As we all work towards a more energy-efficient world, it stands to reason that homeowners want to know if, and how, energy efficiency can increase the value of their homes. It’s all very well for the U.S. Department of Energy (DOE) to promote energy efficiency, saying it will save us money and make our homes more comfortable and durable, but how does this translate to dollars? Can we really expect our homes to increase in value, or is energy efficiency simply something we must strive towards to save the planet?
I’m committed to the concept of net-zero homes and sustainable living because it’s good for the earth. But I also sincerely believe that there will be an increase in the value of your home if you invest in energy-efficient systems and appliances.
Ongoing research over the past few decades shows that globally, many homebuyers are happy to pay more for a home that is energy efficient. They are also willing to invest in systems and equipment that will make their homes more energy efficient.
The reasons are simple. Energy-efficient “green” homes are more comfortable and utility bills are lower. More specifically, they boast better energy and water efficiency, indoor temperatures are more stable, and indoor air quality is healthier.
So, the quick answer to the question, Is there any home value increase in an energy-efficient home? is a resounding Yes! The percentages aren’t huge, although they could increase substantially as we get closer to the global net-zero deadlines.
Let’s dive in and see how we know this is true.
There have been all kinds of research studies, both big and small, that individuals, academics, and organizations have undertaken in a bid to answer this question.
Despite a plethora of different findings, there is an overwhelming call for energy-efficient building to become the standard. The International Code Council (ICC) has begun work on a model code for 2024. Meanwhile, the International Energy Conservation Code (IECC) has been updated and promises lower monthly energy bills that will add value to homes and other buildings.
Of course, there are already many organizations that offer ratings and certifications for energy-efficient homes in the U.S. Some cities and states have mandatory home energy ratings, but most don’t. A few require a home energy assessment before homes are listed on the market.
According to the American Council for an Energy-Efficient Economy (ACEEE), where there are mandatory policies, homeowners get better valuations in the real estate market. When they sell their homes, they gain “a possible price premium” because of a better valuation of energy-efficient features and improvements.
Those looking to buy homes get better information before they buy. When energy-efficient improvements are recommended, these could be financed by their mortgages.
So, before we try to assess what value energy efficiency will add to your home, let’s look at some of the ratings and certifications available to homeowners.
Leadership In Energy & Environmental Design (LEED)
A voluntary rating tool, LEED is probably the most widely used rating system for green buildings globally. It’s available for the full range of building types and provides a workable framework for energy-efficient, healthy buildings that save money.
The Environmental Protection Agency (EPA) assesses that LEED certification can add about 2.4% to the cost of building a home.
The World Green Building Council (WorldGBC), a leading proponent of green buildings, assesses that green buildings with LEED certification consume 25% less energy and 11% less water than other buildings.
Is it worth the extra spend?
A 2018 Italian study, Does Sustainability Affect Real Estate Market Values, by Alessia Mangialardo, Ezio Micelli, and Frederica Saccani, shows that LEED, ENERGY STAR, and BREEAM certification all increase the market value and rental premium of buildings. In the U.S., the market value could increase by 9-35% with LEED certification and 5.76-31% with ENERGY STAR.
Run by the DOE and EPA, ENERGY STAR is probably the best-known tool for achieving energy efficiency in our homes. It follows a whole-house systems approach that relates to everything from the site to insulation and water heating.
To achieve certification, builders and homeowners use materials and products that are rated by ENERGY STAR. Additionally, a third-party energy advisor inspects, evaluates, and labels homes.
Even though it is a voluntary program, more than 2.2 million ENERGY STAR homes have been certified, with over 120,000 new homes being certified in 2020 alone.
As you can see by the figures quoted above, ENERGY STAR certification is known to increase the market value of buildings by 5.76-31%.
Zero Energy Ready Homes (ZERH)
Zero Energy Ready Homes (ZERH) is a DOE program that takes the ENERGY STAR concept to a new level of performance.
DOE ZERH is verified by qualified third-party assessors. According to the DOE, they are at least 40-50% more energy-efficient than typical new homes.
You have probably realized that I am 100% committed to creating net-zero homes to build wealth, stability, and overall well-being. Because they use renewable and sustainable energy, energy costs are slashed.
I talked about how solar adds value to your home in an earlier article. When you consider that the Solar Energy Industries Association estimates that homes with solar systems increase in value by about $15,000, you can imagine how much value there will be if you have a ZERH verified home.
Home Energy Rating System (HERS)
The HERS Index for rating energy efficiency isn’t new, but its popularity is increasing fast.
Like other rating tools, the HERS Index measures the energy efficiency of homes. The lower the score, the more you will improve the comfort of your home and the more money you will save on energy bills.
Created and maintained by the Residential Energy Services Network (RESNET), it involves a thorough analysis of building plans as well as onsite inspections by an accredited rating provider. About 90% of the homes rated are new construction, but existing homes are also ranked.
The rater works with the builder and identifies improvements that will ensure the house meets ENERGY STAR performance guidelines. The ultimate aim is to increase the number of net-zero energy homes.
According to the DOE, a home that is certified ZERH corresponds to a HERS rating in the low to mid-50s.
An article on the National Association of Home Builders website quotes RESNET as saying that close to one in four new homes built in 2020 were rated with the HERS. More than 3.2 million homes have been rated since the Index was launched in 1995.
A home with a HERS score of 60 is 40% more energy-efficient than a 2006 standard-built home. So, it’s not surprising that HERS is now seen as a major selling point when buying a new home.
Generally, ENERGY STAR and ZERH with solar are more efficient when rated.
Building Research Establishment’s Environmental Research Method (BREEAM)
Launched in 1990 by the UK Green Building Council’s Building Research Establishment, BREEAM is a top sustainability assessment method for buildings as well as infrastructure and large projects. Its focus is on sustainability in building design as well as construction and in-use buildings.
Its U.S. headquarters are in San Francisco and it’s a particularly popular for certifying existing buildings.
Green Globes Certification
Green Globes Certification is another rating and certification that focuses on sustainability of new construction and existing buildings. It is used primarily in Canada and the U.S. under the umbrella of the Green Building Initiative.
Benefits include increasing the marketability of properties.
Research reports never follow a standard format, and their focus varies. So, there’s no quick and easy answer to this question. Also, different organizations often promote different types of energy-efficient measures.
For instance, the Lawrence Berkeley National Laboratory that is funded by the DOE maintains that simply installing an average 5 kW solar panel system will not only cut electricity costs but will add about $20,000 in value.
A report published in Remodeling magazine a few years ago deduces that the most profitable energy-efficiency upgrade for U.S. homeowners is attic insulation. The return on investment (ROI), it says, is 116.9%, on average.
In more general terms, a 2019 study by the National Association of Home Builders found that the increase in value between “standard” and energy-efficient homes was about $5,000. But they also found that many homebuyers would pay up to $10,000 more if they could save $1,000 a year on utilities.
Technology keeps improving, and statistics aren’t static. But I’ve pulled out some of the most interesting facts and figures that have been published in the past decade. Despite their differences, they show convincingly that there is a home value increase in energy-efficient homes.
The International Energy Agency (IEA) promotes the use of clean energy technologies and advises governments on ways to promote energy efficiency, as a mission to shape a secure and sustainable future for everyone.
In a 2019 report, Multiple Benefits of Energy Efficiency, they discuss the multiple benefits of energy efficiency, stating it goes way beyond simply reducing energy demand and lowering greenhouse gas emissions.
The figures they quote relate to the value of green office space in the U.S., but they say that energy efficiency can definitely increase asset values for homeowners, businesses, and utilities. In short:
- Property values increase from energy efficiency measures that reduce energy consumption and lower operating costs.
- Properties that are highly rated for energy efficiency sell at a premium and fetch higher rental rates.
