Consumers rely on labels and scores to understand the attributes and performance of the products they buy. There are miles-per-gallon ratings for cars, nutrition labels for food and Energy Star ratings for 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 U.S. consumers take on mortgages without knowing how much energy a home uses, consigning themselves to needlessly high future utility bills. But the right information delivered at the right time can nudge homebuyers to select the more energy-efficient option before closing papers are signed.
Portland, Oregon is the best real-world example in the U.S. to date.
A dozen cities or states, including Berkeley, California and Austin, Texas, now ask for at least some form of home energy information disclosure during residential real estate transactions. But according to the American Council for an Energy-Efficient Economy (ACEEE), Portland is the only jurisdiction to require Home Energy Scores to be included at time-of-listing for use by the Regional Multiple Listing Service and popular online aggregators such as Redfin and Zillow. Berkeley’s program, by comparison, requires disclosure of Home Energy Scores at the time of sale.
Portland’s Home Energy Score program took effect on January 1, 2018, so it's had some time to establish itself. Homes are scored on a 10-point scale based on DOE’s Home Energy Score system: homes with a “1” rating use the most energy; homes with a “10” rating use the least.
According to Lisa Timmerman, manager of Portland’s Home Energy Score program, as of this month, around 20,000 of Portland’s 160,000 single-family homes have received scores under the Home Energy Score program. Sellers who list homes without a Home Energy Score or the companion Home Energy Report are subject to a $500 fine.
What a realtor thinks about energy efficiency transparency
Scores posted thus far show considerable opportunity to improve the energy efficiency of Portland’s housing stock. By the end of 2019, the average Home Energy Score was 4.6, while 36 percent of homes received an initial score of 3 or below. However, half of the homes could cost-effectively improve to a score of 8 or higher.
Timmerman shared preliminary results from a recent city survey of homebuyers. Based on the anonymized responses, it’s clear that Home Energy Scores are informing the decision-making for at least some Portland homebuyers.
Respondents reported using Home Energy Scores and reports in several ways: to target high-performing homes that need few efficiency improvements; to help calculate the full cost of homeownership; to negotiate with sellers over energy-saving upgrades to be performed before the home is sold; and to identify improvements to tackle after move-in.
GTM asked Janna Green, a realtor with John L. Scott Real Estate, how selling homes has changed in Portland since the launch of the Home Energy Score program.
“Many buyers do ask for the Home Energy Scores,” she wrote in an email. “Those who are aware and are bummed to see a low score will definitely ask questions about the options and costs required to improve the score.”
High efficiency scores reassure buyers, Green said.
“Seeing a home with a ‘10' energy score (the highest possible) gives buyers a sense of confidence in the care and overall soundness of a home. People want to know this huge investment they are making has been built well and cared for well,” she said.
Making Home Energy Scores and reports available has also empowered all homebuyers — not just highly educated or green-minded ones — to think about energy consumption.
“A score is so simple to understand and offers a warm opener for a deeper conversation about home energy use and associated costs,” noted Green.
“In the past, buyers often only had the advice of their realtors to educate them on the relative importance of so many different energy-related systems. Now, the report offers a simple metric making it quick to compare house vs. house.”
The case for Home Energy Scores in more online listings
The potential looks big for similar programs in other parts of the U.S.
The ACEEE recently asked more than 1,500 prospective homebuyers to peruse listings on a mock real estate website. Unlike most online real estate listing sites in the United States today, this one provided some participants with information on the homes’ energy efficiency, which was delivered via several renderings of the U.S. Department of Energy's Home Energy Score rating system.
Homebuyers who received energy use information ended up clicking on the least-efficient listing 23 percent less often and the most-efficient option 14 percent more often.
The study bolsters the argument that local and state governments should require that energy efficiency information be included in online real estate listings, the ACEEE says. More than 90 percent of homebuyers now begin their searches online.
“To the best of our knowledge,” the authors state, “this study offers the first experimental support for the assumption that mandatory labeling programs are more effective than voluntary programs for nudging homebuyer behavior.”
The importance of identifying upgrades before closing deals
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 consumption information for all homes, not just the most efficient ones, and that programs use an intuitive scoring system, such as DOE’s Home Energy Score, to deliver 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 engagement with the real estate community.
Before the launch of Portland’s program, the Portland Metropolitan Association of Realtors had expressed concern that a shortage of trained home energy assessors 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 assessors would be needed to meet market demand with 100 percent compliance by homesellers.
But after a successful recruitment push, 73 assessors were authorized to provide Home Energy Scores in time for the 2018 launch, and 62 more were authorized early in that same year.
The authors of the same paper, which included representatives from the nonprofit organization Earth Advantage as well as the cities of Portland and Berkeley, also highlighted a selling point of Portland’s time-of-sale format. With prospective homebuyers able to identify energy-efficiency upgrades before closing, there is the potential to wrap the improvements into the loan. Fannie Mae’s HomeStyle Energy mortgage, to cite one example, enables homebuyers to add upgrades recommended in the Home Energy Report into their loan.
More work is needed to spread the word about energy-efficient mortgage products.
“While a handful of local lenders have become aware of this product, they are not yet marketing this type of loan offer to Portland homebuyers,” the authors observe in the report.