The Heat Is On

It is common knowledge that upgrades, such as granite countertops, high-design fixtures or a new outdoor deck, add value to a home appraisal. However, a range of improvements have gained momentum in recent years that have been left out of the equation. Energy-efficiency measures can save homeowners money with lower monthly utility bills but, unfortunately, federal mortgage underwriting and appraisal processes don’t recognize the value associated with these improvements.

Now a coalition of environmental organizations and home builders is supporting proposed legislation that seeks to correct this oversight. If passed, the SAVE (Sensible Accounting to Value Energy) Act would require expected energy costs and savings to be added to the home-affordability calculations for all federal agency-backed mortgages.

“The act puts everything on a level playing field by changing the process of how we look at the inventory of a home and establishing fair value,” explains Jared Asch, national director of the San Francisco-based nonprofit Efficiency First. “In the same way that property values rise over time and we allow appraisers to calculate that, we know overall energy costs will continue to rise in the next 10 to 50 years. It makes sense to have appraisers adjust for energy-saving features that offset these costs and benefit the homeowner.”

Adjusting Awareness

The SAVE Act is designed to apply to new construction and retrofits. Greg Bergtold, advocacy director for Dow Building Solutions, an organization within The Dow Chemical Co., Midland, Mich., says the act could affect a significant number of existing homes. The Washington, D.C.-based U.S. Department of Energy estimates there are a total of 116 million homes in the existing U.S. building stock, and the Joint Center for Housing Studies at Harvard University, Cambridge, Mass., reports that in 2007 the housing stock’s median age was 32 years.

“There have been great changes in energy codes in the last few decades, which means approximately 30 to 40 million homes were constructed before the U.S. had modern baseline energy standards,” Bergtold explains. “By ascribing value to energy-efficiency upgrades, the SAVE Act will help scores of homeowners see the merit of making the upfront investments, and this is a critical missing link in consumer awareness.”

Westborough, Mass.-based Conservation Services Group (CSG) designs and implements energy-efficiency programs, as well as provides new construction, training, and certification services for builders and contractors. Caitriona Cooke, CSG’s New England construction manager, notes that although the residential energy audit business has grown enormously in the past five to six years, some large gaps in the industry remain.

“There’s a whole world of residential remodelers not thinking about energy improvements, but energy-efficiency upgrades are one of the only things that begin to pay back right away for homeowners who live in hot or cold climates,” she notes. “With more remodeling than new construction happening in the country right now, there are great opportunities to help educate existing homeowners about energy savings.”

Homes account for nearly 25 percent of U.S. energy use, equating to more than $250 billion annually. Asch believes just getting homeowners to recognize how much energy they use and the associated costs would be a major step in the right direction.

System Improvements

For the past 70 years, federal mortgage programs, which currently guarantee 90 percent of all loans, have used the same basic determining factors in underwriting a borrower’s debt-to-income ratio. The tally includes principal, interest, property taxes and homeowner’s insurance, but in recent years energy costs have outstripped taxes and insurance. According to a SAVE Act legislative fact sheet, in 2007-08, the average U.S. homeowner spent $2,340 on energy, $1,897 on property taxes and $822 on homeowner’s insurance.