Low Impact Living: The Bottom Line — Green Home Upgrades & Home Values

June 30, 2008

This post was originally published on June 29, 2008.

With many cities experiencing a real estate “slump”, homeowners around the country are looking for ways to stand out from the slew of homes on the market, while improving their home’s resale value. Other homeowners are planning for the future: a future of ever-rising energy prices.

Regardless of your situation, you may be asking yourself if green home improvements increase the home’s value. The answer isn’t as straight-forward as some might hope.

The old rules still apply…

Before we dive in, there are a few things to consider when thinking about making home improvements – green or not. First, remember the three rules of real estate: location, location, location. The return on your investment will depend on the value of your house and others in the neighborhood, as well as your local housing market. Other factors like the quality of the workmanship, and how soon you move after making the improvements weigh in as well.

One man’s treasure…

That said, there are actually two different values to consider when judging the return on home improvements, according to Dr. Harold Hunt, a research economist at the Real Estate Center at Texas A&M University: value in use and value in exchange.

To explain these concepts, let’s use a little story. Ted owns a home, but is looking to move soon. Ted is concerned about climate change. After some research, Ted decides to make a few eco-friendly improvements around his home that will increase its resale value, including a new energy-efficient air conditioning system and installing bamboo floors. This is exciting to Ted. He looks forward to bragging about going green to all of his friends, and selling the house at a premium.

Bill is looking to buy a house. Bill wants to get the best deal that he can on a new home, closer to work. When Bill sees Ted’s house, he is excited – with high energy costs, the new air conditioning system will save him money. Bill looks forward to seeing how much smaller his energy bills will be in his new home. Oh, and the new floors look nice, too.

OK, back to reality! Ted provides a very good example of value in use. His satisfaction in the green improvements can be measured in both monetary terms (saving money on energy) and non-monetary terms (reducing his impact by using bamboo versus hardwood flooring, and bragging to his friends). Unfortunately, Bill may not value the non-monetary rewards enough to pay a premium for them, illustrating value in exchange.

So how does Bill and Ted’s adventure apply to you? If you’re not planning on moving any time soon, invest in changes are eco-friendly and that you’ll most enjoy. Until green features become mainstream – and corresponding increases in home values can be measured – it’s hard to know what buyers will be willing to pay for. Just keep in mind that come moving time, green amenities and features may not appeal to everyone, but energy- and money-saving green features will.

Hedge your bet…

If you’re building a new house, or diving into a significant remodel, you might want to consider getting it certified as green. Come resell time, certification can provide buyers interested in all kinds of green benefits assurance that they are getting what they paid for.

Nationally, the US Green Building Council, developers of the LEED rating system, have put forth a new residential certification called LEED for Homes. LEED certified homes use less energy, water and natural resources, and their construction creates less waste, among other benefits. LEED is probably the most well-know certification standard in the US, mainly due to its widespread commercial acceptance. Certification by LEED comes with a significant amount of cache, though some feel that the requirements need refinement and that the registration process is cumbersome.

Other nationwide programs include the Environments for Living certification, which includes an energy usage guarantee, and the EnergyStar program, which focuses on home energy efficiency.

Other programs exist locally, like Austin Energy’s Green Building Program and Earth Advantage in Oregon and Boston. For homes certified green by Built Green in Colorado, Countrywide Home Loans even offers ½ point off for home buyers. There is also the Build It Green program in California. For links to programs in your state, check out the Public-Private Partnership for Advanced Housing Technology.

The Big Question: Solar

One of the biggest dreams that many green homeowners have is living “off the grid”, meaning that they can supply all of the energy needed to power their home. If you dream of this, or even if you just dream of reducing your electricity bills, solar is usually part of the equation.

Residential solar installations have always been an expensive prospect, but as technologies have improved and costs have come down, solar has become feasible for many. Still, full systems can cost upwards of $30,000, so it’s important to understand the economics up front. Fortunately, some incentives exist at the state and federal level.

First up, the Feds. For the past three years the US government has offered homeowners a 30% tax credit on solar projects (including photovoltaic systems and solar hot water heaters) up to a maximum of $2,000 per project. However, this incentive is set to expire at the end of the year. Whether these incentives are extended beyond December 31st remains to be seen – the bill to continue them is currently being filibustered in the Senate (don’t get us started.)

Fortunately, states have stepped into the leadership role, providing incentives beyond those provided at the federal level. For example, California’s Solar Initiative provides incentives for existing homes (amounts vary) through 2017, while the New Solar Homes Partnership does the same for new homes. Many states provide tax breaks and rebates for solar installations, so take a look at the Database of State Incentives for Renewables and Efficiency (DSIRE) to find out what you may qualify for. Depending on where you live, these incentives can reduce your cost by up to half. To learn mor