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A new study from the National Association of Home Builders reveals that one-quarter of the features home builders are most likely to include in new construction homes relate to energy efficiency. Despite the popularity of energy efficiency features, some builders are conflicted about them in part because they believe they cannot recoup the investment. Insulation Institute spoke with Sandra Admomatis of Adomatis Appraisal Service for some insight into how builders can shift their focus to leverage energy efficiency in marketing fully.
A Marketing Challenge
Adomatis thinks the biggest hurdle for builders in marketing energy-efficient homes is simply the lack of advertising regarding energy-efficient features, something that’s relatively easy to fix.
“Pick up a new construction magazine in any market and count the number of builders advertising the energy or green features. If these features are not important enough to advertise, why should a buyer expect to pay more or an appraiser to appraise them for more?”
According to research from Freddie Mac, HERS rated homes sold for 2.7 percent more than similar non-rated homes, and those with higher efficiency (lower HERS score) sold for up to 5 percent more. This study, along with the number of appraiser driven studies, show that energy-efficient homes sell for a premium and suggest builders are missing the mark by not publicizing these features in their new home marketing materials.
Put the Information Up Front
“Energy efficiency is still a high priority for most buyers; however, buyers are not well educated on how to identify these features in a home and can’t find them advertised,” Adomatis says. “Multiple Listing Services (MLSs) have green fields that are poorly populated, and the limited data affects the buyers finding these homes and negatively affects the appraised value of these homes. Almost every study in the last 10 years shows that energy efficiency is an important feature in a home.” So, what can builders and real estate professionals do to change the way homes are marketed?
“Make energy-efficient features prevalent in marketing and rate the homes using a standard that is well known in the market. The public is not knowledgeable of them, and the more ratings we create, the more confusing it becomes.”
Third-Party Evaluation Required
It’s one thing to advertise the energy efficiency features of a home, but claims of efficiency also should be documented or measured.
“I’m a believer in verifiable, third-party testing of energy efficiency,” Adomatis states. “There are several energy rating systems that have been around for many years. As soon as a builder has windows in their new construction, put a large poster in a front window so that people driving by see a projected rating. If a builder’s competition does not rate their homes, buyers will ask why.”
That sounds great, in theory, but does it work?
“This was proven in the Atlanta area where Georgia Power had a new builder program, and the builders advertised the energy rating. A builder that did not rate their homes came into the Atlanta Power office to inquire about that energy rating. He said he could not sell a house because it did not have a rating.”
Adomatis says appraisers will be reluctant to analyze energy efficiency without a rating from a third-party rater.
“Real estate agents will need support to identify the energy efficiency before they will advertise the home as energy efficient. Because many builders have their own sales team, they do not list through a local MLS. This creates difficulty for appraisers in finding the energy-efficient new construction sales to more accurately value these high performing homes.”
The Bottom Line
“Builders can move the market toward energy efficiency if they educate potential buyers on features and provide documentation,” Adomatis notes. The Appraisal Institute offers a green addendum that can be attached to the sales contract. This provides the lender, appraisal management company, and the appraiser with the energy-efficient features of the home.
“Having a preferred lender that offers energy-efficient mortgages is another important step in sailing through closing. Builders must be willing to press lenders to offer these mortgages and hire appraisers with knowledge in energy-efficient housing. Overcoming these challenges will move the market to a more energy-efficient market. “