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Energy efficiency remains a relatively low priority for Twin Cities home buyers despite rising utility bills and mandatory disclosure rules.
Minneapolis in 2020 began requiring energy audits and public disclosure of the results prior to all home sales. Bloomington, the state’s fourth-largest city, introduced a similar requirement starting this year.
While the ordinances have made information about energy use more accessible to prospective buyers, real estate agents say the reports have had little impact so far on decisions about where to live. The tight market in recent years forced many buyers into bidding wars with little time to consider things like insulation or HVAC systems. Meanwhile, multiple listing services include scant information on energy, and many agents remain unfamiliar with how efficiency scores work.
And despite rising natural gas and electricity prices, energy remains a relatively small slice of the cost of homeownership. An analysis this month by Redfin found heating and electricity bills on average continued to decline last year as a percentage of new homebuyers’ annual mortgage payments.
There is some evidence that more buyers are recognizing the value of energy efficiency and are willing to pay a premium for it. A recent study by the nonprofit Elevate Energy looked at five pairs of comparable homes sold in Minneapolis in 2019. Those with a local “Energy Fit” certification sold for between 2% and 13% higher than similar homes without the certification.
“We’re finally at a point where consumers recognize its worth,” said Todd Shipman, a real estate agent with Lakes Sotheby’s International who has twice chaired the National Association of Realtors’ sustainability committee. “We’re only headed for a bigger marketing opportunity as energy costs go up.”
For now, however, he said Twin Cities sellers who make home energy improvements tend to do so to satisfy their desire to help create a cleaner environment rather than because of market demand. Energy disclosure data has not had much of an impact yet, Shipman said, nor have other rating systems. “It’s a mixed bag,” he said.
RE/MAX Results agent Steven Hong, who specializes in green homes, describes the market similarly. “Over the last two years, the market has been so hot that [buyers] don’t have a choice,” he said. “They have to take what they can get. If they wait for a house with more green features they may not get any house.”
The multiple listing service in the Twin Cities has just two green fields, he added. One provides a place for a Home Energy Rating System (HERS) score developed by the Residential Energy Services Network and another called “Green Certification,” which requires a home to be validated for certification by a third-party vendor.
While popular among developers of new homes in Minnesota, the Residential Energy Services Network’s HERS scores are not always widely understood by realtors. Hong said many agents put zero down as the HERS rating of homes, even though that would indicate they are net zero. “That would mean we have 2,300 net zero homes, which we don’t,” he said.
The multiple listing service data do not offer the energy disclosure scores of homes in Minneapolis or Bloomington. Nor do they report if homes have solar energy or have invested in new heating and cooling equipment. Hong and Shipman both think without adding that information to listings, energy use will continue to lag as a factor.
The most common home evaluation measure in Minnesota is HERS, which has been applied to more than 40,000 homes. According to Elevate, homes with HERs scores carry a price premium of 10% compared to unrated houses. And the state consistently has scores that rank among the top in the country.
Elevate compared Minneapolis to Ann Arbor, Michigan, and Chicago housing markets. Researchers found Twin Cities agents used the green certification data field and comment sections to call out efficiency more than the other two cities. “It’s not as though in Minneapolis there was a robust usage of the fields, but there were enough to begin doing an analysis,” said Pamela Brookstein, senior project manager.
One certification that appeared to help boost home sale prices based on its small sample was the “Energy Fit” certification, developed by the Minneapolis-based Center for Energy and Environment. Fewer than 1,000 homes have the certification, while another 9,500 carry Energy Star certification.
Both Minneapolis and Chicago require energy ratings of homes on the market, but agents in both markets rarely use the information, Brookstein said. Moreover, Chicago focus groups told her they had not heard about energy disclosure ratings required by the city.
Agents who market homes as high performing and explain efficiency benefits to clients find they can command higher prices. Buyers “are paying more for these homes and finding them desirable,” Brookstein said.
But the market for high-performing homes remains small. Brookstein said appraisers need more energy data to include in their assessments while buyers need more discussion of the benefits of green homes rather than more data. Third-party verification adds validity to appraisals and attests to clean energy’s financial and health attributes. Agents need more education, too, on how to market and sell efficient homes, she said.
Isaac Smith, residential program development manager for the Center for Energy and Environment, said Elevate’s report shows that energy investments pay off in the Twin Cities. “When these premiums begin to be realized, [energy-saving] investments become no-brainers because you will get energy savings and comfort,” he said. “When you sell your home, you get all that investment back and a higher sale price.”
Smith and colleagues highlight energy disclosure statements through classes and speaking at real estate industry events. Still, he concedes that energy disclosure has not become part of most home buying transactions in Minneapolis, even though home sellers have generated more than 16,000 reports since the program began in 2020.
Whether buyers read them may even depend on their presentation when sent through email. The Center for Energy and Environment manages the energy disclosure program for Bloomington, which sends the reports to buyers as a separate document. In contrast, the Minneapolis energy disclosure statement is placed at the end of truth-in-sale-of-housing evaluations. Anecdotally, Smith has heard that Bloomington sees more homebuyers opening the separate energy disclosure report.
Bloomington environmental sustainability coordinator Emma Struss said the city needs to create a “more informed market” to meet its carbon reduction goals. Having energy disclosure scores available will connect more than 1,500 buyers annually with efficiency data and suggestions on home energy improvements.
“We want to drive down greenhouse gas emissions, improve indoor air quality and health and make energy more affordable as energy prices rise,” Struss said.
Agents and buyers say the green home market continues to emerge. Keller Williams agent Cotty Lowry said he recently sold a duplex in Minneapolis with a complex solar electric and heating system. The building’s super-efficient windows, attic and wall insulation added value. Two people submitted offers and Cotty sold it at a premium to an engineering student who understood the advanced systems.
Solar, heat pumps and efficiency no longer scare some buyers, Lowry said. The duplex sold faster than other duplexes of similar value because of the efficiency enhancements. “It’s becoming mainstream,” he said. “But we need to get this information into the multiple listing services.”
High-efficiency homes remain in limited supply. When Minneapolis resident Keith Richard began looking for a green home for his family in 2018, he did not find an affordable one and decided to take a different tack instead. He bought the house he had been renting and began transforming it by removing natural gas appliances with electric ones and installing solar panels.
“This wasn’t the perfect home, but it was the one we knew, and in 2018, it was a hot market,” he said. “This wasn’t our intention, but it worked out.”
Correction: Cotty Lowry’s name was incorrect in an earlier version of the article.