What will new energy disclosure rules mean for home prices?

energy disclosure

Climate advocates are hoping to use the competitiveness of Minneapolis’ housing market to the environment’s advantage.

That’s because multiple studies suggest that the more energy-efficient upgrades homeowners put into their houses, the more their homes are worth. In 2017, for example, the federal Department of Energy found that homes with high-efficiency upgrades sell for 2% to 6% more than the average home. That translates to an extra $3,500 to $9,000 per house.

High-efficiency homes also sold 18 to 89 days faster than average, according to a dozen nationwide surveys analyzed by the Department of Energy.

Upgrading does come at a significant cost, and some homeowners could see a payoff in long-term energy savings as too distant to make such big investments, especially if they’re looking to sell their home soon.

But for Isaac Smith, a residential program development manager at the Minneapolis-based Center for Energy and the Environment, the extra value that high-efficiency homes bring is a good thing for homeowners in both the short and long haul.

“Yes, you save money on the energy bills,” Smith said. “But when you go to sell your home, you’ll get more money for it, too.”

Smith is hoping that new pre-sale inspection requirements from the city targeting home energy use will help this phenomenon grow in Minneapolis.

The new requirements add three components to the city’s existing Truth in Sale of Housing inspections, which all homeowners are required to conduct if they want to put their homes on the market. They include surveying the windows, the existing insulation and the type of heating system in each home to give it an energy-efficiency score between 0 and 100.

The idea is to encourage homeowners with low scores to make energy-efficient upgrades to their properties. Replacing old drafty windows with insulated double-pane windows can run between $400 and $650 per unit with installation. High-efficiency water boilers run from $2,000 to $5,000. And high-efficiency gas furnaces can run between $3,000 to $12,500.

Minneapolis’ new pre-sale inspection requirements are set to go into effect next year. The Minneapolis City Council approved them as part of its greater goal to reduce carbon emissions 30 percent by 2025 and 80 percent by 2050, using 2006 emissions as a baseline.

Minneapolis realtors anticipate that the new requirements will impact the real estate market. They’re just not yet quite sure how.

Similar green inspection requirements put forth in cities like Portland, for example, are too recent to determine their impact on the cities’ real estate markets.

Todd Shipman, a realtor with Lakes Sotheby’s Realty, said it will probably take some time for buyers and sellers of properties to react to the new city requirements.

For now, Shipman said he is not seeing much of an indication that homeowners are jumping to make energy-efficient upgrades to their houses before putting them up for sale. Current property owners generally don’t make big upgrades on their heating or cooling systems unless they have to, he said.

“When a furnace dies and they need to replace it, then it happens,” Shipman said.

But he and other Minneapolis realtors do believe that the energy-efficiency score will immediately prompt more conversations on the subject between homebuyers and sellers.

“My thought is that it’s going to create more awareness in consumers’ eyes,” said Shae Hanson, a realtor with Keller Williams Realty. “They’re going to be able to see what they can do to increase a home’s energy efficiency before they purchase it, and that may play into how they want to make an offer on a house.”

The impact of the new guidelines will also depend on the state of the Twin Cities real estate market, which has had more buyers than homes available for roughly the past five years.

Currently, the real estate market still strongly favors the seller. The average home for sale in the Twin Cities stayed on the market for 1.6 months, according to January data from the Minneapolis Area Association of Realtors. In a more balanced market, the average home for sale would stay on the market for closer to four or five months.

This ultimately means a home’s low-efficiency rating is likely to play a weaker role in a prospective homebuyer’s decision to purchase when there are fewer homes to go around.

“If a buyer wants to undercut a home, a seller would just take the next offer,” Chris Galler, CEO of the Minnesota Association of Realtors, said.

But if the market shifts back to a buyer-friendly one, the new pre-sale inspection requirements could lead to sticking points for negotiation between buyers and sellers.

And that’s what Shipman, who chaired a sustainability task force for the National Association of Realtors, said he’s looking forward to. Though the Minneapolis Area Association of Realtors opposed the new city inspection requirements, Shipman personally supported them and is currently convening a “green task force” to prepare realtors for a similar future statewide standard.

“Minneapolis is just the first test case in the state and one of the first test cases in the country,” he said.


New Additions

Three components targeting home energy use have been added to the city’s existing Truth in Sale of Housing inspections.

Window survey

Windows

Insulation test

Insulation

Heating system check

heating test

After an inspection is completed, homes are assigned an energy-efficiency score between 0 and 100.