Being a homeowner is expensive. You are smart to control potential big-ticket expenses with a home warranty protecting your household budget from costly repair or replacement of covered appliances or home systems that break down. But what other expenses can help you improve the homeownership balance sheet?

Do Energy-Efficient Upgrades Help?

You’ve probably read that improving your home’s efficiency can save you money. Indeed, some improvements or upgrades can quickly cut home energy costs. But it's important to consider how much you will save for the cost of investment, whether you will recoup those costs, and how long payback will take. It’s also a good idea to know if upgrades you make will add value to your home.

If you’re a new homeowner, or your home is new to you, certain less costly upgrades can be smart first steps to take. For example, sealing up windows and doors should cost you under $75, if you buy the caulk and weather stripping, and do the work yourself.

The Department of Energy (DOE) estimates that “sealing windows and doors can save homeowners 10% - 20% per year on heating and cooling costs.” Further, the agency also estimates that “the typical American family spends at least $2,200 per year on energy bills [and] nearly half of that goes to heating and cooling.” Translated, sealing windows and doors can reduce utility bills by $200 or more each year. Making these updates are easy to do and you can quickly recoup your expenses in lower utility bills. There is no drawback to making these updates to your home. In fact, it's important to seal up these areas, given they're energy-saving powers. It is more important to take this step before you invest in other upgrades, otherwise you are throwing good money after bad maintenance. Of course, sealing up areas is an improvement that does not really add any value to your home long-term.

Top Energy-Efficient Updates for Your Home

These five upgrades not only help your home to be more energy efficient, saving you money on utility bills, they also offer better payback in the long term. And some of them can also increase the value of your home. This list starts with an upgrade with the biggest price tag, but also one that can have the biggest return on your investment:

Solar

Installing a solar energy system is a long-term investment, but if you can swing it, it's a good idea to upgrade now. Why? 2019 is the last year to receive the full 30% federal tax credit (unless extended) on a home solar system. In 2020 the tax credit drops to 26%; 2021 it goes down to 22%; and it zeros out in 2022.

Adding solar to your home is not cheap, but prices continue to fall, making it ever more important to grab the tax credit while you can. The “average total cost of solar installation can be between $15,000 to $29,000 for average-sized systems sized between 4kW and 8kW.” Total cost is impacted by where you live, the size of your home, the system you purchase, and more, but the bottom line is, your upfront investment is significant.

The good news: according to a 2016 survey from EnergySage, “the average solar homeowner paid off their solar investment in just over 7 years, and generated 92% of their total electricity use through solar.” And, after your pay-off period ends, your utility bill can largely vanish. When you consider that the average U.S. home spends $2,000 per year on utilities, that adds up to a lot of savings for you each year.

A solar energy system also adds value to your home. A Lawrence Berkeley Lab study in 2013 of six state markets found “solar panels are viewed as upgrades, just like a renovated kitchen or a finished basement,” and “buyers were willing to pay $15,000 more for a home with the average-size solar photovoltaic (PV) system.” While the study is aging, its findings--when combined with more recent research from Zillow that says, “homes with solar-energy systems sold for 4.1% more on average than comparable homes without solar power”--support the idea that investment in solar panels can increase a home’s resale value.

There is one more potential incentive to upgrading to solar: certain states do not include installation of a solar energy system toward the value of your house when calculating property taxes. Do your state and local homework, but you may find that your property taxes won’t go up, unlike other upgrades that can raise your property taxes, like a new kitchen.

Smart Thermostat

Cooling and Heating

If your air conditioner, furnace, or boiler is 15 years old or more it is past time to invest in a new system. The DOE notes that today’s “best air conditioners use 30% to 50% less energy to produce the same amount of cooling as air conditioners made in the mid 1970s.” It’s likely your system is not that old, but the DOE also says, “even if your air conditioner is only 10 years old, you may save 20% to 40% of your cooling energy costs by replacing it with a newer, more efficient model.”

Most households with central air, especially in warm months, will run the system up to 16 hours a day. For a 2,400 square foot home, the cost per month to run AC that long can be as high as $500. Upgrading your older system with a new, more energy efficient one potentially can cut your energy costs for cooling by as much as half, saving you hundreds to even more than a thousand dollars each year, particularly if you live in warmer climates.

Investing in a new system does depend on the size of your home, the system you purchase, installation and permit costs, and other possible costs, like ductwork sealing and/or repair. HomeAdvisor found the average cost nationally to be $5,455. Given the higher efficiency you get when installing a new system and how much it can save on energy costs, you can expect to recoup your expenses in 5-7 years. And when you remember to keep up on regular maintenance of the new system and follow a schedule of changing air filters, your new system can potentially last as long as 12-15 years.

Of course, if you have HVAC coverage with First American, you can be protected in the event your system needs replacing. This is where the value of our home warranty coverage really kicks in. First American tracks what it spends each year on replacement costs for home warranty customers with HVAC coverage. In 2018, replacement costs averaged a little under $3,000.* And, with our HVAC coverage, if the company deems your system unrepairable, we can replace the covered system with a 14-SEER rated system. The 14-SEER systems are more efficient than the unit installed in your home 10 or 15 years ago.

If you decide to sell your home, recouping your investment on a central air installation depends on too many factors to include here, but most research shows you are not likely to recover your costs at sale. It’s better to think of your AC upgrade as an improvement that helps make your home a more comfortable place while you live there. And if you sell, your home becomes a more attractive house to homebuyers than one that lacks central air altogether.

Tankless Water Heater

Water heaters use a sizable amount of energy. Tankless water heating systems can offer potentially big savings because of their more efficient way of heating water. Standard water heaters constantly heat the water in the tank, so they undergo something called standby heat loss, when energy is wasted even if you are not using any hot water. Insulating the tank can help it better retain heat, but inevitably some energy is lost. Tankless water heaters can reduce energy loss because there’s no hot water to store.

Insulation

Get an Energy Audit

Not sure what makes sense for you? An energy audit for your home can identify opportunities for energy-efficiency improvements and help you evaluate the expected benefit of these improvements on your home’s energy use and energy bills.

*Based on actual invoices paid by First American in 2018 prior to service fees, deductions and/or rebates; costs may vary in your geographic region. Items listed may be optional or not available on some plans; please review the sample contract for specific coverage, terms and limitations.