Will Geothermal Increase the Value of My Home?

Increase home value

Before deciding to purchase a geothermal system, many homeowners ask this question.  Geothermal systems are a large investment and people want to make sure they will still get a benefit from the system if they decide to sell their home before they reach their payback period.  Life is uncertain, and you can think you will be in your home for several years, but you never know when a job or other event in your life could take you to a new area.  The two main schools of thought regarding geothermal heat pumps and the effect they have on property value are that they do not noticeably affect the value of the property and that it increases the property value due to the energy savings and sustainable appeal.

Real estate appraisers refer to the value an amenity such as a geothermal system adds to the value of a home as Contributory Value.  One of the main ways they determine Contributory Value is by using data on home sales from the surrounding area of an appraised home. While geothermal system installations have been increasing, it can still be hard to find comparable homes that have sold with geothermal systems.  This makes finding concrete data difficult, and because of this many realtors and appraisers will not be able to give you a firm answer on whether or not a geothermal system will increase the value of your home.

Some realtors believe that potential home buyers may be scared away from homes with geothermal systems because they are not familiar with the technology and believe it could break and be expensive to fix.  Some home buyers may also see geothermal as a normal HVAC system and not recognize the significance of the energy savings and green technology.  Because of factors like these, some people believe the potential energy savings are cancelled out by homeowner apprehensions.  Without comparable data to prove geothermal systems increase property value, an argument can made that it causes no significant increase in property value.

While comparative home values for geothermal systems can be hard to find, there are other factors that can be considered.  In October 1999, The Appraisal Journal released an article titled More Evidence of Rational Market Values for Home Energy Efficiency.  This article describes a study that used regression analysis to find the affect that energy savings have on the value of home.  Their results from several years of analysis consistently show that the value of a home increases by $20 for every $1 reduction in annual utility bills.  Although this data is several years old, it can still be used to create an argument that geothermal systems increase the value of a home by significantly reducing annual utility costs.

If the number of green home certifications and ratings are any indicator of the demand for sustainable homes, it appears that homeowners value sustainability.  In addition, The National Association of REALTORS® has partnered with several other organizations to make the MLS more compatible with sustainable homes.  The resulting Green MLS Tool Kit helps buyers quickly find green homes, helps sellers promote the features of their green home, and helps with apple-to-apple comparisons for green home appraisals.  With increasing demand and growth in the green industry coupled with programs to help showcase and educate home buyers on geothermal and other green technologies, an argument can be made that geothermal can increase the value and/or lower the days on the market until sale for a home.

As geothermal systems continue to grow in popularity and homeowners become increasingly aware of the many benefits of these systems, more data will be available for appraisers to use to find the Contributory Value of geothermal.  In the meantime, if you are considering geothermal but are not sure how long you will be staying in your home, think about the value you get can by using this awesome technology.  If you can see value in this system, isn’t it possible your future buyer could see value too?

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