Consumers rely on labels and reviews to understand the features and performance of the products they purchase. There are miles-per-gallon ratings for cars, nutritional labels for groceries, and Energy Star ratings for home appliances. But when it comes to the energy efficiency of their biggest investment — buying or renting a home — Americans are largely on their own.
Many US consumers take out mortgages without knowing how much energy a home uses, leaving themselves unnecessarily high on future utility bills. But the right information at the right time can persuade homebuyers to choose the more energy-efficient option before the closing papers are signed.
Portland, Oregon is the best real-world example in the US to date.
A dozen cities or states, including Berkeley, California, and Austin, Texas, now require at least some form of disclosure of home energy information in residential real estate transactions. But according to the American Council for an Energy-Efficient Economy (ACEEE), Portland is the only jurisdiction that requires home energy scores to be included at the time of listing for use by the Regional Multiple Listing Service and popular online aggregators like Redfin and Zilow . In comparison, Berkeley’s program requires disclosure of home energy scores at the time of sale.
Portland House Energy Score The program went into effect on January 1, 2018, so has had some time to become established. Homes are rated on a 10-point scale based on DOE’s Home Energy Score system: Homes with a “1” rating use the most energy; Houses with a rating of “10” consume the least.
As of this month, about 20,000 of Portland’s 160,000 single-family homes have received points under the Home Energy Score program, according to Lisa Timmerman, manager of Portland’s Home Energy Score program. Sellers who list homes without a Home Energy Score or accompanying Home Energy Report will be fined $500.
What a broker thinks about energy efficiency transparency
The results released to date show significant opportunities to improve the energy efficiency of Portland’s housing stock. Until the end of 2019, The average Home Energy Score was 4.6, while 36 percent of homes received an initial score of 3 or less. However, half of the households could be inexpensively upgraded to a score of 8 or higher.
Timmerman shared preliminary results from a recent city survey of homebuyers. Based on the anonymized responses, it is clear that Home Energy Scores are influencing decision making for at least some Portland homebuyers.
Respondents said they use Home Energy Scores and reports in a variety of ways: to target high-performing homes that need few efficiency improvements; to calculate the full cost of home ownership; negotiate with sellers about energy-saving upgrades to make before the home is sold; and to identify post-movement improvements that need to be addressed.
GTM asked Janna Green, a realtor at John L. Scott Real Estate, how home sales in Portland have changed since the start of the Home Energy Score program.
“Many shoppers ask for Home Energy Scores,” she wrote in an email. “Those who are aware and resentful of a low score will definitely be asking questions about the options and costs required to improve the score.”
High efficiency ratings reassure buyers, Green said.
“Seeing a home with an energy rating of 10 (the highest possible) gives buyers a sense of confidence in a home’s care and overall soundness. People want to know that this tremendous investment that they’re making is well built and well cared for,” she said.
The provision of home energy scores and reports has also empowered all homebuyers – not just the educated or the environmentally conscious – to start thinking about energy use.
“A score is so easy to understand and provides a heartfelt prelude to a deeper conversation about home energy use and the costs involved,” noted Green.
“In the past, buyers often only had the advice of their real estate agents to enlighten them on the relative importance of so many different energy-related systems. Now the report provides a simple metric to quickly compare house to house.”
The case for Home Energy Scores in more online lists
The potential for similar programs in other parts of the US looks great
The ACEEE recently asked more than 1,500 potential home buyers to review listings on a bogus real estate website. Unlike most online real estate listings in the United States today, this one provided some participants with information on the energy efficiency of homes, delivered through multiple US Department of Energy renderings House Energy Score Rating System.
Finally, homebuyers who received information about energy use were 23 percent less likely to click the least efficient option and 14 percent more likely to click the most efficient option.
The study supports the argument that local and state governments should require energy efficiency information to be included in online real estate listings, according to the ACEEE. More than 90 percent of homebuyers now start their search online.
“To the best of our knowledge,” the authors say, “this study provides the first experimental support for the suggestion that mandatory labeling programs are more effective than voluntary programs at nudging homebuyer behavior.”
The importance of identifying upgrades before closing deals
The authors of the ACEEE report urged policymakers to replicate the Portland model. They recommend that energy efficiency information be included in real estate website listings, that listings include energy use information for all homes, not just the most efficient ones, and that programs use an intuitive rating system such as DOE’s Home Energy Score to provide information to homebuyers .
The authors of A paper (PDF) on lessons learned from the Berkeley and Portland Home Energy Disclosure Programs, meanwhile, stressed the importance of early collaboration with the real estate industry.
Prior to the Portland program’s launch, the Portland Metropolitan Association of Realtors had raised concerns that a shortage of trained home energy surveyors could delay sellers’ ability to list a home for sale. The nonprofit Energy Trust of Oregon later determined that an average of 30 full-time appraisers would be needed to meet market demand with 100 percent home seller compliance.
But after a successful recruitment push, 73 assessors were authorized to provide Home Energy Scores in time for launch in 2018, and 62 others were authorized earlier that same year.
The authors of the same paper, which included representatives from the nonprofit Earth Advantage and the cities of Portland and Berkeley, also highlighted a selling point of Portland’s time-of-sale format. Because prospective homebuyers are able to identify energy efficiency upgrades before they are finalized, there is an opportunity to incorporate the improvements into the loan. Fannie Maes HomeStyle Energy Mortgage, to give just one example, allows homebuyers to add upgrades recommended in the Home Energy Report to their loan.
More work is needed to spread the word about this energy efficient mortgage products.
“Although a handful of local lenders have become aware of this product, they are not yet marketing this type of loan offering to Portland homebuyers,” the authors note in the report.