The following link is a blog that Woody Fincham, SRA, AI-RRS, ASA, ASA was quoted in. This is poste d with the owner of the blog’s permission.
Sep 30, 2022
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Sellers have had their day (or rather, their year). Now, if you’ve been following the U.S. housing market and mortgage rates, you may have seen home prices in your area sliding downward like a slow-motion roller coaster. Even if you’ve just watched the ride from the ground, you may be questioning your home’s current value — or how to prioritize home improvements with its future value in mind.
The housing market is always changing, but here’s something you can count on: High-performing features in your home help create lasting value. Pearl Certification recently published a study on home sale prices across four large U.S. markets. The results show that certified, high-performance homes that have been properly marketed as such commanded a sales premium of 4.75% on average. The highest premium in all four markets was an impressive 16%.
In fact, studies dating all the way back to the 2008 recession have demonstrated price premiums in the range of 2% to 6% for certified, high-performance homes across the U.S. These studies include a previous 2017 Pearl Certification study with a smaller geographic scope that demonstrated almost the same results as our 2022 report. (Take a look at our Research page if you’d like to dig into the facts and figures.)
What makes a house a “high-performance home”?
A high-performance home might look like its neighbors, but inside, you can feel the difference.
“It comes down to comfort,” Woody Fincham, a professional appraiser who specializes in high-performance homes, tells us. “A home like this is going to have cleaner air and stay at a comfortable temperature because all the systems are performing optimally. At the same time, it can also save people money by saving energy and water.”
He pointed out that hundreds of your home’s assets work together to maximize your comfort, health, and efficiency. Many are out of sight and out of mind, but all are necessary for high performance. So, instead of granite countertops and open floor plans, think heating and cooling systems, the seals around your bathroom piping, and the insulation inside your walls. Your appliances, windows, doors, light and water fixtures, fans, and smart home tech also contribute to how your home functions.
Which high-performing features increase your home’s appraisal value?
Now that we’ve defined high performance, let’s talk about how high-performing features can increase your home’s appraisal value at the time of sale or refinance.
When we asked which features would add the most to a home’s appraisal value, Fincham pointed out that particular features will be more or less valuable in a given market based on the local climate, the level of demand among homebuyers, and how many nearby homes already have those features.
“As appraisers,” Fincham tells us, “we’re looking at your overall property. “Your home’s appraisal value isn’t influenced by this or that single improvement — one upgrade is hard to quantify. Think about all the things working together in your home to make it unique and valuable.”
So, like most things in life, there’s no simple answer. We can’t give you an exact number for how much each feature adds to your home’s appraisal value. But we can tell you these five upgrades work hard to decrease your utility costs, improve your home’s performance — and contribute to a higher appraisal value.
Seal Your Building Shell
The building shell is the primary line of defense between your family and outdoor temperature, moisture, and pollutants. Improving your home’s building shell includes caulking or other types of air sealing around bathroom and kitchen pipes, ductwork, electrical outlets, windows, doors, and your attic and basement or crawlspace. Ensuring you have enough insulation for your climate is also vital.
What these types of upgrades lack in excitement, they typically make up for in their high return on investment. “They’ll give you the biggest bang for your buck,” Fincham says, pointing out that the cost to make the improvements can be recouped via day-to-day energy savings and by contributing to appraisal value. The 2022 Remodeling Impact Report from the National Association of REALTORS® estimates a 100% return on investment (ROI) at resale for an insulation upgrade alone.
Remember, though, that building shell upgrades work together to create value; caulking in one bathroom isn’t enough. Pearl recommends a whole home energy audit with a blower door test to better understand where your house could use sealing and insulation improvements.
Upgrade Doors and Windows
Switching to high-performance, ENERGY STAR®-certified doors and windows means saying goodbye to drafts that enter the house around these installations. It also means shrinking energy bills by 12% on average compared to non-certified products. In some climates, the energy savings are as high as 31%!
Like most home features, there are many types of doors and windows to choose from — are any more valuable in terms of comfort or ROI? The National Association of REALTORS® has found that steel and fiberglass doors have similar ROIs (63% vs. 60%); vinyl windows have a slightly higher ROI than wood windows (67% vs. 63%). Look for double or triple-pane glass, argon insulation, and solar protection to help regulate temperature and optimize energy efficiency.
Install High-Efficiency HVAC Systems
Overall, heating, ventilation and air-conditioning (HVAC) systems have become more energy efficient over time. “Don’t go for the standard or minimum efficiency model,” Fincham says. “For a high-performance home, choose the highest efficiency model in your price range.” A heat pump, for example, may be the most energy- and cost-efficient option for you depending on where you live. Heat pump technology has advanced enough that cold-temperature models can provide efficient heating even below freezing. According to the Department of Energy, current heat pump models can help you reduce electricity use for heating up to 50% compared to furnaces.
