The positive effects of a geothermal installation on a home’s resale value are considerable. Reduced operating costs is a prime benefit. The value added is listed in one study as +8%, and another study indicates a $20 increase in value for every $1 reduction in operating costs. Links to these reports are listed below. It has been my experience that these benefits are seen across the board for geothermal installations and the trend is for these benefits to be more highly valued going forward.
We see other benefits to home valuation occur in the retrofit market. People value new equipment over existing equipment nearing the end of its useful life. New equipment means less maintenance and more reliability. Since geothermal is inherently both heating and cooling, both systems are updated and in some installations, the geothermal system also represents the addition of central air conditioning where it didn’t exist before, which clearly adds to the home’s value. Real estate appraisal is not precise. It is driven by customer sentiment which is hard to pin down and changeable. To that end, I can relate experiences I’ve had concerning what makes a buyer tick.
Some anecdotal evidence
We did a job maybe eight years ago for a spec builder. We don’t often work on spec houses because of the budget demands, but this guy was pretty good. Turns out, he sold the house during a difficult stretch of the market SPECIFICALLY because it had geothermal heat. For this buyer, the house had to be geo. I can’t say there are a lot of those buyers out there, but here’s one and I believe they are a growing segment.
I recently serviced a 10 year old unit that has a relatively new owner. Just met them. Prior to looking at this house they knew nothing about geothermal. After some research, it became the number one reason they wanted to buy the house, and they did.
We just finished a pretty good sized retrofit on a home changing hands. The new owners contacted us prior to buying the house, and they maintain they were not going to buy it unless the geo conversion was an option. It seems the previous owner went through about 4,000 gallons of oil annually, and that expense was simply too much for the new owners.
We have another customer who was interested in buying a house with our heat pump in it. He had no idea about this geo stuff. He called me in to meet and greet, and all went really well. His one reservation about the house was the geo, but after living there for four or five years, it turned out to be his favorite attribute of the home. Since the unit was already 25 years old, he simply decided to pop in a new one before the old one started acting up.
We are in the process of completing a huge job for a vacation home. This place is big and gorgeous and really special. The owner is a very successful money manager. The geothermal system is expensive. The owner insisted on geothermal not so much for the money he will save on operating expenses. He felt this home would have very limited marketability unless he did everything he could to reduce the heating/cooling costs for a potential buyer in the future. The owner is confident he will recoup his investment by using energy efficiency to widen the pool of potential buyers who could afford to own this home. With energy costs only rising, he was afraid of building a ‘white elephant’ that only very few people could feed. This guy knows money, and I like the way he thinks.
I think there is a strong segment of the buying community that is attracted to geothermal. It is in line with the efforts to brand houses as EnergyStar or LEED. It still seems to be a customer driven phenomenon, and it is my hope that energy efficiency will become a stronger factor in peoples purchasing patterns going forward. It looks like it is moving that way.
Home energy efficiency and sustainability have been major policy priorities for the Obama administration, but lurking in the background are two pesky questions: Beyond the documentable savings on utilities bills, do such steps add to the resale value of a home? And do they make it easier to sell your property?
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Will Geothermal Increase the Value of My Home?
Before deciding to purchase a geothermal system, many homeowners ask this question. Geothermal systems are a large investment and people want to make sure they will still get a benefit from the system if they decide to sell their home before they reach their payback period. Life is uncertain, and you can think you will be in your home for several years, but you never know when a job or other event in your life could take you to a new area. The two main schools of thought regarding geothermal heat pumps and the effect they have on property value are that they do not noticeably affect the value of the property and that it increases the property value due to the energy savings and sustainable appeal.
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Every $1 reduction in utility bills yields a $20 increase in home value according to a study published in The Appraisal Journal. The study, More Evidence of Rational Market Values for Home Energy Efficiency,conducted by Nevin, Bender & Gazan evaluates empirical data from the American Housing Survey and compares it to real world data from a ‘cost vs. value’ survey conducted with real estate agents. Results show that home energy efficiency upgrades are an incredible investment.
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Resale value is a really tricky business. Realtors and appraisers try very hard to assign a value on a property and often use what are called ‘comparable sales’, meaning the selling price of similar homes in a similar area. Depending on the level of activity in a given market, comparable sales can be an effective barometer. If activity is really weak, it can be statistically insignificant. Since geothermal is still a small segment of the housing market, it’s effects are very difficult to quantify. There is definitely a group of potential buyers for whom energy efficiency is a crucial factor. How it fits in with other factors such as closet space and local schools is unclear and importance to individual buyers varies dramatically.
A geothermal heat pump greatly enhances the ability of a borrower to make the required payments. This fact may not be adequately represented in the bank formulations, but it remains a hard and fast fact. Hopefully, more credit can be given in the future for the financial strength a geothermal heat pump lends a homeowner. Maybe the bank can either lend more, or lend at better terms. Even with not giving fair credit for the operating cost savings of a geothermal system, having a new heating/cooling system definitely adds value, and that advantage will be reflected in the selling price.