It turns out that one of the most valuable remodeling options is one you can’t see. That’s the conclusion of the recent Cost vs. Value Report by Remodeling magazine, which compares the average cost for popular remodeling projects with the value those projects retain at resale value in 100 different U.S. markets. For the first time, Remodeling included an energy efficiency measure—fiberglass attic insulation—and the results were a great indicator of the value provided by energy upgrades.
Most projects covered in the report have a higher cost than value, with homeowners only recouping an average of 64 cents on the dollar for the 30 remodeling projects examined. The highest return project in the report this year—and the only one with a greater-than-100-percent cost vs. value ratio when averaged out nationally—was an attic insulation project. The researchers found a 166 percent return, based on an estimated average cost of $1,268 and an increase in real estate value just 12 months later of $1,482.
Broad Spectrum of Values
The return on investment from recouped value at the time of sale is only one way in which energy upgrades like attic insulation can create winning propositions for homeowners. Homeowners can also enjoy savings from decreased utility bills and other lower expenses, and get further value from the joy and pride they get from living in a high performance, healthy, and comfortable home.
Beyond evidence of improved asset values from the recent Cost vs. Value Report, new research is finding strong evidence of these other reasons why energy upgrades are a “win, win, win” on expense savings, joy, comfort, and health for consumers:
Source: 2015 NAR Remodeling Impact Survey
The amount of energy saved will vary based on the cost of energy supplied in a region, the climate, and local material and labor costs, so a remote or in-person audit is one of the best tools to determine the measures that will work best for a home. Efforts to create energy cost estimates that calculate projected operational costs in total cost of homeownership calculations are a critical tool to translate operational costs into asset value.
- Joy: The NAR survey also asked consumers about the happiness they get from seeing their completed project. They created a 1–10 “joy score,” where higher scores indicated greater joy from the project. Attic insulation received a joy score of 8.7, with sixty-one percent of homeowners reporting a “major sense of accomplishment when they think of the project.” Attic insulation, like many efficiency measures, is “invisible” for homeowners, so these results are promising, especially if clever engagement campaigns can leverage this satisfaction through social norms and other behavioral tools.
- Comfort: Well-designed energy upgrades, including HVAC and envelope projects, can significantly improve the comfort of homes, which we know matters to consumers. Thermal comfort is made up of a number of factors, including air and surface temperature, humidity, and clothing and activity level, and upgrades to enable better control of these factors can make homes and businesses more comfortable places to live and work.
- Health: The Physicians for Social Responsibility and American Council for an Energy-Efficient Economy have highlighted the positive impacts of energy efficiency on the respiratory, circulatory, and nervous systems. This value will likely be higher for populations more at risk for complications with those systems, and in areas with higher levels of pollution and lower-quality housing. Studies of comprehensive energy, health, and safety retrofit programs found that for children with asthma, hospital admissions fell by nearly 85 percent and emergency visits by 68 percent a year after the upgrade.
As consumers increase their understanding of the connection between energy upgrades and their priorities, like comfort, health, privacy and others, resale value is likely to further increase the demand for these measures. However, long payback periods and regional variation have frustrated past efforts to make this resale value clear to market participants like remodelers and real estate agents.
Attic Insulation: A Great Place to Start
The Cost vs. Value Report authors had long been interested in including an energy efficiency measure in their assessment of resale value. However, they were hesitant to do so because of their focus on resale value within 12 months of the project and need for cost and value data across many cities. Measures with long payback periods and that vary significantly from incentive programs and climate could create challenges for these researchers.
That explains why attic insulation was a great first choice. The project itself is a two-step process. In the first step, a professional remodeler air-seals an attic floor in order to address any air leakage from conditioned spaces to unconditioned spaces. He or she then adds fiberglass loose-fill insulation, placing it on top of existing insulation if present, until an R-30 insulation value is reached.
R-value is a measure of insulation’s ability to resist heat traveling through it, with higher values representing better thermal performance. R-30 was selected as a baseline level that would enable all major metro areas in the U.S. to be included in the survey, despite variation in climate, building stock, and code requirements. As a result, the amount of insulation installed for this project will vary by area, as R-30 insulation is actually below code in some parts of the U.S. and beyond code in others.
