How to Price a Green Home

Housing market - dice and houses

Price is the all-important factor in most home buyers’ minds. Overprice and your home could go stale after just two or three weeks. Underprice and you could lose out on some hard-earned dollars. In making this tough decision, however, it’s better to underprice than overprice. If your home goes stale, you lose negotiating power, but if you undervalue your home it doesn’t mean you’ll get less for it since multiple bidders could bring the price up to its actual market value, meaning you haven’t lost a thing.

A good first step that will take some of the guesswork out of pricing your home is to get an appraisal. Sure it’ll set you back a few hundred dollars, but it’s worth it because it gives you a good objective analysis to consider when coming up with the final number.

If you’re using an agent, work with him or her to come up with your price. Factor in all the benefits of your home itself, such as size, location, energy efficiency, renewable energy systems and maintenance cost, as well as external factors like the housing market, other comparable home prices in the area and what school board your home falls in.

Analyze the market

You want to first compare listings and sales to come up with the right price for your home. According to broker-associate Elizabeth Weintraub, it’s typically recommended to look at similar homes (within 10 per cent in size and similar age, desirability of location) in your neighbourhood (within about 0.5 km in most cases) that have been listed or are currently listed over the previous six-month period.

But with the green homes market being as small as it is relative to the total number of homes on the market, you’ll have to broaden your search (unless you happen to be in a green home community or in an area with a disproportionately high number of green homes). You’ll need to look farther out, over a longer time frame, at homes of a different size, at homes with different features, etc. Then you’ll have to estimate how these differences would compare to the actual value of your home.

Also, have a look at expired and withdrawn listings to understand why they did not sell at the price they were listed (or sell at all). Compare the listing price to the sales price to get an idea of how much these homes had to be reduced in price. Looking through these listings you’ll be able to find a common thread between these homes and what factors caused them to not sell so you can prevent that from happening to you.

Valuing the green home premium

If there are no green homes for sale or homes that have been sold in your area, it would be more effective to just price out the value of a similar conventional home and adjust for the green premium than compare yours to a home that is too different. A July 2012 study of 1.6 million homes sold in California between 2007 and 2012 found that green-labelled homes sell for an average of 9 per cent more than their unlabelled equivalents. The results from this significant sample size echo the sales figures in Europe where “A-rated” green homes have been found to sell for an average of 10 per cent more.

The 9 or 10 per cent figure is just a reference point to consider when pricing your home. All kinds of variables come into play here, most importantly the consumer preferences of home buyers in your area. If there’s a small demand for green homes, the premium drops. If there’s a strong demand, it goes up. One basic way to gauge desire for energy efficiency is by knowing how many registered hybrid and electric vehicles there are in your city (assuming the buyer is from your city) since a correlation has been found between ownership of these cars and willingness to pay a premium for a green home. Unless you’re willing to do the research yourself, this is where the help of a knowledgeable green real estate agent pays off.

Valuing renewable energy systems

A 2011 report by the National Bureau of Economic Research (NBER) found that homes with PV systems go for about 3 to 4 per cent more than similar homes without solar panels. The Department of Energy’s Lawrence Berkeley National Laboratory came up with similar findings, which showed a sales price increase of $3.90 to $6.40 per watt ($25,750 for a 5000 watt system).

NBER’s report pointed to college grads and registered Prius owners as being the demographics most likely to pay the premium, but here as well it pays to know your market when adding this price in.

Calculate how much you paid for your system (installed) and take away any tax rebates. Based on these figures, that amount is approximately how much you can bump your price.

Buyer’s or seller’s market?

Once you’ve come up with an average sales price for comparable homes and made any necessary adjustment for the green home premium and any specific systems within the home, it’s time to finalize your home’s sales price. In a buyer’s market, Weintraub recommends listing just below the average. “For comparison purposes, let’s say the last three comparable sales in your neighbourhood were $150,000. In a buyer’s market, your sales price might allow some wiggle room for negotiation but be strong enough (near the last comparable sale) to entice a buyer to tour your home. To sell in this market, you might need to price your home at $149,900, settling for $145,000.”

In a seller’s market you could get away with bumping your price by 10 per cent (in this example to $165,000) and if the market is neither buyer’s nor seller’s you could price your home according to the market trend.”For example, if the last sale closed three months ago, but the median price has edged upwards of 1% per month, pricing at $154,500 would make sense,” Weintraub writes.

With all these variables to keep in mind, pricing a home can seem like a purely mathematical exercise. If only it was that easy to come up with the “right” price. Unfortunately, there’s a lot of subjectivity dictated by the market that you’ll only find out about once your home actually sells. So you can only do your best by following these guidelines and hopefully you’ll have guessed just right and end up making a quick sale.

Further reading:

Zoocasa: Zoopraisal (Free online home appraisal tool)
HowStuffWorks: How Selling a House Works
About.com: The Worst Home Selling Mistake
The National Bureau of Economic Research: Understanding the Solar Home Price Premium
Lawrence Berkeley National Laboratory: An Analysis of the Effects of Residential Photovoltaic Energy Systems on Home Sales Prices in California

image: woodleywonderworks (Creative Commons BY)
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