December 12th, 2017
Investments in high-efficiency heating and air conditioning equipment, insulation, and other energy-efficient home features have historically been justified and promoted based on the investment payback to the homeowner. The payback period is the number of years needed to fully recover energy efficiency investments through reduced fuel costs. More recently, the U.S. Environmental ProtectionAgency initiated a marketing program called “ENERGY STAR Homes.” This effort teaches that energy-efficient homes produce immediate positive cash flow for home buyers because the reduction in monthly fuel bills more than offsets the higher monthly mortgage payment needed to finance such investments. Some home buyers, however, still hesitate to invest in energy efficiency because they are uncertain that they would stay in their homes long enough to recover their investment through lower fuel bills and that they could recover an investment in energy efficiency when they sell their homes. Standard underwriting criteria for home mortgages can also increase the down payment requirements or mortgage insurance costs on these homes because energy efficiency investments raise the upfront price of a new home. Underwriting criteria may even prevent home buyers from qualifying for mortgages if the appraised value of the home does not fully reflect the value of energy efficiency investments. Home appraisals may not always reflect the cost of energy efficiency investments because research has never clearly demonstrated or quantified the relationship between energy efficiency and market value.