Will Building Energy Disclosure Laws Affect Real Property Value?

Of course the answer to the question "will building energy disclosure laws affect real property value" is yes.  There is no doubt in my mind that inefficient buildings,  like gas guzzling cars, will be shunned by real property buyers and building tenants when they have the opportunity to see the results on energy disclosure reports.  In the recent past few buyers have paid a great deal of attention to annual energy costs since energy costs have been relatively low.  

Times are, however, changing, and as oil and other energy costs continue to move up, and as disclosure laws start to affect us all, it is likely that building owners, potential buyers and tenants will focus on just how expensive energy is.  As a proof of this conclusion I would ask, did anyone pay attention to gas mileage ratings when the price of gas was under a dollar a gallon?  Not really, but now that it has reached and exceeded $ 4.00 per gallon, gas mileage ratings are one of the first things that buyers ask about.   If owners don't focus on the increasing cost of building operation on their own over the next few years, then soon-to-be required energy disclosure law or laws will be put it "in their face."

Disclosure laws are not going to be something that a building owner can ignore since energy consumption dips into the pocket of each and every tenant and thus even into the owners bottom line.  If the market rental rate for a commercial building is $ 1.00 per square foot per month, and you pass the energy cost along to tenants, do you think tenants might be interested in building energy costs and their disclosure?

How much of a difference can energy savings make?  Today energy costs are about 19% of total annual building operating costs.  Government studies indicate that a savings of 35% to 50% of energy costs can be saved with attention being paid to energy efficiency.  So if you can save about half of the 19% bill, that's a 10% savings in operating cost.  It's a great deal on an annual basis but its a very big number over the life of a building. 

If market participants pay attention to energy disclosures and react to them as anticipated, appraisers will have to consider the adjustment of property sales to reflect market preferences.  Appraisers may also pay more attention to expense analyses in the income approach, since the net operating income of energy saving buildings will be higher, and thus, capitalization will provide a higher value indication for those buildings.

For more appraisal information contact Glenn Rigdon, MA,MRICS, ASA a Las Vegas / Henderson Nevada appraiser via email or via his business website Horizon Village Appraisal (http://www.horizonvillageappraisal.com), or you can also click on “Contact Us” on the home page of this website.