Editor’s note: Please welcome Ken Harney, a nationally syndicated real estate columnist and author of two books on real estate and mortgage finance, to Inman News. He will be writing a unique real estate column for Inman News that will be featured at www.inman.com twice a month.
When Shaun Donovan first mentioned the idea to me shortly after taking over as Obama’s housing secretary, it sounded completely commonsense and reasonable.
"When you buy a car," he said, leaning across the table for emphasis, "you know very clearly what the energy efficiency of the vehicle is because there’s a number on the window. It says, ‘Here’s the gas mileage.’ But we don’t know that" when we buy a house, even though it’s a much larger expenditure.
Most houses come with no stickers, no ratings and no disclosures about how big a fuel guzzler the property is, and how that might compare with other houses on a rating scale.
Donovan said he and Secretary of Energy Steven Chu were already working on plans to create what he called "a simple scoring system for housing" that could be reduced to grade levels or numerical scales — say one to 100 or A to F, like back in high school — that would be absolutely clear, authoritative and available to anybody considering buying a house.
Well, that was 21 months ago, and now the Obama administration is getting close to delivering on some form of energy scoring program for houses. As part of a plan outlined by Vice President Joe Biden in November, the government will shortly begin pilot tests of energy-rating disclosures for homes in 10 real estate markets around the country.
Should we be cheering the administration’s effort or watching what’s going on very carefully? Should anyone be concerned about a little score? Maybe — but it all depends on how it’s done. For example, I cringe at the thought of having a label or rating stuck on my 100-year-old, drafty house in Maryland, just over the line from Washington, D.C.
Thermal imaging of what my house looks like on a cold January day would probably be psychedelic — all lit up in oranges, reds and yellows around doors and windows that have been in place since 1910 and a roof that was last redone and insulated way back in 1986 — at least the sections we could get to.
There had been no insulation whatsoever for decades before. And full disclosure: We did put in two energy-efficient windows this past year and claimed a modest federal energy tax credit. Not a stellar performance, I admit, but all that good stuff costs a lot of money, if you’ve checked out the prices of new energy-efficient windows and doors lately.
Now here’s where things get a little complicated: If my wife and I decided to sell our house, I would have no objection to potential buyers doing their own energy audits and adjusting their offers, accordingly.
But I would have a serious problem if the federal government required me to provide all potential buyers a score showing how our house ranks on some rating scale the Energy Department devised.
Home sellers in some European countries already are required to do precisely this. In France, for example, not only must sellers provide their energy-consumption rating scores to any interested purchasers, but as of Jan. 1 they have to include their ratings in all advertisements, whether online, in print or at the real estate agent’s office.
The French energy-scoring scale runs from "A" (most efficient) to "G" (least) and is based on a compulsory "diagnostic" evaluation by an energy auditor.
The French national federation of estate agents (FNAIM) — a trade group like the National Association of Realtors — recently estimated that more than half of all houses in France have rankings of "E" or worse.
Guess what happens when you score an E or lower? Realty agents in France say it often depresses selling prices by 10 to 15 percent. Given what’s under way across the Atlantic, it’s not surprising that NAR is keeping a close and cautious eye on the Obama administration’s forthcoming scoring programs.
Bill Armstrong, NAR’s treasurer and a real estate broker active in energy conservation efforts in northern Maryland, is currently developing an office building near Frederick, Md., that he expects to attain a LEED Platinum rating (the highest rating possible on the U.S. Green Building’s Leadership in Energy and Environmental Design scale) — has reservations about energy scores for homes.
He told me recently: "Look, we are totally sympathetic with (the administration’s) goals" in home energy scoring, "but we’re concerned about the impact on people living in older houses and those who simply can’t afford to do energy improvements at the moment.
"We’re worried that many houses might be stigmatized" and made tougher to sell, he said, or be devalued — if energy scoring is required or even becomes part of the standard selling process.
The administration has assured NAR that any scoring will be voluntary, said Armstrong, but "we’re going to monitor this very carefully" in 2011 — especially keeping an eye on how the pilot programs are conducted.
That’s probably a smart idea.