APPRAISING & FINANCING HIGH-PERFORMANCE HOMES
Few people who embark on the adventure of building a new home have done so before. If you are venturing down this road, there are key things to know before the first shovels hit the ground. And a significant portion of this knowledge lies in the financing process.
To better understand how to secure financing for a new home, it is helpful to understand the when, the who and the what of the process. Knowing when certain steps should be taken, who should be consulted along the way and what documents you’ll need will make for a much smoother experience overall. This is particularly important for a home buyer commencing the noble and worthy quest of building a green home.
Before getting into the nuts and bolts, it’s worth stepping back to take in the big picture of building green.
It is true to say high-performance homes cost a small margin more to build. It is false to say that they cost more. This can be a difficult point to convey because, historically, the golden number—the ultimate bottom line—has always been the mortgage.
In recent years, the green building market has seen two significant developments that have changed its financial landscape.
One is the upward trend in fossil fuel costs and correspondingly, utility and electricity expenses. Oil prices have more than tripled in the past 20 years. And the oil we use to heat the majority of Maine’s homes will not likely be getting any cheaper. Likewise, in just 14 years, the average price for residential electricity has increased by 65%—and it continues to trend upward.
The second transformative event has been the marked innovation in energy efficiency and solar technology. Namely, air-source heat pumps (the most common heating and cooling system for high-performance homes) can now operate at temperatures well below zero and, according to the US Department of Energy, “can deliver one-and-a-half to three times more heat energy to a home than the electrical energy it consumes.”
And solar panels have vastly improved in their capacity for power production per panel, while pricing to purchase and install them has decreased. These improvements have made building green not only affordable but potentially less expensive than a comparable newly-built home that meets only code-minimum energy standards.
For a family of four, a net-zero home—a home that generates as much electricity as it uses—would offer an estimated savings of $400 per month, or $4800 per year (based on the Department of Energy’s calculations for average energy costs for New England). Considering that the average time homeowners stay in their homes is 10-13 years, the cash savings over that time period is between $48k-$62k. If factored over the life of a 30-year mortgage, the accumulated savings would equal $144k-$186k (not adjusted for inflation or compounding interest).
Given these projected savings, and assuming 10 year ownership, a net-zero home buyer would have an additional $50k for their project budget at the outset. In other words, you get an extra $50k to spend up front, and yet you’ll still be spending the same as you would monthly if you had built a comparably sized home to code-minimum standards. This also assumes that there will be no change in fuel and electricity prices over these 10 years—an unlikely scenario given the trends outlined above.
This sum also does not account for the added lifestyle value of building green: filtered fresh air, consistent interior temperatures and the peace and quiet of a well-insulated home, to name a few. So, it’s likely that the savings and ultimate benefit will be far greater than the initial projected $50k of this example—before ever spending a dime more per month than you would have if you’d just built a conventional home.
Another intangible is the added value of the home at resale. Several research studies have shown that green homes capture an average of 8%—and up to a whopping 30%—of added value over a conventionally-built home of comparable size and location. In the current market, then, they are selling at a premium. Given that code-minimum home construction continues to outpace construction of high-performance homes, it stands to reason that high-performance homes will likely gain further value in years to come.
These considerations illuminate a solid financial argument for building a green home. Now on to the business of appraising and financing one…
This article was originally in the Green and Healthy Homes fall 2017 issue and presented on their blog. While the article was written in 2017, it still captures the process of getting into a green home financially. Look for some new content around this early next year.