Tuesday, 2 March 2021 | The Latest Buzz for the Appraisal Industry

Energy Ratings Accessible for All

Energy efficiency is an important feature many homeowners consider when building or buying a home. This statement is supported by numerous surveys that show energy efficiency in the top 5 or 10 items most desired by homeowners. If the surveys are representative of the buyers and sellers in the market, it is a feature that appraisers should consider in the analysis of market value.

In 1995, Residential Energy Services Network (RESNET)[1] developed an energy rating for homes to provide a national standard for home energy systems and energy efficient mortgages. This HERS Index Score encompasses all the components in a home that make it energy efficient. The rating was identified in the secondary mortgage market guidelines in the 1990s, but it was overlooked by appraisers and lenders. Now that energy efficiency is prominent in our market, the HERS Index Score is becoming a common rating and a way that builders can differentiate their homes from builders that do not rate or incorporate higher energy standards. Some states adopted the Energy Rating Index (ERI) that can be found on the building permit paperwork and in some states the HERS Index Score can be used for the Energy Rating Index[2].

Prior to 2014, HERS Ratings were not accessible to appraisers or the public. Rarely did builders offer the ratings to appraisers, customers, or lenders. Through Appraisal Institute efforts in working with RESNET in 2018, an agreement was made to open a portal for appraisers that provides energy savings amount, an estimated utility cost, dated rated, year built, and if the property is ENERGY STAR® Certified. An appraiser can gain access to the portal by registering at info@resnet.us.  There is no fee to access this portal. The public has access to limited HERS information at https://www.hersindex.com/hers-rated-home-search/. RESNET is working with MLSs around the country to provide auto population of HERS in the MLS. Auto population of HERS provides more accuracy of the inputs and lessens the liability for all involved.

A certified RESNET Home Energy Rater assesses the energy efficiency of a home, assigning it a relative performance score. The lower the number, the more energy efficient the home. The HERS Index Score can be invaluable to an appraiser comparing houses with energy efficient features to other homes that may also have energy ratings. For instance, a home with a lower HERS Index Score may sell for more than a home with a higher score. This may explain sales price variances for new construction when competing builders build similar products but may not be implementing similar energy efficient features. The score may give an appraiser a basis for making an adjustment.

A certified RESNET HERS Rater does an energy rating on a home and compares the data against a reference home’[3]– a designed-model home of the same size and shape as the actual home, so your score is always relative to the size, shape, and type of house. Variables included are as follows:

  • All exterior walls (both above and below grade)
  • Floors over unconditioned spaces (like garages or cellars)
  • Ceilings and roofs
  • Attics, foundations and crawlspaces
  • Windows and doors, vents and ductwork
  • HVAC system, water heating system, and your thermostat.
  • Air leakage of the home
  • Leakage in the heating and cooling distribution system

The score reveals what is behind the walls that appraisers cannot see in a completed home or in the plans and specifications. The score considers occupancy at 1 person per bedroom plus one.

Freddie Mac published a white paper, Energy Efficiency Value Added to Properties and Loan Performance[4], on HERS rated homes and found that on average they sold for 2.7% more than non-rated homes. When the rating was lower they found a 3-5% increased sales price. The paper provides agents with a guide to listing energy efficient homes and appraisers with a recent study to reference.

If you are not familiar with HERS Index Scores, spend some time on the RESNET website for more specific information on the ratings. Ask builders if they are rating their homes because the rating provides support and credibility to the valuation process.

[1] https://www.resnet.us/
[2] https://www.energycodes.gov/sites/default/files/documents/NECC2018_11_Roberts.pdf
[3] A Reference Home is one that is built to the 2006 IECC standard.
[4] https://t.e2ma.net/click/i0s4w2/ysd8cfc/2zp1m6g

Have any comments or would you like to submit content of your own? Comment below or email comments@appraisalbuzz.com.

Responses

Welcome

Need Help?

Our knowledge base will help you and find the answers you're looking for.