Higher levels of insulation are likely to involve a slightly lower return on investment, but purely from the perspective of real estate valuation. The 2015 NAR survey examined the cost recouped from a project upgrading from R-13 to R-48 across the country and found a 95-percent return. However, higher levels of insulation are also likely to yield greater energy savings, and therefore expense savings, for homeowners.
While results varied from market to market, attic insulation had positive value relative to cost in 60 of the 100 markets, with the highest ratios in the New England, Pacific, and West South Central (TX, OK, LA, AR) regions.
Source: Remodeling Magazine Cost vs. Value 2016
Beyond Attic Insulation
Attic insulation isn’t the only energy upgrade project that’s a winning proposition. Recent studies of energy labels and certifications, which demonstrate completion of a package of measures rather than single measures, find positive impact on asset value, with premiums of 2–9 percent depending on the certification and market. A rigorous study of 66,000 San Antonio homes found that a green designation, like a label or certification, increases selling price by almost 1 percent and that energy efficient features raise selling price by about 6 percent.
For homeowners interested in deciding on particular energy upgrade projects beyond attic insulation, recent studies suggest that solar PV will add value to homes over and above the operational cost savings. A Berkeley Lab analysis from 2013 found a strong premium for homes with PV systems in California, with higher premiums for larger and newer systems. In particular, it found that for an average system (2.9 years old, 3.7 kW), the average estimated premium is $24,851, and that each 1-kW increase in size equates to a $5,911 higher premium and each year systems age equates to a $2,411 lower premium.
Other specific energy efficiency projects that feature favorable recouped value, in addition to their wide range of energy saving, comfort, health, and joy benefits include:
- HVAC systems: HVAC systems tend to represent the largest single category of energy end use in most U.S. homes. Unsurprisingly, the survey found a recovered value of 71 percent for projects in which older heating and cooling is replaced with new high efficiency gas furnace and ENERGY STAR-rated central air conditioning. In the same survey, one out of five realtors suggested new HVAC to their clients before selling a home. These projects can have significant expense savings as well—cutting heating bills by as much as half, depending on the unit selected and envelope and airtightness of the home.
- Envelope-related improvements: New roofing, doors, and siding, and the insulation and sealing associated with those improvements, can have significant impacts on the operational costs of a home. These impacts are particularly robust in a package of measures—consumers that retrofit the envelope first can reduce the size of the furnace needed, thereby saving on the cost of new furnaces. Envelope measures tend to have longer paybacks than attic insulation, with recouped values of 75–83 percent depending on the project.
- Water heating: Heating water consumes ~18 percent of a home’s energy use on average. Upgrading can provide significant benefits—especially upgrading to air source heat pump water heaters, which also help cool the home, and grid interactive water heaters, which can produce alternative revenue streams through energy arbitrage (profiting from price differences where time-varying rates are in place), avoided generation, transmission and distribution, and renewables integration, depending on the market.
Each of these measures has the potential to significantly reduce ongoing home operating expenses and provide benefits like improved comfort, pride and satisfaction in improving one’s home, and improved health for inhabitants. As we improve the availability of information about these benefits on real estate listings, the recognized asset value of these projects is likely to increase, creating the opportunity for even stronger returns relative to the cost of the project.
Remodeling magazine’s Cost vs. Value Report and the NAR’s Remodeling Impact Survey help identify the value of energy upgrade projects for homeowners and contractors. By identifying regional variation and the additional value propositions, like joy, which these measures bring to homeowners, these studies make valuable investments more transparent for the marketplace. RMI’s Residential Energy+ program is working with a variety of stakeholders across the marketplace to support efforts to further increase the transparency and visibility of the value of these upgrades for consumers, remodelers, real estate agents, appraisers, and other market participants. As consumers understand the impact of energy upgrades on the value of their home, their monthly expenses, and their comfort, health, and joy, they will be more likely to upgrade their homes—a critical step in mitigating the effects of climate change.
Image courtesy of Thinkstock.