Home Appraisals – Quantifying the Value of Energy Efficiency

If a home is truly more energy efficient, it should be valued higher—don’t you agree?  Unfortunately, the current system of using comparables does not allow for the assignment of added value for greater energy efficiency—even though the escalation of utility costs for an efficient home will be much lower. This is because most homes used as comparables are not very energy efficient, and there has not been an accepted method of quantifying in current and projected dollars the energy efficiency of homes.

But now, the Residential Energy Services Network (RESNET), a not-for-profit service corporation, has developed a Home Energy Rating System (HERS) to accurately measure the energy efficiency of new and existing homes. This should lead to changes in appraisal methods used nationwide. In fact, two pieces of legislation are now being considered in the U.S. Congress—both have bi-partisan support and are favorable to the President. 

First, the “SAVE Act” (Sensible Accounting to Value Energy) is legislation to improve the accuracy of mortgage underwriting used by Federal mortgage agencies by ensuring that energy costs are included in the underwriting process. The bill, S. 1737 [112th Congress], was introduced on October 19, 2011, by Senators Bennet (D-Co.) and Isakson (R-Ga.) and referred to the Committee on Banking, Housing, and Urban Affairs. Comparable legislation has not yet been introduced in the House of Representatives. The proposal is supported by a diverse coalition of organizations, including the U.S. Chamber of Commerce, the Appraisal Institute, the U.S. Green Building Council, and the Natural Resources Defense Council.

Secondly, the “Cut Energy Bills at Home” Act, if passed, would create the nation’s first performance-based energy efficiency tax credit for existing home retrofits. For the first time, homeowners would be rewarded with a federal tax credit for projects that achieve a percentage reduction in energy use rather than for installing a certain piece of equipment. The legislation would provide tax credits of $2,000 to $5,000 for qualified residential retrofits that save 20% to 50% energy respectively, up to 30% of the cost of the retrofit.

This type of legislation is practical and fair because a HERS Rating Index objectively quantifies the energy efficiency of a home, and therefore the value, or the difference in “before and after” efficiency and the added value of home energy improvements. The HERS Rating procedure and Index is recognized and accepted by the Internal Revenue Service as the basis for extending tax credits. It is also recognized and used by the Department of Energy, the Environmental Protection Association, the Appraisal Institute, and many other organizations and utilities. And, realtors, appraisers, bankers and underwriters are gradually accepting it as a meaningful way to differentiate between a truly energy efficient home and one that is not. 

Saving energy will reduce our dependence on fossil fuels which is positive in so many ways!  So, stay tuned, and hopefully I will soon be able to report that the bills have been passed!