Home energy retrofits: The bottom line

By Steve Hargreaves, staff writer


NEW YORK (CNNMoney.com) -- Investing to make your home more energy efficient may lower the bills, but it may not boost its price, partly because these investments aren't fully valued by appraisers.

"Everyone is talking about return on investment, it's the first thing customers want to know," said Jeff Geoghan, a Coldwell Banker realtor in Lancaster, Penn. "But the appraisal industry is not up to speed on this at all."

Nearly everyone agrees that performing an energy retrofit will make your place more comfortable and save a lot on bills. But if the retrofits don't add value to the home's price, will homeowners make the improvements, regardless of whether or not the government decides to pick up half the tab, as they are considering?

Details have yet to be ironed out and passage is not a sure thing, but it's thought a new jobs initiative being pursued by Democrats in Congress may funnel some $11 billion towards home energy efficiency.

It's designed primarily to put contractors back to work, doing things like adding insulation, caulking windows and doors, and upgrading heating units, air conditioners, hot water heaters and other appliances.

But it would also cut down on pollution, and the monthly savings for homeowners could be substantial.

If passed, homeowners may be eligible for a tax credit worth up to $12,000, or half the cost of the retrofits, which ever is lower.

If a homeowner spends $24,000 and cuts its energy use in half - probably the most ambitions reduction that can reasonably be achieved - it would save the average homeowner $100 a month on their utility bills, said Lane Burt, manager of building energy policy at Natural Resources Defense Council.

If they get $12,000 reimbursed from the government, then payback time would be 10 years. But if people spend that much and sell the house before 10 years, they may be out some money.

Many homeowners would likely opt to spend less, going for the cheapest options that save the most energy. Contractors who perform energy retrofits say most people spend around $6,000 or $7,000, and the payback time is around 5 years.

But assuming the full amount is spent and the savings are $100 a month, that should result in a substantial increase in home's valuation. After all, an extra $100 a month one could put towards a mortgage means an increase of $20,000 on the purchase price for a home, according to a calculation done on a purchase price calculator.

Yet that extra $20,000 does not show up on a home's appraisal.

'It sounds good on paper, but it's just not how the American consumer makes choices," said Geoghan, the realtor. 'If you're buying a house, and you see a furnace has a 95% efficiency rating, are you really going to make your decision based on that?"

Another realtor agreed.

"How much can you really raise the value, maybe few thousand dollars," said Laurie Hassey of the Long Reality Company in Tucson, Ariz. "It's still all based on square footage."

Part of the problem is that many real estate appraisers aren't trained to look for energy efficiency upgrades.

"There are appraisers out there that have extremely minimal education," said Leslie Sellers, president of the the industry association the Appraisal Institute.

Sellers said that about a quarter of all appraisers only have the most basic of qualifications - a level known as a "licensed appraiser." Up until 2008, when the standards were tightened, that meant all they needed was a high school diploma and half a semester of course work.

Sellers said the institute is currently running green certification programs that will teach appraisers how to better value upgrades like efficiency improvements.

Sellers also suggested going with a better trained appraiser - a "certified appraiser" - when getting a home evaluated, even if they cost more money.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,804.80 26.65 0.15%
Nasdaq 4,765.38 16.98 0.36%
S&P 500 2,070.65 9.42 0.46%
Treasuries 2.18 -0.03 -1.27%
Data as of 10:04pm ET
Company Price Change % Change
Bank of America Corp... 17.62 0.09 0.51%
Apple Inc 111.78 -0.87 -0.77%
General Electric Co 25.62 0.48 1.91%
Intel Corp 36.37 -0.65 -1.76%
Microsoft Corp 47.66 0.14 0.29%
Data as of Dec 19

Sections

New York Magazine reporter Jessica Pressler, who has been caught up in controversy this past week, will not be moving on to a new job at Bloomberg News. More

Investors beware: These 5 global crises are likely to rattle the stock market and world economy. More

Forums in dark corners of the web sell the kinds of hacks that befell Sony. More

Unilever sued Hampton Creek over its egg-free mayonnaise spread Just Mayo. But the company behind Best Foods and Hellman's mayonnaise has now dropped the lawsuit. More

The income of the top 1% jumped significantly in 2012, far outpacing inflation. Not only did this group make a larger share of the country's income, their share of total taxes also jumped from 35% to 38%. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.