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Green Stamps - Investor Sells Green-and-Flips for More

November 11, 2014

Real estate investor Kassi Pelley had bought and sold a number of “fix-and-flip” homes in metro Denver when she fell down the rabbit hole of green building and certifications. She’s gotten a price bump – the “green premium” – on every home she’s upgraded and certified since, and she hasn’t looked back.

 

“I had heard about energy audits, and I was Googling companies that provide service in Denver,” she says when she found us. “I didn’t really know what I was getting into. Initially, I thought it would be nice to have an edge on the market, have something different … It gave me a lot of insight into why green homes are important, and that was awesome.”

 

Her first “green-and-flip” property was a 1958 ranch-style house built in the Virginia Vale neighborhood of Denver. I did the initial HERS “miles-per-gallon” rating on the house before any of her contractors started swinging hammers, and the house came in at a massive 254. That meant the house used two and a half times more energy than a house built to code[i]. And basically it had nothing in it – no insulation in any of the walls, about four inches in the attic, single-pane metal windows, and a 40-year-old furnace. Pelley decided which features she would upgrade above code, and I provided her a projected HERS rating, helping her hone her upgraded scope of work.

 

Ms. Pelley also chose to certify the home under the National Green Building Standard (NGBS) “green remodel” path, meaning she demonstrated energy and water savings in her appliance, lighting, mechanical system and water fixture choices.

 

The property came in at the NGBS bronze level because she reduced energy use by 66 percent and water use by 25 percent, and she spent a total of $65,000 on the remodel, including green features. The net present value of the energy savings the house would render came in at $17,000 – an important number generated from the HERS because it can be added to an appraiser’s valuation.

 

She initially listed the house for $350,000 but dropped the price to $335,000 because of buyer feedback about electrical towers nearby in a green space. The house sold for $335,000.[ii]

 

IMAGES:  TOP, Remodeled kitchen at 908 S. Jasmine St., NGBS bronze level.  MIDDLE, 4344 Wyandot St., NGBS-certified emerald.

 

Also a Realtor, Ms. Pelley requested an appraiser trained and tested in green valuation, but the appraiser didn’t use a “green-field addendum” or the HERS energy savings in the valuation. We advised Ms. Pelley to appeal the $322,000 valuation because the appraiser lacked the “competence” for this “complex” property, and the lender sent another appraiser.[iii] My partner and our sister company’s managing real estate broker, Tracye Herrington, met the second appraiser on site and walked him through the home’s green features and HERS energy savings. That appraisal came back at $335,000, the final sale price. 

 

To be sure, green-certified renovation properties are a sliver of the market, and the Buildfax Remodeling Index pegs the annual number of remodeled properties at 3,514,000 (by number of building permits, not necessarily all for sale). Home Innovation Research Labs, the overseeing body for the NGBS standard, says less than 500 have received “green remodel” certification under its old 2008 standard. (The new 2012 standard went into effect this summer.) 

 

But investors who pursue green certification swear by it, and a number of green-building programs allow for remodel certifications as well as new construction – NGBS, ENERGY STAR and LEED for Homes.  These well-known brands are all searchable on Colorado’s multiple listing services (MLSs) and MLSs across the country.

Ms. Pelley says that the biggest shift in thinking has been about insulating and air-sealing her homes. “Before we were just doing what was required by code, just the bare minimum. You guys have taught me how much of a difference that makes.” After she insulated all the walls and attic in the house, the buyer of the property later told her, “I’m just amazed by the basement. It’s so cozy and warm. It doesn’t feel like a basement.”

 

 “I really have to be conscious of the fixtures I buy – plumbing fixtures are Water Sense and have a low-flow rate,” she says. “Before it was like, ‘Does that look good?’ ‘Same with light fixtures – it was style and price. Now they have to be energy-efficient, which buyers love. I’ve gotten lots of feedback on the LEDs [light fixtures she now puts in all her properties].”

 

Ms. Pelley does HERS ratings as a matter of course on all her homes now, and recently sold another NGBS-certified “emerald” property in the Sunnyside neighborhood of Denver (with 57 percent water and 61 percent energy savings).

 

“It feels awesome giving life to an old home. It’s a whole different level of accomplishment putting out a home that’s efficient and healthy,” she says. “It doesn’t take much more, just being informed.”

 

- Melissa Baldridge

 

 

[i] Home Energy Rating System (HERS) scores are benchmarked to the 2006 energy codes (IECC). For more information, CLICK HERE.

 

[ii] We offer a “Green Valuation Service” to help sellers and real estate professionals get green homes and features recognized and appraised. CLICK HERE for more information.

 

[iii] I’ve covered at length the process of using green-trained appraisers. Please see my previous blog, with citations, for more info.

 

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