One of the brightest guys in today’s mortgage industry is Brian Coester, the CEO of Rockville, Md.-based Coester Valuation Management Services. In a recent blog posted at his BrianCoester.com website, he saw the future of housing with a greater focus on energy efficiency.
“I’ve anticipated this for years and the time has finally come,” Brian wrote. “Energy efficient improvements such as solar panels and tankless water heaters will begin adding notable value to homes. In states like Texas, Colorado and Arizona, homes with energy efficient items sell at a 10-20% premium when compared to traditional homes in a similar market. I believe this trend will spread steadily to other over the next few years. If you remain skeptical about the return on large scale energy efficiency projects, even more minor upgrades, including ENERGY STAR appliances, LED bulbs, programmable thermostats and weather stripping have begun receiving consideration in market valuation.”
I freely admit that I have always been concerned about how Washington has spent billions in federal funding to push utility-scale green energy, with dismal results – solar energy, for example, only generates less than one-half of one percent of the total U.S. energy power, despite the endless supply of taxpayer money spent to encourage its development and installation. But it is difficult not to acknowledge that the so-called “cleantech” solutions have a greater appeal on a much smaller scale. Indeed, much of the appeal of the tiny house movement is being able to live completely off the grid by using renewable energy solutions to power, heat and cool a smaller-than-normal residence.
In too much of the residential real estate world, however, there appears to be an aversion to green housing. There is a product called the energy-efficient mortgage that has been around for many years, but it barely makes up less than one percent of the total mortgage product marketplace. This is partly because borrowers need to have reports prepared by an energy consultant using a Home Energy Rating System (HERS) before approval is given on financing. Not surprisingly, the appeal of extra paperwork has proved highly resistible to many originators, who either do not offer these loans or fail to advertise them.
Several federal and state government agencies also have these mortgages, but they are equally silent when it comes to promoting them. Even the White House, which set parallel goals of preserving housing and encouraging energy independence as being primary among its domestic priorities, has curiously failed to use energy-efficient mortgages as a means of achieving these twin goals.
But you don’t need really need Washington to make the world a greener place. In the commercial real estate sector, the push to encourage green building practices has become one of the most exciting things to occur in property development and management – and this is made all the more enjoyable because it is entirely driven by the commercial real estate world itself, without any government oversight or tax money being used to arm-twist the sector into going green.
Some entities in the residential lending sector have already seen the green light. The Appraisal Institute recently published “Residential Green Valuation Tools,” which offers an overview of the valuation of high-performance homes, a growing market. Earlier in the year, the Appraisal Institute and the Institute for Market Transformation issued guidance on valuing green and energy-efficient buildings – a much-needed development, considering the previous lack of standards on this subject.
And as Brian Coester pointed out earlier, energy efficiency is a great selling point in today’s housing market. Hey, if a house can sell at a 10% to 20% premium against neighboring properties due to energy efficiency treatments, that seems like a great argument for going green.
At a time when the industry is still jittery over the prospects of a slowdown (or worse) in housing, this is an option that needs to be pursued. I would call on the Mortgage Bankers Association and other trade groups to start putting more emphasis on this topic, both in their publications and at their conferences. And I would love to see more industry leaders follow Brian Coester’s lead and talk up the green aspects of housing. In the long run, this will be a win-win situation for the industry and, I suspect, the wider economy.
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