Time of Sale Energy Rating

While attending a local event for home performance contractors recently, one subject popped up in two separate conversations that I have been thinking about for awhile now and would like to open up for comment: Time of Sale Energy Labeling of Homes.

This is the practice of having a mandatory energy rating or audit done of a home before it can be resold. It’s similar to the requirement that a home have a clean termite report.

Europe has had a mandatory program since 2003 titled the Energy Performance of Buildings Directive. Parts of Canada are launching programs this year.

Congress and the National Association of Realtors

In the United States an earlier version of the American Clean Energy and Security Act of 2009 also known as the Waxman-Markey bill included provisions that would have made time of sale energy labeling mandatory. After stiff opposition from the National Association of Realtors and similar organizations those provisions were removed from the final version that passed the House in June of 2009.

Up until now the U.S. has taken a voluntary approach focusing primarily on new construction. One such program is the successful Energy Star program along with other utility based incentives.

Home Energy Rating System

Nationally the Home Energy Rating System (HERS) has been used in over a million homes to rate relative energy efficiency. It is a numerical standard based on a scale where 100 represents the minimum code standard and 0 is a “net-zero” home. These are voluntary ratings except in the case where they may be required to verify increased efficiency of a home in order to qualify for utility rebates. In 2006 the IRS adopted the HERS rating system to qualify builders for federal tax credits.

In California our version of HERS is a code enforcement mechanism to verify the installation of HVAC, PV solar systems and other energy features regulated by the state energy code Title 24. It is used in both new construction and existing buildings. Special inspectors or HERS raters work in conjunction with local building departments and the CA Energy Commission. The inspections apply to only certain listed features and are pass or fail, not a whole-house energy rating.

HERS II

This is currently changing as the energy commission is releasing it's HERS Phase 2 program. This will differ from phase one in that it will provide a whole-house rating similar to the national program. Utility companies such as SMUD plan to offer a subsidized full energy assessment with HERS rating at a cost of $99 to customers as part of their Home Performance program. This will be available in the fall of 2010.

If a time of sale HERS rating were to be required in California this would potentially add $400-$600 on to the cost of selling a home. If mandatory then it would be the seller’s responsibility to obtain it just like a termite inspection. This raises some interesting questions:

• Would there be a minimum standard of energy efficiency a home would be required to achieve?
• If that were the case, could the rater also be a contractor that could install the improvements as is the case with termite companies or would he/she be an independent third party like a home inspector?
• Could this lead to significant reduction in energy use or is it just an unnecessary burden on an already struggling real estate industry?
• How will this affect the appraisal process?

Benefits of a Voluntary Program

As someone involved in the home performance industry who also performs energy audits and does retrofit work, I think mandatory time of sale ratings are at best unnecessary. There are many in my industry firmly behind the mandatory idea. My question is: Are they in favor because it is a one way of improving the efficiency of the housing stock, or just a way to get more business?

Don’t get me wrong, ratings are a very useful tool to make decisions for improving your home and to differentiate one property from the next. Home inspections serve the same function. They aren’t mandatory in California, but have been common practice in most real estate transactions for some time. Any serious buyer gets an inspection usually at his own expense and it is money well spent.

A good motivation for a seller to get a rating is marketability. If you’ve done energy improvements to your home that make it more efficient than comparable properties, what better way to market that fact than an independent rating performed by a rater certified by the energy commission? I can foresee a time when that will be a standard item listed for a property in the MLS.

If you are an energy rater, appraiser or member of the real estate industry I’d be interested in getting your comments.