Fincham urges homeowners to consult with an HVAC professional to choose the right type of system for their climate and home in order to get the best ROI. This is important: the wrong type or size of system cannot contribute nearly as much to energy costs or your home’s appraisal value.
Opt for ENERGY STAR Appliances and Water Heaters
Appliances are among the most visible of high-performance home assets and some of the easiest to market, with the right documentation. Fincham recommends replacing your old appliances like refrigerators, dishwashers, and faucets with high-efficiency, ENERGY STAR– or WaterSense-labeled models for your kitchen and bathrooms. These programs, run by the United States Environmental Protection Agency (EPA), prioritize both efficiency and performance, and there are tons of options available for every design sensibility. “One certified appliance won’t add much to your home’s value,” Fincham says. “But if everything is certified? That definitely helps.”
Water heaters may not be as sexy as your high-visibility appliances, but they use about 20% of your home’s energy. That means they have a big impact on home performance and contribute to appraisal value. You can conserve energy and water (and enjoy luxurious showers) with the right high-efficiency, ENERGY STAR-certified unit for your home. For instance, a certified heat pump water heater uses 70% less energy than a standard electric model. Again, a contractor who specializes in high-performance homes can help you choose the option that will save the most energy and add the most value.
Install Smart Home Technology
Among the most attention-attracting assets in the home performance catalog, smart home features include smart locks, lighting, appliances, and, of course, thermostats — plus an increasing number of other devices that put you in control of your home. Whether you’re looking for energy savings, a sense of security, or the perfect temperature when you wake up on a crisp winter morning, smart home technologies bring immediate benefits to you and your family. They also attract homebuyers’ attention. In a 2021 survey by Security.org, 78% of homebuyers indicated that they would be willing to pay more for a home if it had smart technology.
Smart tech definitely contributes to appraisal value, Fincham tells us, but its relative novelty and great variety make it difficult to estimate ROI. That said, you can get a sense of how much it may cost to make your home smarter in this recent article.
How Do You Choose Which Upgrades Are Right For Your Home?
To choose upgrades that will contribute most to your appraisal value and result in a favorable ROI, Fincham suggests you do three things:
Pay Attention to Your Neighbors
“When a nearby home comes up for sale, go to the open house. Read listings on Zillow or other similar websites. See what higher-priced homes have in them,” Fincham says. “Keeping up with the Joneses keeps you up to date on what’s ‘normal’ in your market.”
And, of course, it will give you lots of design inspiration! But remember, many high-performance features are out of sight, so they’re often left out of listings. That’s one reason Fincham encourages the next step.
Hire an Appraiser to Do a Feasibility Analysis
“If you’re thinking about making substantial improvements, it’s a smart idea to hire an appraiser to do a feasibility analysis while you’re in the planning stage. Do this before you hire any contractors,” Fincham says. “You might think an appraiser can only work for your lender, but they can also work independently for you.”
According to Fincham, your appraiser can analyze different upgrade options and give you an idea of how those upgrades would contribute to your home’s appraisal value based on your market. You’ll then be able to see what upgrades will get you closest to your goal resale value.
Compare Results with Pricing
“Tell contractors what you want to do. Compare their quotes with the appraiser’s numbers,” Fincham says. “If no contractor can do it in a price range that would make it feasible, then it’s time to decide if you will drop this upgrade or wait to make it. Or, if you’ll be in your home 10 to 15 more years, and you’re willing to spend a little over what the appraiser told you, you might decide to make the upgrade anyway with the expectation that the market will catch up by the time you sell.”
Next Step: Build a Home Investment Plan
Once you have your goals set and have done your due diligence, the next step to creating a high-performance home that appraises for more is building a plan. That’s why Pearl created Green Door, an award-winning app that helps you improve, manage, and maintain your home’s performance. Green Door generates customized Home Investment Plans based on your priorities and your existing home assets, then gives you access to thousands of sustainable products and local, vetted contractors to help you complete your upgrade. Watch as your upgrades earn Pearl Points toward a Silver, Gold, or Platinum Certification. And when you’re ready to sell or refinance, request a Pearl Certification, which captures all your home’s high-performing assets and provides you with an appraiser letter and the Appraisal Institute’s Green and Energy Efficient Appraisal Addendum.
An investment in better home performance will benefit your family now and whenever it’s time to refinance or sell. Economics shift and design trends change, but the lasting value of high-performance homes is here to stay. After all, comfort, safety, and health will always be in demand.