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 US 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 with lower utility bills. More specifically, they boast better energy and water efficiency, more stable indoor temperatures, and healthier indoor air quality.
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 many different findings, there is an overwhelming call for energy efficient building to become the standard. The International Code Council (ICC) has begun working 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 US.
Some cities and states have mandatory home energy ratings, but most don’t. A few require a home energy assessment before listing homes 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 these 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 certifications all increase the market value and rental premium of buildings.
In the US, the market value could increase by 9-35% with LEED certification and 5.76-31% with ENERGY STAR.
Initiated 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’ve probably realized I am 100% committed to creating net-zero homes to build wealth, stability, and overall well-being. Due to the fact that they use renewable and sustainable energy while energy costs are slashed.
I mentioned 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.
Another added bonus is you can also qualify for federal tax credits. That is if you can prove that your home is more energy efficient.
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 to 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, other infrastructure, and large projects. Its focus is on sustainability in building design as well as construction and in-use buildings.
Its US headquarters are in San Francisco, and it’s particularly popular for certifying existing buildings.
Green Globes Certification
Green Globes Certification is another rating and certification that focuses on the sustainability of new construction and existing buildings. It is used primarily in Canada and the US 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 DOE-funded Lawrence Berkeley National Laboratory maintains that simply installing an average 5 kW solar panel system will not only cut electricity costs but will also 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 US 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 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. All in the 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 beyond simply reducing energy demand and lowering greenhouse gas emissions.
The figures they quote relate to the value of green office space in the US. However, 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 US to be 10% of the value of energy savings.
NEEP, which gets some funding from the US Department of Energy, promotes advanced energy efficiency and related solutions in our homes and other buildings, as well as in our communities and 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 “going green” ideology affected home prices.
The researchers examined 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. It is now a nationwide option for new multifamily developments across the US.
Currently, it has become 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 the 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 financial value to the benefits of green buildings.
It’s a lengthy 120-page report considering 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 slower depreciation of their investment and higher occupancy rates.
- 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 or 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 is that basic certification (e.g., LEED Silver) doesn’t add value.
Ultimately, the message is twofold.
- As building codes associated with green buildings get stricter, the trend towards reducing design and construction costs is increasing. The belief is that supply chains for green technologies and materials will mature. And then, 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.
Some Ways to Make Your Home More Energy Efficient
It’s now clear that energy efficient homes have a higher resale value due to the many benefits that come with energy conservation.
That said, you might want to make your home more energy efficient, especially if you plan to sell it. On the contrary, you may just want to have a higher home energy efficiency to save electricity costs while making your indoors more comfortable. How can you achieve that? Here are a few ways to get started:
Get a Home Energy Score
A home energy score is the first place to start if you want to upgrade your home’s energy efficiency.
According to the Department of Energy, a home energy score report will help you estimate your energy use and the costs you incur. It also provides solutions to make the home more energy efficient.
A home’s energy score report is depicted on a scale of one to ten. A score of ten indicates that your home is highly energy efficient and vice versa.
The key factors considered in generating a home’s energy score report include:
- Doors and windows
- Exterior walls
- Vents and ductwork
- HVAC systems
- Ceilings and roof
Make the Necessary Upgrades
Your home’s energy score report will pinpoint some key areas that require upgrades to enhance efficiency.
From doors and windows to attics, you’ll have a clear picture from the report of the necessary areas to upgrade for energy efficiency.
You want to focus more on upgrading the windows. Window upgrades ranked higher on the National Association of Realtors report about home improvements with the highest impact on energy efficiency. Therefore, it’s the best place to start.
You can consider double pane windows for a higher efficiency.
Consider Energy Efficient Home Automation
You can make your home more energy efficient by automating some of your systems. Automated systems are more accurate when it comes to energy conservation.
You can install smart and efficient lighting control gadgets like motion sensors to automatically switch the lights on and off based on a room’s occupancy, among other automation.
Alternatively, you can install LED bulbs, as they are more efficient than incandescent bulbs.
Seal Air Leaks
Air leaks allow the outdoor unconditioned air to get into your home. This means your air conditioner or HVAC system will work more to maintain the required optimum indoor temperature. Consequently, you’ll use more energy for air conditioning to create a conducive indoor environment.
Sealing air leaks will reduce drafts and the load on your HVAC system, making the home more energy efficient.
You can use caulk and weatherstripping to seal gaps and cracks around doors, windows, and other openings.
Also, check for leaks in the attic and basement and insulate and seal these areas properly.
Consider Renewable Energy Sources
Consider incorporating renewable energy sources like adding solar panels if your home energy score report suggests that your energy consumption is still high after implementing the above strategies.
Solar panels can generate electricity, reducing dependence on grid power and lowering utility costs in the long run.
There is no doubt that an energy efficient home can 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 resale value. What more could you want?
Still on the quest for finding energy efficient appliances in your home? Then our articles on Your Energy-Efficient Mini Fridge and Best BR30 LED (Energy-Efficient) Smart Bulbs will surely be helpful!