Flipping Houses

Boosting Appraisal Values on Green Homes

56 Articles Written
green home appraisal values

It’s football season (Go Pats!) and time to re-visit the topic of boosting appraisal values on green homes.  In the past I’ve advocated using the Energy Star guidelines to boost appraisal values.  After working with different appraisers over the US over the past 9 months, I found an easier way.  Instead of throwing into double coverage, throw the easy pass and move the chains a la Tom Brady.  (I will try to stop the football references now.)

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Let's assume you've greened a recent project and have an appraiser coming by. You've done the water heater blanket, improved the duct-work, wall socket gaskets, etc, etc.

Here’s what to do to boost appraisal values of a green home:

1. Determine (through past bills or closest comps) what the average utility bills (water/gas/electric) for a similar home in the neighborhood would be annually. For examples sake, call this $200/month.

2. Calculate the projected annual utility bill savings for gas/electric/water in your project.  Base your calculations on both national data from a recognized brand (Energy Star) and the local utility company. If Energy Star says that you’ll save 20% on water heating expenses by using a water heater blanket and your local water company says 17%, use the local company number. For examples sake, call this $600/annually.

3. Give these figures to your appraiser.

4. Recommend to the appraiser that they do their own independent research on what factor these annual savings equate to in terms of added value. As a general rule, multiplying the annual savings by a factor of 10-25 gives you the added value on your appraisal. There is precedent for this in several markets nationwide that the appraiser can research and leverage in their report. Remember that appraisers are gun-shy so you need to hold their hand during this process.

For example, a recent project in Arizona projected an annual utility savings of $601 based on the green upgrades completed.  The appraiser did his research and assigned a factor of 15, thereby boosting the appraisal value by $9000. The investor could have appealed that factor but was happy with the $9000 boost.

All in all, this is a simple way to boost appraisal values on your projects. Also, if you’re an investor who invests in the same geographic area repeatedly, then you’ll only have to do step #2 once.

*On a personal note, my apologies for being gone the past few weeks. It’s great to be back!

Photo: Tim Fuller

    Aaron Norris
    Replied almost 9 years ago
    Hi Jim, great article. In Riverside, the utility here actually created a whole house rebate program. In essence, the more you upgraded the green/sustainability features in the home, the more money you got on a rebate. And investors could participate! We told them that investors were already in the houses, encourage them to upgrade them with energy efficient features. Go figure they listened. The program was so popular, Home Depot and Sears became huge proponents of the program. I believe they got a federal grant of some sort because of the idea. I think when investors think “green,” they think it’s going to be expensive. There was a Realtor who used this program locally and in my opinion over upgraded several properties to make it more “green.” The upgrades did not get him a higher price and they lingered on the market. You really have to upgrade carefully but not all energy efficient upgrades are expensive. I always look at local utilities to see if upgrades have rebates for appliances, fan, trees, toilets, windows, and water wise landscaping. You never know how much you can get back and you can market the home as energy efficient. I purchased an REO to live about one year ago. We spent about $5,000 on a very nice whole house fan, ceiling fans in almost every room, tinted windows (one of the best upgrades ever), new appliances, efficient toilets, sprinkler nozzles, and CFL bulbs around the house. We didn’t get the low end stuff on several of these items. We got a little over $3,000 back. If we would have done cheaper water wise toilets and whole house fan, our cost would have gone down even more. There was a sweet spot in the program to where investors could actually get what they would buy for a normal rehab for free. How awesome is that? I will be interested to see if the appraisal industry will start giving more credit for “green.”
    Jim Simcoe
    Replied almost 9 years ago
    Aaron, Thanks for sharing your views and experiences. I agree with your perspective and it’s interesting to see Riverside taking the lead with these initiatives. It sounds like you hit a home run with your home as well. You’re right, people can go overboard with green and get the commensurate ROI. In my experience either they did too much or did a slipshod job marketing the green elements of the home. People tend to forget you have to market the biggest benefits first (cost savings, healthy living) and then throw in ‘saving the planet’ as a bonus. Jim *If you ever make it to San Diego (since you’re in Riverside) give me a call if you want to grab coffee and talk further.