Tight housing market leaves little room for efficiency

Energy efficiency remains a relatively low priority for Twin Cities homebuyers despite rising utility bills and mandatory disclosure rules.

Minneapolis in 2020 began requiring energy audits and public disclosure of results before all home sales. Bloomington, the state’s fourth-largest city, introduced a similar requirement starting this year.

While the ordinances have made energy use information more accessible to potential buyers, estate agents say the reports have so far had little impact on decisions about where to live. The tight market of recent years has forced many buyers into bidding wars with little time to consider things like insulation or HVAC systems. Meanwhile, multi-ad services include little energy information, and many agents are still unaware of how efficiency scores work.

And despite rising natural gas and electricity prices, energy remains a relatively small slice of the cost of homeownership. Analysis this month by Redfin found that heating and electricity bills continued to fall on average last year as a percentage of new homebuyers’ annual mortgage payments.

It seems more and more buyers are recognizing the value of energy efficiency and are willing to pay extra for it. A recent study by nonprofit Elevate Energy looked at five pairs of comparable homes sold in Minneapolis in 2019. Those with local “Energy Fit” certification sold between 2% and 13% more than similar homes. without certification.

“We’re finally at a point where consumers recognize its value,” said Todd Shipman, a Lakes Sotheby’s International realtor who twice chaired the National Association of Realtors’ sustainability committee. “We’re only heading for a bigger marketing opportunity as energy costs rise.”

For now, however, he said Twin Cities sellers who make home energy upgrades tend to do so to satisfy their desire to help create a cleaner environment rather than because of demand from the market. Energy disclosure data hasn’t had much of an impact yet, Shipman said, nor have other rating systems. “It’s a mixed bag,” he said.

RE/MAX Results agent Steven Hong, who specializes in green homes, describes the market the same way. “Over the past two years, the market has been so hot that [buyers] have no choice,” he said. “They have to take what they can get. If they are waiting for a house with more green features, they may not get a house.

The Multiple Listings service in the Twin Cities only has two green fields, he added. One provides a place for a Home Energy Rating System (HERS) score developed by the Residential Energy Services Network and another called “Green Certification,” which requires a home to be validated for certification by a third-party provider.

Although popular among developers of new homes in Minnesota, the Residential Energy Services Network’s HERS scores are not always widely understood by real estate agents. Hong said many agents put zero as the HERS rating of homes, even though that would indicate they are net zero. “That would mean we have 2,300 net zero homes, which we don’t have,” he said.

Data from the Multiple Listings Service does not offer energy disclosure scores for homes in Minneapolis or Bloomington. They also don’t report whether homes have solar power or have invested in new heating and cooling equipment. Both Hong and Shipman believe that without adding this information to the lists, power consumption will continue to be a lagging factor.

The most common home valuation measure in Minnesota is the HERS, which has been applied to more than 40,000 homes. According to Elevate, homes with HER scores have a 10% price premium over unrated homes. And the state consistently has scores that rank among the best in the country.

Elevate compared Minneapolis to the housing markets of Ann Arbor, Michigan and Chicago. The researchers found that agents in Twin Cities used the green certification data field and comment sections to call for efficiency more than the other two cities. “It’s not like Minneapolis has robust field utilization, but there’s enough to start doing analysis,” said Pamela Brookstein, senior project manager.

One certification that seemed to help raise home sale prices based on its small sample size was the “Energy Fit” certification, developed by the Center for Energy and Environment in Minneapolis. Fewer than 1,000 homes have the certification, while another 9,500 carry the Energy Star certification.

Minneapolis and Chicago both require home energy ratings on the market, but officers in both markets rarely use that information, Brookstein said. Additionally, Chicago focus groups told him they hadn’t heard of the city’s required energy disclosure ratings.

Agents who market homes as high-performing and explain the efficiency benefits to customers find that they can command higher prices. Buyers are “paying more for these homes and finding them desirable,” Brookstein said.

But the market for high-performance homes remains small. Brookstein said appraisers need more energy data to include in their appraisals, while buyers need more discussion of the benefits of green homes rather than more data. Third-party verification adds validity to ratings and attests to the financial and health attributes of clean energy. Agents also need more education on how to market and sell homes effectively, she said.

Isaac Smith, residential program development manager for the Center for Energy and the Environment, said Elevate’s report shows that energy investments are paying off in the Twin Cities. “When those bounties start to be realized, [energy-saving] investments become a no-brainer because you will get energy savings and comfort,” he said. “When you sell your home, you get all that investment back and a higher sale price.”

Smith and his colleagues highlight energy disclosure statements through courses and at real estate industry events. Still, he admits energy disclosure isn’t part of most home buying transactions in Minneapolis, even though home sellers have generated more than 16,000 reports since the program began in 2020.

Whether buyers read them may even depend on how they are presented when emailed. The Center for Energy and the Environment manages the energy disclosure program for Bloomington, which sends reports to buyers in a separate document. In contrast, the Minneapolis Energy Disclosure Statement is placed at the end of truth assessments in home sales. Anecdotally, Smith has heard that Bloomington is seeing more buyers open the separate energy disclosure report.

Bloomington’s environmental sustainability coordinator Emma Struss said the city needs to create a “more informed market” to meet its carbon reduction goals. The availability of Energy Disclosure Scores will provide more than 1,500 home buyers with access to efficiency data and home energy improvement suggestions each year.

“We want to reduce greenhouse gas emissions, improve indoor air quality and health, and make energy more affordable as energy prices rise,” Struss said.

Agents and buyers say the green home market continues to emerge. Keller Williams’ agent Lowry Cotty said he recently sold a duplex in Minneapolis with a complex electrical and solar heating system. The super efficient insulation of the windows, attic and walls of the building added value. Two people submitted bids and Cotty sold it at full price to an engineering student who understood advanced systems.

Solar power, heat pumps and energy efficiency no longer scare off some buyers, Cotty said. The duplex sold out faster than other duplexes of similar value due to efficiency improvements. “It’s becoming mainstream,” he said. “But we need to get this information in multiple listing services.”

Energy-efficient homes remain in limited supply. When Minneapolis resident Keith Richard started looking for a green home for his family in 2018, he couldn’t find an affordable one and decided to take a different approach instead. He bought the house he was renting and started transforming it, replacing natural gas appliances with electric ones and installing solar panels.

“It wasn’t the perfect house, but it was the one we knew, and in 2018 it was a hot market,” he said. “It wasn’t our intention, but it worked.”

About Dwayne Wakefield

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