Measuring What Markets Price: LLM‐Based Quality Measures and the Energy Efficiency Premium

Energy performance certificates are intended to incentivize residential energy efficiency investment by allowing markets to capitalize lower energy costs into higher property values. A large empirical literature documents price premiums for energy‐efficient dwellings, but these estimates may be biased upward if internal dwelling condition, which is correlated with energy ratings, is not adequately controlled for. We address this measurement problem using a large language model to extract a scalable, consistent measure of internal condition from the full text of 374,000 residential listings in Ireland between 2018 and 2025. Because the approach requires only that properties be described in natural language, it is broadly transferable to other markets. Integrating this measure into a standard hedonic framework, we find that a one‐step improvement in Ireland's Building Energy Rating is associated with a price premium of approximately 2.4 percent in conventional specifications. Once internal condition is controlled for, this falls to around 1.5 percent ‐ meaning that models that omit internal quality may be overstating the energy efficiency premium by 60 percent. This attenuation holds across alternative efficiency measures, throughout the price distribution, and in matched transaction‐price regressions. These findings suggest that market‐based incentives for energy efficiency investment are more limited than conventional estimates imply but also that text-based quality measures derived from LLMs offer a practical tool for improving the credibility of hedonic analysis wherever listing data exist.