100302 Valuing Energy For Appraisers

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Valuing Home Performance:Guidance For Appraisers

Last week I met with a group of real estate appraisers about

valuing Energy Savings and Home Performance. I found:

1. They have a tough job right now. Many demands from

many directions.

2. They want to do their job right, but lack the tools and documentation to back up

the valuation of Home Performance

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Legislators say, “Value Home Performance”... But provide no measuring tools

For full text of the directive to value Energy Savings and Home

Performance see:

http://dl.dropbox.com/u/355755/Appraisers%20required%20to

%20value%20Energy.pdf

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Types Of Measuring Standards To Value Energy Efficiency

3 Methods of Valuing Energy Efficiency will be offered. All are based on Department of Energy DOE 2 Data

And statistics accumulated over many years.

1. Full use of online DOE 2 modeling software2. Extracts from the DOE 2 Tables

3. Summary Extracts and Sample Houses

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As Would Be Expected....

1. The Easiest Methods of Valuation are the Least Accurate

2. The Most Accurate Methods take longer to learn and use.

3. But All methods are based on the super accurate DOE 2

information platform and will allow appraisers fulfill the

requirement to value Energy Savings

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Before We Dive In.....There are two even better and

very easy ways to evaluate Energy Efficiency:

But they are rarely avaialabe...

1. The Real Utility Bills compared to the Comparables.

2. A professionally done Energy Audit by a BPI certified auditor

(Use these if available)

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The DOE Website (for Consumers)http://hes.lbl.gov/

The government spent millions developing the information on this

site and presenting it in a clear enough way that it would be useable

by consumers.

Like the “free” PG&E classes, you have already paid for this tool. I

hope you find it as valuable as I do.

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Enter Zip Code

Read About The Site

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These 10 simple energy efficiency items cost about $4000 and save $600 per year which is a 16% return on homeowner investment

(1997 costs & electric costs)Costs of Improvements have increased only 50%Costs of Electricity has increased 150% or more

Serious savings add serious Value.

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Text

These 10 small items save $600 per year for $4000 cost

BUT ... These calculations are with old (cheaper) Electric Rates. Most homeowners pay at least double these rates.

PG&E’s top tier (January, 2010) rate isover 5 times the rate used here.

These prices may seem low. They are only the “additive” cost above what a non Energy Star item would cost

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The first screen shows the average of all averages for the Zip Code. (no cooling?) Not too much value. But the

Plug load (gadgets) in purple is significant.Dont stop here. Now it’s time to customize.

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After Adding Central AC (8 SEER) was existing

Note Savings Opportunity

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Click CalculateRecord your session number to return

& not lose your work

Blue Dot Indicates which categories

have been modified. The others remain ZIP Code averages.

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Continue “change” to Clarify Items that have been

improved. First input the original item BEFORE the

improvement.

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Most screens have drop down boxes & fill in the blanks.

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Here a best guess is all you can do on a foreclosed

home or any home with no history available

Remember to Save Answers After Visiting Each Screen

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Here you need to use your judgement if actual utility records are not available. The average

electricity cost for PG&E is somewhere between 12 and 47 cents, depending on how far the user goes up into the more expensive pricing tiers.

Save & Recalculate

This function doesn’t work for our purposes at this time.

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Notice the change when real (better estimates)utility costs are entered

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Here are the estimated costs after all relevant areas have been updated. Remember this first updating is

to the pre-improvement condition. Or the condition of the comparable homes in the area.

Note the blue dots

This is “BEFORE”

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Next: Enter The ImprovementsSave a copy after your final adjustmant of the

“Before” condition.

Then re-visit each area and make the changes

that you know have been made to the home.

Save a copy “After” the repairs and compare the

two energy costs.

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The “After” Results

This is the important number on this form. The other numbers are

comparing with premium upgrades not selected in this

home (96% furnace etc)

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Before - After = SavingsBefore $3819After $1718

_________________________________________________________________________________________________________________________

Savings $2101 / yr

Note: I feel comfortable with these “After Treatment” numbers as I have treated several homes in the same

neighborhood with the same treatment package and gotten even better results than these numbers.

(They bought no expensive tier kilowatts)See the numbers at: For Real Home Performance…

Monitor The Bills (top blog post at GreenEarthEquities.com)

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We Have Real Savings: Now What?

This has been a quick introduction to the DOE Home Energy Saver, online energy saving calculator. For

complete documentation on the Home Energy Saver see: http://hes.lbl.gov/hes/makingithappen/mih.html

For now I will leave it to appraisers who will know what to do with these savings numbers after they are generated.

Following are some additional points about value and some excerpts from the above data that may be helpful.

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ROI Is Not The Whole Story!Return On Investment isn’t even the main reason most

people spend money improving their homes. Other Reasons that add value in the minds of Consumers,

(Purchasers of Improvements and Purchasers of Homes)

1. Comfort2. Security3. Health

4. Lower Medical Bills5. Less Days Absent

6. Pride of Ownership7. Right For The Planet

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Savings and Cost DataThe following saving numbers are

from the DOE 2 data on the 1200 sq ft sample home in

Fresno, CA. Each item was changed individually from Before

to After and the difference recorded. Loading Order of this

process skews the individual savings slightly but not the totals for the whole package. Costs are real renovation costs from

the same home in 2009.

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Savings and Cost DataItem Savings Cost 100%

Air Tightness (Shell Seal) 77 650Doors & Windows 252 3800

Attic Insulation 123 1800Thermostat 140 150Refrigerator 261 1850

Cooking 36 1650Washer Dryer 84 1244

Ducts 105 1800 newAir Conditioning 745 6500

Furnace 260 Incl in ACLighting 236 1300

Water Heating 50 400

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Savings and Cost Notes1. Costs listed are my actual renovation

costs for the item in this 1200 sf complete renovation in 73727 Zip Code.2. Costs in the Home Energy Saver are the additive costs. (the DIFFERENCE)

between a “standard” item and the Energy Star equivalent.

3. Home Performance works best as a SYSTEM as each part works symbiotically with the others.

4. Piecemeal replacements rarely achieve 100% of the expected savings.

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Real Cost & Value, 2009This package of improvements has been

done consistently on 7 houses, all about the same size, in the same neighborhood over the last year. My “hard cost” is consistently $16,2500 (does not include Refrigerator,

washer, or dryer.) All the houses have sold for well above the comps in the

neighborhood and all have met appraisal because the appraisers have given value to

these and other improvements.(CMA’s available on request)

I hope this information is helpful. Email me if you have ideas to improve its value.

Dave Robinson Dave@GreenEarthEquities.com