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Home energy retrofits: The bottom line

Posted on 10. Feb, 2010 by GMS Editor in Featured, Newsflash, ShowOnLatestPanel

By Steve Hargreaves, staff writerFebruary 4, 2010: 12:38 PM ET

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.

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.

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.

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 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.

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Tags: cash for caulkers, home retrofits