December 12th, 2017
The article, “Evidence of Rational Market Values for Home Energy Efficiency,” which appeared in the October 1998 issue of TheAppraisal Journal, presented the results of research indicating that market values for energy-efficient homes reflect a rational tradeoff between homebuyers’ fuel savings and their after-tax mortgage interest costs. This research estimated implicit values for the number of rooms in a house, the square footage of living space, lot size, location, and other home characteristics, including the annual utility bill. We performed separate regression analyses for attached and detached homes based on the 1991, 1993, and 1995American Housing Survey (AHS) national data andAHS metropolitan statistical area (MSA) data for 1992 through 1996. Table 1 shows that the results of these separate regression analyses were remarkably consistent, indicating that home value increases by about $20 for every $1 reduction in annual utility bills, reflecting after-tax mortgage interest rates of about 5% from 1991 through 1996. To demonstrate the “real world” validity of this research, the regression results have been compared with the collective judgment of real estate agents participating in “cost versus value” surveys conducted by Remodeling Magazine (RM). Each year, the RM survey asks agents throughout the United States to estimate the amount that popular remodeling projects would add to the value of a home in their area if the home were sold within a year of project completion. This sur vey reflects estimates from about 300 agents familiar with diverse neighborhoods in 60 metropolitan areas. (Between three and seven agents are surveyed in each area.) The remodeled home for which these estimates are made is a “mid-priced house in an established neighborhood in each city.” These value estimates are then compared with cost estimates for each MSA (derived from estimating manuals and from experts in unit cost analysis).