Utility bills are a major cost of homeownership, but many homebuyers don’t know a home’s energy use before deciding to buy. A new ACEEE paper explores how home energy ratings can inform buyers and reduce energy costs.
People purchasing a home usually have little information on one of its largest costs: its annual energy bills. Energy costs are estimated to be the second-largest cost of owning a home, ahead of taxes and insurance and behind only mortgage payments. But homebuyers can get stuck with a costly “energy hog” without knowing it.
Read the White Paper Trying to identify high-efficiency homes can be difficult because many energy efficiency features, such as insulation levels, are hidden from the real estate listing and overall transaction. To address this problem, a growing number of cities are requiring that home sellers obtain and post a home energy rating when they put their home on the market. Many of these cities use the U.S. Department of Energy’s Home Energy Score, a program that rates a home’s energy efficiency on a 10-point scale and provides recommendations for improving a home’s score. Today, ACEEE released a new report that reviews rating programs and evaluation results and makes recommendations to states and municipalities interested in adopting these policies.
Mandatory rating programs result in a higher number of home retrofits than would happen without ratings, and ratings also increase the sales price of efficient homes by several thousand dollars because buyers recognize the benefits of more efficient homes. In Portland, Oregon, a recent analysis found that homes scored for energy use in 2023 were 10 times more likely to receive energy efficiency upgrades. Voluntary rating programs have low participation rates and impact, in part because under voluntary programs, inefficient homes are infrequently rated. Higher-rated homes also tend to have lower mortgage default rates, making them more attractive to borrowers and lenders.
The new ACEEE paper includes case studies on three of the most extensive programs—those in Portland, Oregon; Minneapolis, Minnesota; and Berkeley, California. Other towns near these three cities have adopted similar policies, as have Austin, Texas, and Ann Arbor, Michigan.
ACEEE’s paper recommends that the home energy rating requirements be disclosed when a home is listed for sale. Berkeley, California’s law initially required the rating to be disclosed at closing, when the sale is nearly final and it is too late to influence the home purchase decision. So the city amended its law to require the disclosure when a home is listed, a time that potential buyers are actively comparing homes and can factor energy costs into their decision-making. Minneapolis and Portland also require the information to be shared in home listings.
The paper also calls for the policies to use simple, easy-to-understand metrics and refer sellers and buyers of homes to state, local, and utility programs that incentivize home energy upgrades. Federal tax credits are also available for energy efficiency upgrades, but homeowners will need to use the credits before they expire at the end of 2025. To bring costs savings from energy efficiency to households with the greatest need, free energy ratings should be provided for low-income homeowners. Additionally, local community groups should be consulted on how to design the requirements to meet the needs of low- and moderate-income households.
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Homes and Multifamily Buildings Energy Efficiency Strategies and Upgrades Local and Community InitiativesAuthors
