Green Stamps - Real Estate Investor Sells "Green-and-Flips" for More

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. 

IMAGES:  TOP, Remodeled kitchen at 908 S. Jasmine St., NGBS bronze level.  Green isn't lipstick on a pig.  Investors must still have a good location, layout and level of finish to sell well.  MIDDLE, 4344 Wyandot St., NGBS-certified emerald.  BOTTOM, National Green Building Standard logo

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]

 

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.  The second 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.”



[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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Tags: Baldridge, GreenSpot, Melissa, and, estate, fix, flip, green, home, real, More…renovation

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Comment by Melissa Baldridge on October 23, 2013 at 4:23pm

Thanks for your great comments, everyone.  It's a blast working on projects like this, and there absolutely IS a business case for better homes and better buildings selling (and appraising) for more.

We do a presentation to the real estate community on success stories like Kassi's.  If anyone wants more examples, please dig into my old blogs or contact me directly.  We're keeping track.

Comment by R Higgins on October 23, 2013 at 4:12pm

See, we can all do good while doing well.  Even real estate investors!  I hope Kassi can someday document more about what works for her projects, maybe with convincing hard numbers investors need before they commit to spend more for energy savings. With our older building stock wasting so much energy, it's so important that more people, investors and home owners be able to improve their projects energy efficiency economically.  I hope when that time comes there's a program, grant etc. Kassi could tap to offset the risk of "enriching the competition" by sharing her hard won knowledge.

Comment by David Heslam on October 22, 2013 at 1:50pm

Green Canopy Homes in Seattle has followed this model for the past several years, with a local twist. They have local Home Performance contractors conduct  the audits. The metric for the energy analysis is the Energy Performance Score and many of the projects are remodeled to the BuiltGreen standard. Check out their great work here: http://greencanopyhomes.com/

Comment by Jan Green on October 21, 2013 at 6:41pm

Not has the home been greened and flipped, but so has the investor!  A win win for everyone concerned. Thank you for sharing Melissa!

Comment by Kent Mitchell on October 21, 2013 at 11:29am

Good to hear of an existing home success story for green and energy efficiency!

 

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