DOE Announces National "Deal Killer" Program

[James H. Bushart]

Today, I participated in a webinar with the U. S. Department of Energy that blew my mind. While I do not recall having ever been in agreement with the National Association of Realtors regarding anything, I can see why the NAR is so dead set against this new U.S. Department of Energy "Home Energy Score" rating program that is coming out this Fall.

Their concerns and their objections are valid. This program is, indeed, a potential for disaster for anyone who pays to have their home "scored".

These "Home Energy Scores" are to be provided by inexpensive "raters" who are to spend one hour or less at the home taking measurements and inputting data into an online database that provides the seller a quick "Home Energy Score" that rates their home in comparison to other homes in their area.

Imagine being the home seller who gets a Department of Energy "Home Energy Score" of '5' ---as did the average person in one of the test cities that was mentioned.

Yep, on a scale of 1 to 10 ... after his quick hour of measurements and data input, the average seller only gets a "Home Energy Score" of 5 when compared to homes in his area.

On the third page of his official DOE "Home Energy Score" rating certificate, the home owner is provided a list of "improvements" that he can make which ... if he spends the money to do them all ... will get him to his highest achievable Home Energy Score of 7. Yep....a high of 7.

According to the official rating certificate described by the government official speaking at the webinar, a two to three point improvement was the average in which a seller could ever achieve no matter how much money he spent, nationwide, according to the results of their test program.

This is not a "Home Energy Score". It is a Home Energy "Stigma", in my opinion.

Even in the best possible market (which this is definitely NOT) how does he expect to get his full asking price for a home that has been officially rated to be inferior to others in the same area... with no chance of ever getting the highest "Home Energy Score" no matter what he spends to improve it ... while competing against similar homes with no Home Energy Score at all?

Wanna kill a deal? Add this "Home Energy Score" to your inspection report and add insult to injury.

According to the official who was doing the Q&A, today, the only home inspection association named was ASHI ... inviting its members (who must also be either BPI or RESNET certified, according to the government official) to participate with the program. Frankly, as closely associated with the NAR that ASHI is ... I cannot see them willfully going out of their way to offend real estate salesmen and alienating people by performing these meaningless ratings that have such a potential for harm.

Government programs often begin as good ideas and I'm sure that this one originally looked good when it started ... but what it has since developed into is an invitation for disaster.

Home owners don't want or need "scores", anyway. They want and need useful information that will help them increase their levels of comfort, lower their utility bills and improve their home's air quality and value. The Department of Energy "Home Energy Score" does not do any of these things.

They should take this turkey back to the drawing board.

[Christopher Currins]

Recent email from HUD:


The FHA Energy Efficiency Mortgage (EEM) program allows a borrower to finance up to 100 percent of the expense of a cost-effective “energy package” based on analysis by and recommendations of a qualified, third-party home energy rater.

The required home energy audit must be conducted using a tool known as the Home Energy Rating Systems (HERS). Standards for completing of the HERS audit, and for the auditors eligible to conduct a HERS audit, are most commonly established by either:

· States agencies having authority to prescribe specific requirements and standards for residential energy ratings and rater qualifications, or;
· The national Residential Energy Services Network (RESNET), a non-profit organization founded by the National Association of State Energy Officials and Energy Rated Homes of America, that has set standards for energy efficiency assessments in the U.S. since 1996.

State requirements must be satisfied when completing an EEM transaction in states with specific requirements governing the scope of the energy analysis/rating or the qualifications or licensing of the energy auditor/rater. In states with certification and licensing requirements for energy raters, it is recommended that lenders request the HERS rater license number or evidence of certification, when underwriting an EEM.
.

[James H. Bushart]

Originally Posted by ccurrins

Recent email from HUD:


The FHA Energy Efficiency Mortgage (EEM) program allows a borrower to finance up to 100 percent of the expense of a cost-effective “energy package” based on analysis by and recommendations of a qualified, third-party home energy rater.

The required home energy audit must be conducted using a tool known as the Home Energy Rating Systems (HERS). Standards for completing of the HERS audit, and for the auditors eligible to conduct a HERS audit, are most commonly established by either:

· States agencies having authority to prescribe specific requirements and standards for residential energy ratings and rater qualifications, or;
· The national Residential Energy Services Network (RESNET), a non-profit organization founded by the National Association of State Energy Officials and Energy Rated Homes of America, that has set standards for energy efficiency assessments in the U.S. since 1996.

State requirements must be satisfied when completing an EEM transaction in states with specific requirements governing the scope of the energy analysis/rating or the qualifications or licensing of the energy auditor/rater. In states with certification and licensing requirements for energy raters, it is recommended that lenders request the HERS rater license number or evidence of certification, when underwriting an EEM.
.

Totally different program ... and even more dangerous.

I have warned several of my clients about it.

The EEM is designed on the premise that if one borrowed money at a low interest to improve the energy efficiency of their home, they could pay all or some of the monthly payments on the loan from the "extra money" derived from the energy savings from lower utility bills.

Consider however, that at the same time, utility companies are continuously raising rates.

In one city near me, energy rates have increased an average of 11.5% per year for the last three years.

This means that people who may have achieved a 30% decrease in energy use three years ago in that city are, today, paying as much for energy as they were then. They are using 30% less energy ... and getting the same bill they received prior to their improvements. For them, there is no "extra money". This is not just a regular "loan" ... but a mortgage and falling behind can cost someone their home.

