Valuing and Marketing High- Performance Homes in DC & Beyond. Cliff Majersik, Executive Director Institute for Market Transformation

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Valuing and Marketing High- Performance Homes in DC & Beyond Cliff Majersik, Executive Director Institute for Market Transformation

The Visible Value Blueprint 1. Document Upgrades 2. Disclose Inventories 3. Continuing Education 4. Green MLS Usage 5. Appraiser Designed Valuation Studies 6. IT Solutions: HPXML 7. Work with Lending Institutions 2014 Elevate Energy 2

Step One: Document Upgrades Third party verified information critical to the real estate process New home programs have led the way National programs/guidelines for existing homes are growing fast: Home Performance with ENERGY STAR Home Energy Score BPI 2101: Standard Requirements for a Certificate of Completion for Residential Energy Upgrades 2014 Elevate Energy Image: Green Building Advisor 3

Step Two: Disclose the Inventory Maps to show density of high performance homes How many homes are eligible for Green MLS fields? Use geographical units that are meaningful to real estate Metro areas (for MLS) Counties (for Boards of Realtors) 2014 Elevate Energy 4

Step Three: Appraiser Designed Valuation Studies Small sample size Hyper local Data appraisers can use in their assessments Listing Agent engagement 2014 Elevate Energy 5

Step Four: Real Estate and Appraiser CE Classes CE credits are key to educating Realtors and appraisers Regulated by each state s licensing body Must have a focus on consumer protection Sample eligible content: Building Science Building codes Inventories/Densities Rebates Green Fields 2014 Elevate Energy 6

Agenda Framing the Issue Activities in the District of Columbia Opportunities for Other Cities

Home Energy Efficiency and Mortgage Risks Question: Is residential energy efficiency associated with lower mortgage default & prepayment risk? Sample: 71,000 loans in 38 states 29,994 ENERGY STAR homes 46,118 Control Group homes Controls for: home age & size, borrower credit score, LTV ratio, loan type, median neighborhood income, etc.

Findings Default risks on average 32% lower for ENERGY STAR homes, controlling for other loan determinants More efficient home lower default risk Mortgage on ENERGY STAR residence 27% less likely to be prepaid Results statistically significant with 99.9% confidence level

Value Premiums for Green Homes Several recent studies: 1) The Value of Green Labels in the California Housing Market (2012) 2) Selling into the Sun: Price Premium Analysis of a Multi State Dataset of Solar Homes (2015) 3) An Early Look at Energy Efficiency and Contributory Value (2015)

The SAVE Act Why We Need It Spark job creation, innovation in housing & manufacturing Enable better mortgage underwriting Reduce utility bills for American homeowners Provide affordable financing for home energy improvements

The SAVE Act: How It Works Would provide guidance to HUD to issue updated underwriting and appraisal guidelines for borrowers who submit a qualified home energy report. Debt to Income Loan to Value Adjustment Consumer Information

Incorporating Energy Efficiency into Mortgage Underwriting Incorporating Energy Efficiency into Mortgage Underwriting: Mortgage Underwriting Borrower capacity is adjusted for energy costs. Value of the home reflects the energy cost savings. The Three C s of Underwriting Credit Capacity Borrower s ability to pay the monthly mortgage Debt to Income Test Collateral Appraised value of the home Loan to Value Ratio Energy blind spot

Incorporating Energy Efficiency into Collateral: Mortgage Underwriting Residential appraisers rarely account for energy efficiency: o o o Lack of awareness, expertise, incentives Appraisers rely on comps Little agreement on how to value energy efficiency. New approach would give underwriters the option of adding the NPV of the energy savings to the appraised value when calculating the Loan to Value ratio: + NPV of energy savings

Green Home Sales Transactions: Best Practices 5 Graphic courtesy of NAR www.greenthemls.org 15

So What s Happening in the District? Grant from District Department of the Environment to promote green homes and transparency in real estate transactions Partnership among IMT, Elevate Energy, and RealEstate Business Intelligence 1 st public private partnership of its kind

Key Findings High performance homes exist in all District zip codes In 2013, HPHs accounted for 18% of total residential home sales in the District Homes that used green fields in MRIS performed better on key market indicators, such as sales price Graphic courtesy of RBI: www.rbintel.com/

Working with Local Utilities Notice of sale alerts the utility Make energy efficiency improvements All improvements are tracked and captured in real estate listing Utility releases last year of consumption and cost data to populate real estate listing

Here s What Your What Your City Can Do City Can Do Engage local MLS, utilities, appraisers, and Realtors Conduct HPH inventory Educate homeowners and professionals on benefits of green homes Great resource: Elevate Energy s Visible Value Blueprint (http://www.elevateenergy.org/value highperformance homes campaign/blueprint/) Map courtesy of Elevate Energy: www.elevateenergy.org/

Summary