Going Green

When Craig Foley, a REALTOR® and chief sustainability officer with LAER Realty Partners in Winchester, Mass., started selling a multifamily sustainable development called E+ Solutions LLC Highlands St., he realized it was the opportunity to run a market comparison between it and another new construction home project to see if sustainable housing truly commanded a higher price. “We were competing against new construction down the street at the same time. In Boston, we had two buildings with two units in each building that were LEED-platinum certified and had Home Energy Efficiency Rating System (HERS) scores between -14 and -22. Net zero is the standard, so these homes were well above the standard,” says Foley. The other development, Marcella St., had seven townhousestyle units and were not high performance and had HERS scores of 55.

“There was a significant price premium for the E+ Solutions Highlands St. homes,” said Foley. Those homes were listed at $450 per sq. ft., while the area average was around $375 per sq. ft., and the price at which the Marcella St. project units were listed. “The average of the two sales prices for the E+ Solutions homes had a 22.7 percent price-persquare-foot premium over the Marcella St. homes. We sold all four units of Highlands at asking price before they sold two of their units. Buyers were speaking with their wallets about the value of sustainability,” he says.

Another example is Stonehenge Park, a 38-lot subdivision in Raleigh, N.C., that featured homes that were both ENERGY STAR-certified and bronze-level certified through the National Green Building Program. All 38 lots sold in 26 months, an accelerated pace that was unprecedented in the surrounding market. The builder, Dickerson, exceeded its targeted sales rate by 40 percent. That was in 2011, and the green building movement is still going gangbusters.

According to the Dodge Data & Analytics World Green Building Trends 2018 SmartMarket Report, global green building activity continues to rise. Importantly, nearly half of the survey respondents expect that the majority of their projects in the next three years will be green buildings. By 2021, in the United States, green activity is expected to grow, with those doing the majority of their projects green increasing from 32 percent to 45 percent. Client demand remains the top trigger driving the market.

“With more people demanding and expecting healthier places to live and work, more leaders around the globe are committing to green building, which is now a trillion-dollar industry,” said Mahesh Ramanujam, president and CEO of U.S. Green Building Council (USGBC). “We need to get all buildings on a path to sustainability in order to raise the standard of living for all people around the world, regardless of their circumstances.”

Not only that, but, according to the USGBC, between 2015 and 2018, LEED-certified buildings in the United States are estimated to have $1.2 billion in energy savings, $149.5 million in water savings, $715.2 million in maintenance savings and $54.2 million in waste savings.

Find Out More

While cost doesn’t seem to be a deterrent in most circumstances, it’s good to know that there are numerous sources of funding for green building at the local, state and national levels. Find information about those grants and loans at epa.gov and hud.gov. The National Center for Healthy Housing also offers a list of financing programs at https://nchh.org/tools-anddata/financing-and-funding.

Green Can Be Affordable

One state at the forefront of the Green Building movement is California. Build It Green is a California-based nonprofit organization focused on creating a world of healthy and sustainable homes for all people. “Our work is around the foundation of building, science and healthy home — a safer place for people to live and a clean energy future,” says John Shipman, senior director for business development for Build It Green. An important part of what they do, he says, is “create a real estate market that recognizes the value for these homes. We focus on trying to impact the environment and reduce greenhouse gas emissions to affect climate change in a positive way. We do that by driving deep energy retrofits connecting homes to clean power and advanced energy technologies.” Shipman notes that Build It Green wants to ensure that the green benefits are accessible and affordable for all communities, including hard-to-reach communities and disadvantaged communities. Build it Green has a product that labels homes as certified green homes. “It’s recognized by Fannie Mae and Freddie Mac, as well as HUD for tax credits,” he says.

Helping low-income families fix up their homes to get green certified means “they have the opportunity to sell for more money than if they hadn’t made the home more energy efficient,” says Shipman. Not only that, but homeowners can save money on utility costs. “A LEED-certified home saw a 15 percent energy savings and a 20 percent water savings on average; however, many builders are exceeding the LEED standards, so homeowners can be looking at a 50 percent savings for each,” says Asa Foss, director of residential solutions for the USGBC. There are more than 480,000 LEED-certified residential units globally, and another 1.1 million currently in the pipeline. Of these units, 30 percent qualify as “affordable housing” in their markets.

The USGBC recently introduced LEED v4.1. For the residential market, LEED v4.1 combines the relevant aspects from four previously-existing LEED for homes rating systems to deliver three rating systems. The updated rating system is designed to make the decision to implement LEED easier for residential projects. Through a streamlined approach, LEED credits that have a higher value to homeowners and residents are prioritized, such as health and well-being, improved comfort, energy and water savings, and green and healthy materials. “We want to grow the number of LEED-certified affordable homes and increase access to green homes to all, especially underserved and underrepresented communities,” added Ramanujam.

Cost vs. Return

Most think green building comes at a high cost. And,it does. However, according to Foss, “The cost to build green will vary based on what you’re required to do by code already. Energy code is stringent. I would argue [the cost of a green home] is relatively small.” He notes that it is generally more expensive to upgrade an older home than it is to build a green home from the ground up. According to Dodge Data & Analytics, “higher first costs are not major barriers to building green in many instances if green buildings can be demonstrated to save more than the incremental extra amount they cost.” In the survey, they found that some 43 percent of those surveyed found that payback periods for green commercial buildings are between six and 10 years.

Several states offer a partial abatement of property taxes for non-residential buildings and multifamily residential buildings that earn certification under the USGBC’s LEED program. ENERGY STAR’s program offers taxpayers a credit of 30 percent of qualified expenditures for a system that serves a dwelling unit located in the United States. That unit must be used as a residence by the taxpayer.

