The Bottom Line: Green Home Upgrades & Home Values

With many cities experiencing a real estate “slump”, homeowners around the country are looking for ways to stand out from the slew of homes on the market, while improving their home’s resale value. Other homeowners are planning for the future: a future of ever-rising energy prices.

Regardless of your situation, you may be asking yourself if green home improvements increase the home’s value. The answer isn’t as straight-forward as some might hope.

The old rules still apply…

Before we dive in, there are a few things to consider when thinking about making home improvements – green or not. First, remember the three rules of real estate: location, location, location. The return on your investment will depend on the value of your house and others in the neighborhood, as well as your local housing market. Other factors like the quality of the workmanship, and how soon you move after making the improvements weigh in as well.

One man’s treasure…

That said, there are actually two different values to consider when judging the return on home improvements, according to Dr. Harold Hunt, a research economist at the Real Estate Center at Texas A&M University: value in use and value in exchange.

To explain these concepts, let’s use a little story. Ted owns a home, but is looking to move soon. Ted is concerned about climate change. After some research, Ted decides to make a few eco-friendly improvements around his home that will increase its resale value, including a new energy-efficient air conditioning system and installing bamboo floors. This is exciting to Ted. He looks forward to bragging about going green to all of his friends, and selling the house at a premium.

Bill is looking to buy a house. Bill wants to get the best deal that he can on a new home, closer to work. When Bill sees Ted’s house, he is excited – with high energy costs, the new air conditioning system will save him money. Bill looks forward to seeing how much smaller his energy bills will be in his new home. Oh, and the new floors look nice, too.

OK, back to reality! Ted provides a very good example of value in use. His satisfaction in the green improvements can be measured in both monetary terms (saving money on energy) and non-monetary terms (reducing his impact by using bamboo versus hardwood flooring, and bragging to his friends). Unfortunately, Bill may not value the non-monetary rewards enough to pay a premium for them, illustrating value in exchange.

So how does Bill and Ted’s adventure apply to you? If you’re not planning on moving any time soon, invest in changes are eco-friendly and that you’ll most enjoy. Until green features become mainstream – and corresponding increases in home values can be measured – it’s hard to know what buyers will be willing to pay for. Just keep in mind that come moving time, green amenities and features may not appeal to everyone, but energy- and money-saving green features will.

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