Driving energy efficiency through the real estate industry

Driving energy efficiency through the real estate industry
November 5, 2012 Anne Maertens
Home for sale

Major home renovation and improvement work often happens within the first few years of buying a house, which is why home improvement stores and contractors market specifically to new homeowners within weeks of purchase.

Similarly, utilities and energy efficiency programs around the country have tried to work with realtors to educate and motivate potential homebuyers at the point of sale. However, most initiatives to date have been met with limited successes. We’ve talked with a number of programs, industry experts and realtors around the country to learn why.

Home Realtors and Energy Efficiency

Most energy efficiency programs engaging real estate agents face one of two challenges:

  1. Getting real estate agents on board to educate homeowners during real estate transactions.
  2. Driving actual retrofits after homeowners are educated.

One example of a program that currently leverages the real estate industry to educate home buyers and sellers is the City of Austin, which started a program in 2009 that requires a home energy audit at the point of sale for homes more than ten years old. The idea behind the program is to encourage energy upgrades to either help sell the home or to encourage homebuyers to make upgrades when they purchase a home in order to maximize the energy efficiency investment.

Austin Realtor Allen Deaver has been involved with Austin home sales requiring these energy audits. Although he has yet to see someone make energy efficiency upgrades because of a point-of-sale energy audit, he said he uses information from the audit, such as a high-SEER air conditioner, to help market and sell the home.

Initial results for the program showed some energy retrofit activity, and there is anecdotal evidence that this audit has helped to shorten the time it takes to sell a home, said Coby Rudolph, Efficiency First’s director of Chapters and Grassroots.

Rudolph has worked with real estate agents and home appraisers to demonstrate that energy efficiency adds value to a home. And while there has been some success in moving the engagement side of the equation forward, getting homeowners to take on projects at the time of sale continues to be a challenge.

“The theory is that if we assign a [home energy] rating scale to give people an understanding of their home’s value, they’ll be encouraged to retrofit their homes either before selling it or after buying it,” Rudolph said. “But I think most people see it as one in a set of drivers [along with others] like comfort, indoor air quality, being proud to be green and saving energy.”

When it comes to engaging the real estate market, Rudolph points to Walk Score’s model of rating the walkability of homes. Walk Score uses publicly available data to assign a score to a home, 1-100, based on the facilities (schools, grocery stores, restaurants) that are in walking distance of the home. A study on the walkability of U.S. cities completed by CEOs for Cities found that one additional Walk Score point is worth as much as an additional $3,000 for a home’s value.

Real estate agents are embracing Walk Score ratings – including them in most Austin listings. Rudolph said he thinks the energy efficiency industry could learn from this model.

Walk Score works for real estate agents because buyers and sellers care about value, and ultimately, real estate agents care about what buyers/sellers care about, said Walk Score co-founder and CTO Matt Lerner.

“Real estate agents are great at understanding the desires of their clients, so the more that clients care about [energy efficiency], the more real estate agents will care,” Lerner said.

An Alternative Model: Buy Low, Sell Efficient

Seattle-based Green Canopy Homes is taking a different approach to marrying energy efficiency and real estate. We asked CEO Aaron Fairchild to share his company’s story. (Full Disclosure: Aaron Fairchild is an EnergySavvy advisor) Here’s what he had to say:

Selling energy efficient and green homes in Seattle sounds oh so…well, Seattle. While it seems like Seattleites would eat this up, they don’t really understand what an energy-efficient existing home is, let alone want to pay more for it. The local Real Estate agent base is even less aware.

Taking a different approach, Green Canopy Homes buys fixers (not foreclosures), gives them an energy efficiency upgrade and then sells them. The process looks a bit like this:

  1. Buy the fixer
  2. Have a third-party energy audit conducted to baseline the home’s energy profile
  3. Conduct an extensive remodel on the home
  4. Have a third-party auditor reassess the home’s post-remodel efficiency
  5. Sell the upgraded, energy efficient home

By bookending the construction process with energy audits we receive a relatively accurate profile of the home’s final energy performance compared to its original condition.

But why is Green Canopy doing this and thriving if people won’t pay more and don’t really understand home energy efficiency? The answer is that buyers and Real Estate Agents don’t have to understand the in’s and out’s of building science to understand a good deal.

The bare bones “Real Estate 101” reason people are buying a home is: location, location, location, within their pre-approved/determined price range.  The market is not, nor will it ever be, flexible in this regard.

The top four considerations when buying a new home are, and will remain in this order:

  1. Location
  2. Price
  3. Beauty
  4. Functional Utility

When we offer a home for sale in any given location we have to consider the functional utility and weigh it against the price range of the homes within the given market and sub-market. At every step in the re-building phase we must attempt to differentiate by adding more utility and making the home beautiful. Our final key differentiator is energy efficiency and green.

Energy efficiency in homes is part utility and part value, but it is not the only feature to determine utility. While most interested in energy efficiency are coming to it from a values-based perspective, imparting values on an inflexible market isn’t generally successful.

Working within the market and adjusting the message and the approach to building is the only viable course of action. This is the challenge put to today’s residential energy efficiency sector; cost-effectively differentiate homes using energy efficiency and green. Once differentiated, the message and the home must resonate with the market.  Fortunately, “energy efficiency” and “green” have become hallmarks for “quality” and “value”.

If the homebuilder or homeowner can cost effectively renovate and build homes that resonate with the market, buyers and real estate agents alike will value the product given price, location, beauty and functional utility of the home under consideration.

Do you have experience engaging the real estate industry to drive retrofits? Tell us about your experience: contact@energysavvy.com