, if any, offer a means for construction professionals to methodically inspect houses or buildingsapply ecological concepts and recommend measures based on a simple quantitative analysis and promote the implementation of technologies in a AFFORDABLE AND IMPARTIAL MANNER. This type of APPLIED KNOWLEDGE can be a great asset to any real estate professional, setting them apart from the competition.
On the positive side, a new trend of consumer awareness of environmental concerns has created a desire and a market for energy improvements. Homeowners, building managers, and real estate agents have begun to discover the values inherent in creating new buildings or upgrading old buildings into sustainable buildings:
- energy savings
- Savings on utility costs
- Higher levels of comfort
- healthier homes
- Increased appraisal values
At least three goals must be achieved if consumers want to buy “energy savings” as more than simply turning off the lights after leaving a room:
- The process of assessing, identifying, rating and implementing energy measures needs to be better defined, simplified and standardized across real estate sectors, and better communicated to homeowners and building professionals.
- Homeowners and construction professionals should become more familiar with the financial assistance available through federal, state, utility, and private sector programs (incentives, rebates, credits, etc.).
- Both simple payback and return on investment (ROI) must be clearly communicated to ALL parties.
In Part 2 of this series, we’ll explore the many challenges homeowners face when considering home energy improvements, and how information overload adds to homeowners’ confusion and distracts from incorporating affordable improvements, since be simple and inexpensive or a capital improvement.
