A Guide to Buying Eco-Friendly Homes

A Guide to Buying Eco-Friendly Homes
By Kelli B. Grant
Article From Smart Money

WITH HOME PRICES falling and energy costs soaring, buying green real estate has never made more sense — or been so affordable.

Five years ago, anyone who wanted to build an environmentally-friendly home could expect to pay a premium of 11% to 25%, depending on just how green they wanted to go. Now, they'd pay just 3% to 5%, says Jim Amorin, vice president for the Appraisal Institute, a professional trade organization. Those extra costs can easily be offset by the long-term savings1 on electric and other utility bills these homes offer. Just using an energy-efficient furnace or boiler could save you $570 annually, according to the Department of Energy.

Another selling point: While the average U.S. home lost 5.7% of its value in 2007, eco-friendly homes have held their value, even appreciating in price. Come sale time, a green property typically appraises for 10% to 15% higher than comparable conventional homes, depending on region and which upgrades were made, says Amorin.

All these factors have made buying an eco-friendly home much more attractive to prospective buyers. Green homes are expected to account for 10% of new home construction in 2010, up from 5% in 2005, according to McGraw-Hill Construction, a market researcher.

From the use of recycled materials in the flooring to the mere installation of a water-saving toilet, what qualifies as "green" will vary by consumer, neighborhood and home builder. "There are some builders who claim a property is a green home because they've increased the energy efficiency by 5%. That doesn't excite me," says Alex Pettitt, a green builder and host of Mainstream Green2, a web TV show. Consumers can save that much on monthly utility bills just by switching to Energy Star appliances.

Here are four things you should do while shopping for an environmentally-friendly home:
Be skeptical"The green craze is like when everything was pitched as low fat," says William Hallisky, a vice president with Meridian Design, a New York-based architectural firm. "Sure, something may be energy efficient or eco-friendly, but compared to what?" Before you ooh and aah over the new low-flow toilet or compact-fluorescent lighting touted in a listing, consider if it's really an upgrade and worth the added expense. "You can't even buy a toilet that isn't low-flow anymore," he points out.

Uphold standardsPlenty of home builders will tout their environmental standards when selling you an eco-friendly home. But if you want to compare to the ultimate brass ring in green building, rank the home against the so-called Leadership in Energy and Environmental Design certification, says Michelle Mathews, vice president for green housing specialist KJM Real Estate in Los Angeles. The U.S. Green Building Council, a Washington, D.C.-based nonprofit, developed LEED to encourage sustainable building practices. To be certified, new homes must be created with minimal impact on the environment and its resources. That includes producing less wasted building materials, using less energy and releasing fewer toxins and pollutants. Although it's unlikely you'll own a LEED home in the near future — there are just 400 certified nationwide — the guidelines make for a handy comparison reference against builders' own certification programs or individual properties.

Know the local building codesWhen hunting for a green home, talk to someone from the buildings department of the city or town that the home is located in. Local codes may require all renovated or newly built homes to incorporate certain green features, such as passive solar lighting (south-facing windows), insulated heating pipes or drought-resistant landscaping. Sarasota County in Florida, for example, requires all new homes to be built to rigorous LEED standards. Knowing the required minimum will help you know what to expect and whether features are truly an upgrade worthy of an elevated price.

Employ specialistsLook for a real estate firm or individual broker specializing in eco-friendly properties. They can help you cut through the hype and accurately assess how valuable the home's green features are in comparison with those available in other properties nearby. To find one, use the search feature at EcoBroker.com3, a realtor certification program. "That designation tells you they understand what a green home is, what features to look for and what questions to ask," says Pettitt.

Consider locationGoing green doesn't stop at your front door. You're less likely to use that greenhouse-gas-emitting car if you're within easy distance of restaurants, stores, schools and other services. Type an address into Walkscore.com4 to see how friendly your neighborhood is to walkers, bikers and public-transportation devotees. The Environmental Protection Agency's "Where You Live5" feature alerts you to problems within your zip code, from toxic chemical soil contamination to air and water pollution.

Getting Green to Go GreenMore often than not, a home that's eco-friendly will be pricier than its traditional counterpart. But if you're determined to go green, a so-called energy-efficient mortgage can help finance the purchase.

Energy-efficient mortgages are federally recognized loans that increase buyer borrowing power in exchange for committing to energy-saving measures. These mortgages tend to be for larger amounts than what might otherwise be offered, with the idea that lower energy bills more than offset the increased monthly mortgage payments. "You pay as you save," explains Doris Iklé, founder of CMC Energy Services, an energy audit company. If the home is already energy efficient, these loans stretch your debt-to-income borrowing ratio and increase your maximum loan amount. If you're planning to upgrade an inefficient home, you can build the project costs into your mortgage.

Qualifying for an energy-efficient mortgage is another matter, cautions Iklé. For starters, you'll need to obtain your mortgage through specific affordable-housing lenders: Fannie Mae, Freddie Mac, the Federal Housing Administration or the Veteran's Administration. You must also secure a Department of Energy Home Energy Rating (average cost: $100 to $300) that documents the potential for significant savings with improvements. Check the yellow pages for an energy audit company certified in the rating system.