In addition, energy conservation subsidies provided (directly or indirectly) to customers by public utilities are non-taxable, according to IRS Publication 525. This applies to both residential and commercial green buildings. For a full list of incentives for renewables andefficiency, go to www.dsireusa.org.

With the E+ Solutions Highlands St., Boston example, when you include the incentives for solar, which was a 30 percent tax credit, and the incentives that Massachusetts state was offering, the condo owners who decided to purchase the pricier Solar Photovoltaic (PV) technology had about all of their condo fees paid due to credits and incentives,” says Foley with LAER Realty Partners.

Utility and Operating Savings

As the green building movement has grown, the savings associated with lowering operating costs continues to be a top benefit for owners. Nearly two-thirds of respondents expect to see building operating costs decrease by at least 6 percent within the next 12 months, while more than 80 percent expect this same rate of return in the next five years. As lowering operating costs and improving occupant health become more widely known and accepted, the value of green buildings increases as well.

“Green homes have much lower maintenance costs because they are properly ventilated and protected better against moisture penetration and the elements,” says Erik Cathcart, director of marketing and technology for Earth Advantage, a nonprofit organization focused on accelerating the adoption of sustainable residential building practices across the Northwest.

The UTC Center for Intelligent Buildings is a prime example of how much can be saved on operating costs by using green building. According to the World Green Building Trends 2018 SmartMarket report, the five-story office building was completed in 2018 in Palm Beach Gardens and is 224,000 square feet. The report notes that the building achieves a 60 percent reduction in energy, 36 percent reduction in water use inside the building, and 100 percent reduction in outdoor water use compared to industry standards. They use high-efficiency chillers which reduce energy consumption for cooling by 42 percent compared to the industry standard.

“As the market begins to realize these benefits, we’re seeing mortgage lenders like Fannie Mae and Freddie Mac offer special packages to either upgrade existing homes or benefit from new construction,” Cathcart says. Earth Advantage has a Green Building Registry® (https://us.greenbuildingregistry.com) that allows users to search for green home data anywhere in the United States. “As more data reaches the market, hopefully from our Green Building Registry®, appraisers and lenders will add that value into the asset rating of the homes,” he adds.

Boosting Resale Value

Another financial benefit to green homeowners is a boost in resale value. A home with eco-friendly elements can sell for more than a home without. The percentage of owners reporting that new green buildings have an asset value more than 10 percent greater than traditional buildings has nearly doubled since 2012. In addition, most architects and contractors recognize that building green creates a higher asset value. A recent Zillow analysis of homes in some 500 markets shows that homes with solar-energy systems sold for 4.1 percent more on average than others nationwide in the past year.

Graphic: Most Important Benefits of Green Buildings

However, there are challenges. One of those, says Shipman, is the way a REALTOR® markets the home. “Through our education platform and the NATIONAL ASSOCIATION OF REALTORS® Green Designation, we teach real estate professionals how they can help their clients.” Shipman admits they have a unique model in California. “We’ve been very lucky to get the support of the California Public Utilities Commission. We recommend to the utilities that they make real estate professionals in California part of their energy plans. We’ve been able to supplement some of the cost of education for the real estate agents through our utility-based programs. So, when REALTORS® come in, they’re able to understand what the programs are and how the programs work, and they’re able to take them back to their communities and use them when they have a listing.”

Shipman recalls a time when a REALTOR® was working with a seller. The listing agent took a class to earn her NAR® green designation. “She was able to recognize some of the resource-efficient features after she took the class. She contacted one of our GreenPoint raters (people who certify homes as green) and was able to green-certify the house. The house, located in Claremont, Calif., was then listed in the Multiple Listing Service (MLS) as a certified green home. She was able to sell it for more money than any home had ever sold for in that area, which was amazing.”

More than that, says Shipman, “The money saved on utility bills will free up money for other things.” Plus, he notes, many homebuyers will realize that a green-certified home is probably a high-quality home due to the energy efficiency standards.”

Another challenge is the mislabeling of homes in the MLS. According to “Green Homes Sales Prices in Northern California,” by Sandra Adomatis, SRA, LEED Green Associate, with Adomatis Appraisal Services, “Green label information is many times just a comment in the listing’s narrative description.” The study found that MLS “green fields” were either unused or improperly used, which prevents REALTORS® from easily searching green homes on behalf of their clients and prevents appraisers from finding comps to properly value those homes. That’s why NAR offers its green building designation and why Build It Green and the USGBC focus so much on education. “We must have a way to provide certification training to all agents and appraisers to educate them on how to identify, market and value green homes,” says Adomatis.

Of course, the benefits of green building extend to commercial. In fact, “the benefits on the commercial side have been studied more than residential because there’s so much more money involved,” says Foss. “There have been lots of commercial studies that have linked [green building] to positive health impacts. In school settings, there are links to higher grades. In office buildings, there are links to better worker retention and satisfaction,” he adds. “The increased worker productivity really has been a major driver because, from a business standpoint, where they can improve retention and productivity even by small fractions is important. That translates to real dollars in their pocket.”

The New Standard

As environmental issues come to the forefront, green building will become a standard rather than a luxury. Says Foss, the business and market benefits right now are relatively anecdotal. “We can point to all these studies, and you’ve seen pretty decent insurances. In a few years, it’s going to be an ironclad fact that efficiency and water upgrades during construction will benefit everyone’s bottom line.”

Shipman agrees. “Green upgrades lower the true cost of homeownership. If it’s a certified green home, you can bet that it’s going to have a lower cost of homeownership, and that’s the most significant part of the economics of it. It builds wealth when the house is sold and saves money when the house is being lived in.”

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A free, semi-annual magazine published by NAR, On Common Ground presents a wide range of views on smart growth issues, with the goal of encouraging dialog among REALTORS®, elected officials, and other interested citizens.

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