Mortgage lenders have long known that energy costs are an important factor in home affordability. Back in the early 80s, the concept used to be known as PITI+E, i.e. Principal, Interest, Taxes and Insurance plus Energy costs.
High-energy costs easily undermined home affordability then, and do now.
The 80s’ answer was the National Shelter Industry Energy Advisory Council, which explored ways to measure the dollars saved by home energy-saving features, and to translate those dollars not spent on energy into a credit that qualified buyers for a more expensive but more energy-efficient home.
The first iteration was the nonprofit Energy Rated Homes of America. Fannie Mae, Freddie Mac, the U.S. Department of Housing and Urban Development (HUD), Federal Housing Administration (FHA) and the Veterans Administration (VA) all adopted energy mortgage programs that qualified borrowers for larger loans based on lower energy costs. However, lenders seemed either unaware of these programs or were overwhelmed by complicated application processes. Moreover, there were no uniform standards with which to measure energy savings.
In April 1995, more than a decade after these first attempts, mortgage industry officials, the National Association of State Energy Officials and Energy Rated Homes of America founded the Residential Energy Services Network (RESNET) to develop not only national standards for home energy ratings, but to also create a market for the energy rating systems and energy mortgages. After all, what good were standards if no one used them? In 2002, Energy Rated Homes of America and RESNET merged.
Today, RESNET’s Home Energy Rating System (HERS) is a powerful third-party endorsement of a new home’s promised energy savings. A certified Home Energy rater scientifically assesses a home, and assigns it a HERS score. Because other energy programs often require a certain HERS rating, David Kaiserman, president of Lennar Ventures, calls HERS a predicate for other programs. All of the six big builders interviewed compared HERS to MPG on vehicles. Just as in MPG, the lower the HERS, the better.
The U.S. Department of Energy (DOE) reports that a typical resale home scores 130 on the HERS Index, while a typical new home might rate 100. A home with a HERS Index Score of 70 is 30%more energy efficient than that standard new home, and 60% more efficient than a typical resale.
“A home is one of the largest and most important purchases a family can make but, until recently, buyers have had little information about what their costs to own the home would be long term,” says KB Home Director of Corporate Communications Craig LeMessurier. “When we buy a new car, we know how much mileage we can expect to get. Homebuyers should know the expected performance and monthly energy costs of a home.”
Amber Cates, David Weekley Homes sales coach says, “As ‘green’ became a more mainstream term that never seemed to have clear qualifications, David Weekley Homes felt we needed to identify specific components that we were incorporating into our homes that would help differentiate our homes from our competitors. ...That led us to energy and how it relates to green. If 80% of all environmental damage is related to green, we decided to focus specifically on energy.”
CR Herro, Meritage Homes’ vice president of environmental affairs, lauds the HERS program’s “rigor.”
PulteGroup believes HERS “is attractive to homebuyers who are comparing the energy efficiency of other homes on the market. This is especially so in more extreme climates. Heating and cooling costs can be a significant portion of total cost of ownership,” says Jim VanKirk, PulteGroup vice president of marketing.
Larry Sekely, vice president of national accounts for M/I Homes, says the company does cutaways inside models to show the otherwise hidden construction features that contribute to low HERS scores.
HERS’ builders are employing this dollars-and-sense approach as a strong marketing tool. New homebuyers can use ratings to anticipate new-home energy costs, and thus the real monthly cost of homeownership.
Meritage Homes Achieves Typical HERS Index of 61
KB Home Was First with HERS
Pulte Group Supports and Promotes Easy-to-Understand HERS
Lennar's "Everything Included" Includes HERS
David Weekley Homes Constantly Improves its HERS
M/I Homes Finds More Satisfied Customers and Fewer HVAC Service Calls