The IEA report cites six studies that estimate premium rental and sales prices. These vary immensely, but all show increased value. The lowest rental premium is 2.1%, and the highest, 17%. Sales price premiums are much higher, ranging from 8.5% to 26%.
It also cites a non-energy impact report published by the Northeast Energy Efficiency Partnerships (NEEP) in 2017 that estimated property value benefits in the U.S. to be 10% of the value of energy savings.
NEEP, which gets some funding from the U.S. Department of Energy, promotes advanced energy efficiency and related solutions in our homes and other buildings, as well as in our communities and in industry.
“We envision the region’s homes, buildings, and communities transformed into efficient, affordable, low-carbon, resilient places to live, work, and play.” NEEP
One of the first studies to show that energy-efficient homes often command higher prices was undertaken by researchers from the University of California’s Los Angeles and Berkeley campuses. Titled The Value of Green Labels in the California Housing Market, it was the first rigorous, large-scale, independent economic analysis of its kind. It was also an early example of how the so-called “going green” ideology affected home prices.
The researchers looked at data from 1.6 million single-family Californian homes sold between 2007 and 2012. About 4,300 of these were either GreenPoint Rated (GPR) or certified by ENERGY STAR or LEED for Homes. GPR is a third-party rating system for resource- and energy-efficient homes that began in California, but is now a nationwide option for new multifamily developments across the U.S. It is now the state’s leading residential building rating system.
Even though they recognized that green labels vary considerably in different regions of the state, they found that green home labels add a price premium of about 9%. Based on an average selling price of $400,000 at the time, buyers of green label homes paid $34,800 more.
The WorldGBC emphasizes the environmental, social, and economic benefits of energy-efficient buildings. We certainly can’t dispute the benefits, but what economic value do they add?
In 2013, the WorldGBC released a ground-breaking report, The Business Case for Green Building, that reviewed the costs and benefits of green building for investors and occupants. It was a first attempt to combine all the credible evidence presented globally and create one definitive resource.
Ironically, the one hugely controversial issue they grappled with was attaching a financial value to the benefits of green buildings.
It’s a lengthy 120-page report that considers the bigger picture for developers, building owners (including homeowners), and tenants. The focus, though, is largely commercial. Their findings show that:
- Developers opt for green buildings because design and construction costs are lower, sales prices are higher, and sales are quicker.
- Owners find there is slower depreciation of their investment and occupancy rates are higher.
- Tenants report increased productivity as well as health and well-being.
It’s complicated, but a handful of other interesting findings include:
- Sustainability isn’t the major cost driver on most projects. Rather, the challenge is to deliver energy-efficient (green) buildings within conventional budgets.
- The perception is that green buildings cost 10-20% (up to 29%) more than conventional buildings that are code-compliant. However, the report stated that costs of green building were decreasing and had been for nearly a decade (to 2013).
- Green buildings attract tenants more easily and command higher rental and sales prices because operating costs are lower. They just don’t put a figure to it.
- Even though building costs are increased, higher levels of certification result in higher sales premiums–especially for properties rated by the LEED and Green Star systems. The caveat, though, is that basic certification (e.g. LEED Silver) doesn’t add value.
Ultimately, the message is twofold.
- As building codes associated with green building get stricter, the trend towards reducing the design and construction costs is increasing. The belief is that supply chains for green technologies and materials will mature and the industry will increase its skills to deliver cost-effective green buildings.
- Upfront cost increases are commonly offset by decreasing long-term lifecycle costs because of energy-efficient building systems and high-performance façades.
There is no doubt that an energy-efficient home has the capacity to increase in value depending on the elements you include. Just getting the right ratings and certifications can make a big difference, increasing the value of the property and increasing its potential for resale.
Different states and cities promote different ratings and certifications, so take this into account. At the very least, consider opting for ENERGY STAR and LEED, even though they aren’t normally mandatory.
The outcome will likely be a more comfortable, cost-effective house that performs better and increases in resale value. What more could you want?