When it comes to existing homes, what does it mean to be “energy efficient”? How many existing homes are considered energy efficient? Can the value of energy-efficiency features be more comprehensively appraised?

Unfortunately, there isn’t a lot of information available to answer these questions. But various players within the mortgage industry are developing tools – energy audits, ratings and certifications, and programs and products – to gather energy-efficiency data that can help. 

The Case for Unified Data

If more comprehensive energy-usage performance data was available and transparent to the entire ecosystem – homeowners, borrowers, agents, appraisers and lenders – it would be reflected in appraised values, listing prices, sales prices and so on.

If data were available on the impact of such improvements as upgrades to heating, cooling and ventilation; insulation and air sealing; and renewable energy and smart home technology, a homeowner could feel more comfortable that their listing price accurately reflects the investments they’ve made to reduce energy consumption.

While multiple listing services (MLS) and other online marketplace platforms generally overlook energy-efficiency data today, having it readily available could help real estate agents and appraisers more accurately compare the cost of a home with a high energy-efficiency rating against one that lacks energy-efficient features.

Additionally, homebuyers could then better understand why a more energy-efficient home might have a higher listing price but a lower cost to own over time, given the potential utility cost savings.

Assessing Energy Performance

Through an energy audit, a homeowner can learn how much energy their home consumes. The certified home energy auditor who inspects the home provides a report that recommends the energy efficiency improvements that could be made.

The homeowner can provide the home energy audit report to an appraiser requested by their lender (or authorized third party). The home energy audit report will highlight any enhancements that were made and reveal how those upgrades have positively impacted the home’s operating costs and value. The appraiser can use that information to more accurately quantify the value of the home.

Financing Energy-Efficiency Improvements

If a homeowner wants to finance the energy-efficiency improvements recommended by an audit, or a homebuyer wants to consider financing improvements at the time of purchase, their lender can recommend a suitable mortgage product from Freddie Mac.

For example, GreenCHOICE Mortgage® can finance ENERGY STAR® energy-efficient products for emissions reduction and electrification improvements, such as all-electric heat pumps or induction cooktops. Health and safety improvements, like ventilation, radon remediation, asbestos, mold or lead abatement, can also be financed with GreenCHOICE.

With a CHOICERenovation® mortgage, a borrower can finance the cost of large renovations, such as repairing a home’s foundation, building an addition, installing a new roof or upgrading kitchen appliances.

These Freddie Mac offerings can be combined to maximize financing options for these and other types of improvements. Such upgrades can help make the home safer and healthier, lower utility costs, boost eligibility for tax credits and product rebates, contribute to the home’s resilience to climate-related events – and ultimately increase the home’s value.

Certifying to High Standards

A green building certification or rating is an authoritative confirmation that a home meets the highest standards for energy efficiency. Multiple rating programs are available that collect, document and share verified data about the energy use of homes.  

Two of the largest programs are the Residential Energy Services Network (RESNET®) Home Energy Rating System (HERS) Index, an industry standard for measuring a home’s energy efficiency recognized by the U.S, Department of Energy (DOE) and the Environmental Protection Agency (EPA); and ENERGY STAR, a public-private partnership administered by the EPA.

Additionally, the Home Energy ScoreTM (HES), developed by DOE and its national laboratories, published a 2022 study noting that places where homeowners were required to secure a HES before selling their homes saw a 0.5% premium for every 1-point increase in the HES, based on a 10-point scale.

Two other organizations that support homeowners in getting their homes energy rated are Pearl, a public benefit corporation, and Earth Advantage, a nonprofit organization.

As noted in Freddie Mac’s white paper, “Energy Efficiency: Value Added to Properties & Loan Performance,” certification brings real-world assurance. For example, the paper indicates that rated homes are sold for 2.7% more than comparable unrated homes on average; and that better-rated homes are sold for 3-5% more than lesser-rated homes.

A homeowner wanting to upgrade with energy-efficiency features, or the contractor making those upgrades, can reach out to a certifying organization to get certification. 

Appraising Green Improvements

Freddie Mac has engaged with the industry as part of the Uniform Mortgage Data Program® to develop the standardized Uniform Appraisal Dataset that will require appraisers to identify energy efficient features and also list any known building certifications and ratings completed on the home.

Additionally, the Appraisal Institute provides education on how to recognize the contributory value of energy-efficiency improvements and green building certifications and ratings in appraisals.

Despite these efforts, the lack of readily available data makes it difficult for appraisers to take energy improvements into consideration. But by sourcing information from green building certifications or audits, appraisers could more fully evaluate the value of energy-efficient improvements to make a better judgment on a home’s true value.

Benefiting the Mortgage Ecosystem

The more existing homes that are officially certified or energy rated, the more comprehensive the available data will be. Making the data broadly available can benefit the entire housing ecosystem:

  • A homeowner may benefit from the added value of green home features at the time of refinance or sale.
  • An appraiser can develop a more credible value opinion for a home by evaluating its energy-efficient features.
  • A lender can feel confident in trusting the accuracy of the information to appropriately consider it in the valuation of a home, while understanding their low-carbon transition risk exposure.
  • A real estate agent can ensure the home is properly marketed by highlighting energy-efficiency features in the property listing.
  • A borrower can use the data to know the energy performance of the homes they’re looking at, evaluate their purchase options with a better understanding of the operating costs and make the best purchase decision.
  • Freddie Mac can set standards and requirements based on the most comprehensive data.

Energy efficiency and decarbonization help to reduce climate impacts, lower costs, improve home safety and comfort and lower risks of undervaluation. Overall, efficiency updates to existing homes can lead to a more resilient, sustainable and healthier housing market.