Energy efficiency improvements do not directly correspond to energy bill reductions since utility rates are not static. We (energy auditors) must always take that into consideration when communicating a ROI (return on investment) when we recommend upgrades to our clients.

EEMs are not all they appear to be and should be carefully considered. Now is not a good time to increase debt assuming ... key word, "assuming" ... that energy reductions will pay the bill. The necessary degree of certainty does not come from an energy "rating" or "score". It comes from diagnostic testing and computer modeling ... and financial planning that considers the likelihood of the inevitable utility bill increases.

[Nick Gromicko]

Jim, I was at the webinar. InterNACHI was mentioned twice. As I explained a year ago (and was confirmed today)... blower doors are not going to be used for this thing. InterNACHI has already been awarded the license to calculate and produce the custom reports online at www.nachi.org The online software is actually done and we're waiting to go live.

[James H. Bushart]

Originally Posted by gromicko

Jim, I was at the webinar. InterNACHI was mentioned twice. As I explained a year ago (and was confirmed today)... blower doors are not going to be used for this thing. InterNACHI has already been awarded the license to calculate and produce the reports online at www.nachi.org The online software is actually done and waiting to be launched.

Blower doors are not a part of the rating process. You're right. It's just an hour or less of measurements and data input.

The NAR is opposing it and, for once, they are right on. This thing is terrible.

I had to take a call during the webinar, so I may have missed the NACHI references you are referring to ... but I heard the ASHI references and the affirmation that future raters will have to meet (at a minimum) what the test program required with the addition of more testing on building science. RESNETS Home Energy Raters, they said, didn't cut the mustard.

[Nick Gromicko]

As for the marketing issue, ... I hear ya. But the real estate industry resisted home inspections at first too. Now, by NAR's own stats, nearly all agents recommend that buyers get a home inspection.

[Nick Gromicko]

I'm getting NAR on board. Just give me a little more time and I'll have them do a 180.

[James H. Bushart]

Originally Posted by gromicko

As for the marketing issue, ... I hear ya. But the real estate industry resisted home inspections at first too. Now, by NAR's own stats, nearly all agents recommend that buyers get a home inspection.

I don't think I need to tell you how concerned I am with how this might affect home inspector relationships with used house salesmen.

Still, it is nothing more than a "negative" with no hope of turning it into anything worthwhile.

If you were at the webinar, you heard how the recommendations for improvement (two to three points, max) will not include any dollar amounts of energy reduction, cost of improvement or return on investment.

All you get is a number ... with an official document from the government telling the buyer that the house will never be better than a 7 ... or 8 ... or maybe less.

Like I said, it was probably a good idea when first introduced but somewhere along the line ... somebody blew it.

[Nick Gromicko]

Remember, NAR doesn't own the MLS's. And the MLS's are the ones that have to agree to add a new HES field.

[Nick Gromicko]

Jim, it is surprising for me to watch you uncharacteristically focus on the marketing implications of useful information.

Are we in the marketing of used homes business or the useful information gathering/reporting business?

[James H. Bushart]

Originally Posted by gromicko

Jim, it is surprising for me to watch you uncharacteristically focus on the marketing implications of useful information.

Are we in the marketing of used homes business or the useful information gathering/reporting business?

I don't see anything useful in a solitary number. I find it meaningless.

If it screws with the sale of the home, so be it. So do many of my inspection reports...but at least they serve a purpose. The number "6" standing alone is simply odd.

[Christopher Currins]

Originally Posted by jbushart

Totally different program ... and even more dangerous.

I have warned several of my clients about it.

I'm aware they're very different programs, but similar. In my opinion they both suck.

[James H. Bushart]

I also want you to consider this fact, Nick.

You heard the folks from Minnesota speak of how, in the area they did their scoring, the average house (on a scale of 1 to 10) was a "5".

Right? Out of 110 tests.

Well, think about that.

If the average house was a "5" on a scale of 1 to 10 .... then how can they say that "5" is how those houses compare to others in that area when the houses in that area averaged a "5"? Isn't the number "5" a contradiction to what it is supposed to represent?

The whole concept is flawed and the application is impractical and meaningless. It will last a month ... and die the death of all the other "great ideas" that have been coming out of Washington in recent years.

I had planned to give it away as a freebie to add value to the full diagnostic audit ... but after hearing it described, today, I am not touching it with a 10 foot pole.

[Nick Gromicko]

Jim, do you say that about the "solitary" number (MPG) used on new car stickers?

As you know, I was a top producing REALTOR for many years. I think energy efficiency is but one of many, many, many factors that cause someone to make an offer on a home.

Do you buy a car based solely on MPG? Or do you buy the car you want for other reasons?

[James H. Bushart]

Originally Posted by gromicko

Jim, do you say that about the "solitary" number (MPG) used on new car stickers?

As you know, I was a top producing REALTOR for many years. I think energy efficiency is but one of many, many, many factors that cause someone to make an offer on a home.

Do you buy a car based solely on MPG? Or do you buy the car you want for other reasons?

Nick ... MPG is an actual calculation that tells you how many miles to a gallon you can expect a car to travel. Knowing the price of gas, you can then calculate the cost of operating a vehicle.

The number "5" you get from a Department of Energy "Home Energy Score" tells you nothing. It cannot be used for anything other than to compare it to the number assigned to another house.

Apples and oranges.