How Going Green is Facing Red Lights

The term 'green' has become more of an ad slogan in the last couple of years, but for homeowners, its promise of savings has been long touted and the results have been far less that advertised.

Resale values

The problem with going green in the home isn't with the energy suppliers are the savings that one can receive in their annual heating bill or with their electric bill. The problem rests in the fact that, while the technology still costs quite a bit, the cost isn't recouped in the resale value of the home.

Part of this is merely due to the fact that green technology is still relatively new to commercial production. The longer a product is on the market, the more opportunity it has to decrease its overall cost, not just in production but also in advertisement, which generally passes down to consumers who, in turn, drive up sales. Since this technology is still being developed, honed, and mastered into efficient units, the initial cost remains high.

The effect this has on home values, however, is negligible. Lenders are not actively seeing the inherent value of green technology in the home, so the improvements and upgrades are rarely being considered seriously during an appraisal. Existing homes that have this work done to them don't benefit much at all when it comes to resale values.

Mortgage dilemma

Then, of course, is the mortgage dilemma. Whether you're talking about a new or existing home, if the mortgage lender does not recognize the true, inherent value of green technology in the home, and the appraisal pretty much ignores it, then the loan amount is likely going to be insufficient to cover the cost of the technology itself.

It is very similar to a homeowner adding a room to the house that is either unpractical or unnecessary, and which a new homeowner would most likely need to convert to something more practical. The value of the home doesn't increase and the bank will not offer more than the appraised value for the home when a potential buyer applies for a loan.

New home construction

New home construction is facing the same challenges when it comes to going green. Construction firms are having a difficult time justifying spending an extra $50,000 to $100,000 on green technology for a home when that investment will not be recovered at the time of the sale. Solar heating, high-performance windows and insulation, and even radiant flooring all have benefits to the environmental cause, but many banks are coming in with appraisals for less than the cost of construction.

Looking to the future

This leads many analysts to question the future of green technology within the home. If new home construction projects ignore green technology because it is ignored in the appraisals, then there is no incentive to include them in the construction plans at all. If these technologies are ignored at this level, then the growth of that industry becomes significantly hindered.

There are options, of course, such as home buyers offering larger down payments to help offset the cost differential between the construction and the appraisal, but in the current economic climate, this is generally not a feasible expectation. Another option is that lending institutions takes a more serious and long-term cost-analysis view of green technology in homes when appraising the value of the homes.

If a potential homebuyer will save a thousand dollars every year on energy costs with the technology, and they plan to live in that home for 20 years, then the savings is apparent.

Green technology is still years from being lucrative, but it has to start somewhere and that means, at times, businesses as well as individuals have to take chances on its future. Lenders should review the impact that green technology has, and will have, on the housing market in a broader view of price.

David

About this Author

David Reinholtz is a professional Mortgage expert in Real Estate Industry. David is also a sales and marketing expert and trains professionals in every career field. David has personally trained tens of thousands of loan officers, mortgage brokers, real estate agents and individuals through The Close More University Seminar Series, LoanOfficerSchool.com Classes, Correspondence and On Line Learning, and countless private engagements and training events throughout the country.

David is the Founder and CEO of LoanOfficerSchool.com, an approved education provider for The Conference of State Bank Supervisors and The National Mortgage Licensing Systems' (NMLS) required pre-licensing education and continuing education.

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