Valuing Efficiency Energy Star and Appraisers Appraisal Institute

Document Sample
Valuing Efficiency Energy Star and Appraisers Appraisal Institute Powered By Docstoc
					Valuing Efficiency:
Energy Star and Appraisers
by Kathy Price-Robinson

S      hould the energy efficiency
of a home—or the lack thereof—make
a difference in an appraisal? Public
alarm over rising energy costs make
this an increasingly vital question.
According to Sam Rashkin, the
national director of Energy Star for
Homes, appraisals definitely should
take into consideration how much
energy a home uses, saves or wastes,
as well as the related issues of
occupant health and comfort, and
home maintenance and durability.
“If you're not looking at energy,”
Rashkin says, “you’re missing a lot.”

    Nationally, 60 percent of the population has some            ventilated properly according to Energy Star standards, the
awareness of the Energy Star rating program, which denotes       savings can be significant. Rashkin quotes one appraiser in
a level of energy efficiency that is earned by both home         Florida stating that he added $4,000 to his opinion of value
appliances and the home itself. Appliances that meet the         due to the home’s whole-house Energy Star rating.
standards have an Energy Star sticker, and homes that meet          Today, there are some half million new homes with an
the standards (30 percent more efficient than the model          Energy Star rating, with projections of 2 million by the end of
energy code) have their sticker on the inside utility box.       the decade. And while these are noteworthy numbers, they
    According to the numbers, even a small change in a home      pale when compared to the other 128 million homes in the
can produce savings for the owners. A simple 50-cent incan-      country that do not have Energy Star ratings. In fact, at this
descent light bulb, for instance, costs $80 over an eight-year   level, it’s unlikely that the average home appraiser would
period when replacements and operation costs are taken into      come across a home with an Energy Star rating. But the inten-
consideration. When that is replaced by an energy-efficient      tion of the Energy Star program is not just to rate homes and
and longer-lasting compact fluorescent bulb, the cost for the     appliances, but to raise the level of awareness about homes
same wattage is only $20 for the same eight-year period.         that use energy wisely, and those that waste it needlessly,
    Of course, when an entire house is filled with similarly     driving up the cost of operation. For more information on
efficient appliances, and the house itself is sealed and         the Energy Star program, visit

14 Valuation Insights & Perspectives
Energy Star and the appraisal process                              not available for comparables.
To drive home his points, Rashkin offers a continuing education       With rising energy prices, though, it’s logical to think that
seminar on energy-efficient homes, which he has presented          utility bills will one day affect the value of a house the way
to Appraisal Institute members in Texas and Minnesota. The         gas mileage does cars today.
seminar, titled The Canary in the Coal Mine: Energy Star and
the Appraisal Process, has been well attended and well received,   History of Energy Star
Rashkin says.                                                      Even though only a small fraction of homes in the country
   Geri Aupperle, SRA, who attended Rashkin’s seminar in           have an Energy Star rating, the 500,000 that do are a major
Waco, Texas, found that it gave her heightened awareness of        accomplishment for the initiative.
energy-efficient features in homes. She recently mentioned            The Environmental Protection Agency began the Energy
high-performance windows in a report, which she might not          Star program modestly in 1992, teaming up with manufacturers
have done previously. And she took note of a tankless water        of personal computers and monitors that earned the rating.
heater — an energy-efficient appliance Rashkin covers in his       In 1993, Energy Star-qualified printers were introduced, and
seminar — in another report.                                       in 1994, Energy Star-qualified fax machines hit the market.
   “He made me aware of a lot of things,” Aupperle says,              In 1995, Energy Star for buildings was launched to help
noting that when she replaced older appliances in her own          businesses improve their energy efficiency and their bottom
home, her energy bills went down. And when she replaced            line. And Energy Star for new homes was also launched. In
her furnace, she saw her winter heating bill go from $300          the same year, Energy Star specifications were introduced
last winter to $150 this winter. The seminar “motivated            for copiers, transformers and residential heating and cooling
me more than anything else,” she says.                             products, including air-source heat pumps, central air condi-
   However, at this time, most energy-efficient features in        tioners, furnaces, gas-fired heat pumps and programmable
homes do not get noted in reports or elevate value. “These         thermostats. The next year, 1996, several lenders started
things don’t stand out,” Aupperle explains. If the appliance is    offering Energy Star mortgages for qualified new homes.
Energy Star–rated, for instance, the sticker might be missing         Over the following years, nearly every manner of appliance
or go unseen. Also there’s no practical scientific way to          and device could qualify for an Energy Star label, including
quantify each feature. Mostly, energy-efficient features are       refrigerators, dishwashers, air conditioners, scanners, exit
hard to extrapolate because parallel information is usually        signs, lighting fixtures, televisions, video cassette recorders

                                                                                                              Second Quarter 2006 15
and DVD players. Insulation was added, as were windows.              • stained insulation
   By the end of 2002, Americans had purchased more                  • higher energy bills
than 1 billion Energy Star-qualified products, and 1,100             • ice dams on the eaves, or damage from ice dams
commercial buildings had earned an Energy Star label.
That number is now more than 2,500 and it continues                   Rashkin says the last one, ice dams, could indicate warm
to expand. In 2002, three agencies – the Environmental            air leaking into the attic and melting snow on the roof. “It’s
Protection Agency, Department of Energy and Department            both an energy problem and a very serious maintenance
of Housing and Urban Development – signed a partnership           problem,” he said.
agreement to promote Energy Star in HUD housing. It                   If a house has energy problems, it could take several
was estimated that one in 10 new homes built in 2004 was          thousand dollars of work to bring that house up to normal
an Energy Star home. In Houston, where Energy Star is             standards, Rashkin says, and he believes appraisal reports
very entrenched, 40 percent of new homes are certified.           should reflect that to avoid liability problems in the future.
                                                                  Someday, Rashkin believes, people will be as willing
What appraisers should know                                       to invest in the efficiency of their homes as they are in
From Rashkin’s perspective, homeowners who spend the              the efficiency of their cars.
money to improve their homes’ energy efficiency should                With energy sure to become a hotter topic in the
get credit for it. “They should have that value recognized,”      future, being informed about energy issues could become
he says. And if a home leans the other way, toward extreme        standard for those in the appraisal industry. “We think
energy inefficiency and increased monthly utility bills and       appraisers would be well served to get on board,”
maintenance problems, that should also be noted, he says.         Rashkin says.
Determining if a house has energy problems, which should
decrease its value, is not difficult, according to Rashkin. He    Kathy Price-Robinson is a frequent contributor to a variety of real estate
suggests looking for these signs of energy problems:              publications, including Valuation Insights & Perspectives, Better Homes
   • a musty smell when you enter the house                       and Gardens, The Journal of Light Construction and the Los Angeles Times,
   • moisture damage                                              for which she writes on remodeling projects. She can be reached at
   • excessive paint peeling on the exterior
   • water damage in the basement

                                                                                               Appraisal Institute chapters
  ENERGY STAR FOR HOMES                                                                        interested in obtaining Rashkin’s
                                                                                               seminar for local presentations
                                                                                               should contact Wendy Woodburn
                                                                                               at 312-335-4191 or wwoodburn@

                                                                                               In addition, the Appraisal Institute
                                                                                               offers Energy Performance and
                                                                                               Commercial Property Value.
                                                                                               For more information on that
                                                                                               seminar, visit: www.appraisal

Where Energy Star-labeled homes are concentrated in the country

16 Valuation Insights & Perspectives

Shared By: