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Research published in the Journal of Real Estate Literature co-authored by Dr. Justin D. Benefield, Bickerstaff Associate Professor in Finance at the Harbert College of Business at Auburn University, “Green Certifications in Real Estate: Discounted Cost Savings or Name Recognition?” found a disparity in energy savings and value between two leading energy efficiency programs. This is important as the question that arises among home builders is whether a green certified home can be sold for enough to offset the costs of pursuing certification. Likewise, the question that arises among home buyers is whether paying for green certification makes financial sense.

The research, which utilized data from 21,087 residential properties of an undisclosed Southeastern U.S. metropolitan area to evaluate two leading energy efficiency programs, Energy Star (run by the US Environmental Protection Agency) and EarthCraft (a high-performance building certification program developed by Southface and the Greater Atlanta Home Builders Association), found that energy savings from ENERGY STAR-certified homes were identical to EarthCraft-certified homes. However, ENERGY STAR-certified homes were associated with a 6.2 percent higher property value, while EarthCraft-certified homes were not associated with any value increase.

The research interprets this as evidence that home buyers assign value to the more-recognizable program, or brand name, than they do the actual energy savings or additional benefits that may be available from another certification. For example, while energy savings were found to be identical, ENERGY STAR deals mainly with efficiency of mechanical systems such as HVACs whereas EarthCraft takes a more holistic approach that includes material sourcing and sustainable design principles.  In contrast to how these brands are being valued in the market, the research suggests that an EarthCraft certification may actually provide buyers with additional benefits that are not accounted for in the property valuation.

The process of green certification assures owners and residents that their building meets green standards as verified by a third party. For the owner, third-party verification can serve as an additional quality-assurance measure to confirm that the insulation, water management, HVAC, plumbing, and lighting systems are installed as specified, and that the materials used meet both project and program requirements. Although green certification programs define green building in slightly different ways, all of the whole-property certification programs include the following as either requirements or recommendations: energy efficiency, durability, indoor environmental quality, water efficiency, efficient use of materials and resources, waste reduction, sustainable site development and walkable communities. By way of contrast, ENERGY STAR focuses primarily on the energy efficiency component.

This research paper, which builds upon Dr. Benefield’s previous work entitled, “Green Design and the Market for Commercial Office Space”, recommends that developers, valuation professionals, mortgage lenders, real estate brokers and homebuyers become better educated on energy saving designations with note that improved education in this area will allow professionals to appropriately market and value their property.

Dr. Justin D. Benefield’s primary research interests include real estate brokerage, sustainable real estate, and real estate investment trusts. He has published more than 35 articles in some of the leading journals in real estate and finance, including Journal of Real Estate Economics and Finance, Journal of Real Estate Research, Journal of Housing Research, Journal of Real Estate Portfolio Management, Journal of Real Estate Literature, Journal of Real Estate Practice and Education, The Appraisal Journal, Financial Services Review, Review of Financial Economics, and Journal of Financial Economic Policy.