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There is tremendous risk and reward to being a first mover. News that Tesla overtook Ford in market value is perhaps the most illustrative example of what’s possible when innovative technologies disrupt the market.
While not all companies are set to be the next Tesla, many are placing very calculated bets on the clean energy revolution, and racing quickly to offer products or services that will open up new markets and capture significant share in existing ones. One such race is occurring in “green real estate,” with the potential to change how we search for real estate, how real estate professionals market homes, and how we view the performance and value of our own properties.
More and more online real estate portals in the U.S. are rolling out home energy scores on property listings. For example Hotpads (a Zillow Group property, which, like others, is working with UtilityScore) and Estately (which recently announced a partnership with Clearly Energy) feature a home energy score. In December, we wrote about the launch of Energy realScores on realesate.com.au, which provides an instant snapshot of whole home energy performance across more than 80% of Australia’s home market. Most recently, RealEstate.com launched a home energy score with data from UtilityScore for all active for-sale listings.
Now, Redfin — the fastest-growing top-10 real estate website — has added a home energy score thanks to a partnership with Tendril. They hope the home energy scores will fill the growing satisfaction gap that exists among homeowners who cite that improved energy performance is their number-one unmet need.
Why bet on home energy scores?
Rocky Mountain Institute’s Residential Energy+ initiative has been closely tracking developments with real estate platforms, as we believe the increased transparency of home energy performance will have a tremendous ripple effect in driving both the supply of and demand for home energy performance improvements as a means to mitigate the carbon footprint of the residential buildings sector.
But climate is merely one reason that so many companies consider the introduction of energy scores as a low-risk, high-reward endeavor. Let’s look at three major industry trends:
Trend I: More and more customers are, and will be, demanding higher-performing homes.
U.S. homeowners spend on average $2,200 per year on energy bills and increasingly indicate demand for energy-efficient homes. Values beyond energy cost savings associated with home performance, such as improved comfort, health, and technology and connectivity, are becoming more and more recognized by today’s home buyers, especially millennials, who represent the largest growing U.S. home-buying demographic. The visibility of home energy performance through energy scores is well aligned with these customer trends, and can help savvy customers ensure that the value of their investment matches their expectations.
Trend 2: Real estate professionals are “seeing green” and increasingly turning to home energy performance as a way to connect with a new set of buyers.
Real estate professionals can embrace and profit from these market trends by making home energy performance a core component of the support they provide for buyers and sellers. According to the National Association of Realtors 2017 Sustainability Report, 56% of survey respondents find that clients are interested in sustainability, and 71% said that energy efficiency promotion in listings was very or somewhat valuable. However, only 43% of respondents indicated their region’s multiple listing service (MLS) has a green data field. More transparent home energy scores can fill this important gap and help real estate professionals embrace these market trends and take the initiative to make home energy performance central to their client support.
Trend 3: Energy scores can help connect the dots between motivation and financing
More and more financing options are available for homeowners — depending on their state or municipality. But without transparency into current or expected levels of home energy performance, it is difficult for homeowners and lenders alike to determine the level of risk undertaken when a loan is offered. According to RMI’s Finance the Future project, the increased transparency that performance data can provide can help scale the market for energy efficiency finance products.
A study published by the Institute for Market Transformation (IMT) and the University of North Carolina shows that home energy upgrades reduce default and collateral risk significantly. Homes that receive home energy upgrades saw reduced default rates of more than 30%. When financial markets respond to energy performance through mechanisms like an energy score, underwriters can consider the cash-flow risks associated with energy-hog homes, and perhaps better incentivize and price mortgages for energy-efficient homes versus high-energy-use homes.
What’s happening now vs. what’s next?
RMI’s new report, An MPG for Homes, presents a robust dive into the state of the energy performance transparency market today and the potential for the market to grow further. This will benefit homeowners, real estate professionals, lenders, technology providers, and the environment; will instill confidence among first movers that they are placing the right bets; and will motivate fast followers to adopt home energy scores before the market — and their customer base — leaves them behind.
© 2017 Rocky Mountain Institute. Published with permission. Originally posted on RMI Outlet.
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12 Comments
UtilityScore Score
I went to UtilityScore and set up an account on my home. However, the details they had me enter had nothing that could reflect the improvements I have already made on this home (new windows, improved insulation, and upgraded HVAC). Duke Energy tells me each month that my house is as efficient as "energy efficient" houses of my size, which I think is pretty good for a 1967 ranch. But, I am not sure what advantage a UtilityScore on my house offers me when I am ready to sell, if it does not reflect this.
I have emailed UtilityScore and will post any answer I get, but I don't see any advantage of this to me at this time. What am I missing?
Response to Norman Bunn
Norman,
We've discussed these nationwide databases on GBA before. As far as I can tell, they are all absolutely worthless. It's a type of fraud or scam.
I entered my address. What did I learn? I learned that my current "electric bill without solar" is $88 per month. (Not true; my house is not connected to the electricity grid.) I learned that the average house in my neighborhood has a Utility Score of 62, while my house has a Utility Score of 71.
This is worse than gibberish. This is fraud.
Score Accuracy
Hello Norman and Martin,
The concerns around accuracy of these estimates are a common questions. I'd like to share with you what we are doing to address this issue, but also why it's a red herring to think that this makes the estimates useless.
The first thing to recognize is that these estimates represent a new, emerging market. As such, we don't expect them to be as good as they will get over time. We intend to push this industry to keep improving. For one, we've recently release a blog called "MPG for Homes - the Quest for the Best" which is basically an assessment of the current market as it compares to best practices: https://rmi.org/news/mpg-homes-quest-best/
We are also about to conduct an accuracy assessment of these estimates so that companies or organizations that want to use these estimates can understand the range of how rough or accurate the estimates are. Different uses of this information will have different thresholds for how accurate is accurate-enough. This new study will help clarify this issue so users can make their own choices on whether these estimates are worthwhile for their purposes. We hope to release that report before the end of the calendar year.
But finally, I'll submit that accuracy is not the important factor at this time -- and that by getting these estimates out there we can expect more homes to then hire third party energy assessors for more accurate information. The key thing is to get energy to actually be part of the conversation. These estimates offer a chance to bring energy into the conversation and make sure that people are talking about it as part of the total cost of homeownership. They haven't been. We expect that this will make energy part of more home buying conversations.
Currently people know that a Zillow estimate (for example) is not completely accurate, but it becomes a starting point for people to think about a home's value. Then, when they are ready to buy or sell, they work with professionals to get an accurate valuation. The same can be true for energy information. The public knows the difference between an estimate and actual data -- but they have to be talking about it, asking for that information, and integrating it into the conversation. That's what these estimates accomplish. When no information is available for over 98% of the market, then the conversation doesn't happen. This new development can jump-start that conversation.
Reply to Jacob. Estimates not based on any data are useless.
When an estimate of a home's energy efficiency is based on it's location, or age or size, the information doesn't give the owner anything useful. It really isn't an estimate.
You mention zillow. If someone is thinking of buying a house, Zillow lets a person see what's available and maybe provides some very gross price information. But an energy score not based on information specific to the house doesn't provide any actionable information.
The response from Jacob
"I'll submit that accuracy is not the important factor at this time -- and that by getting these estimates out there we can expect more homes to then hire third party energy assessors for more accurate information. The key thing is to get energy to actually be part of the conversation."
This just leaves me speechless.
Response to Jacob Corvidae (Comment #3)
Jacob,
You call the information on this web site "estimates." So how was the "estimate" of my energy bill calculated?
Apparently, the only data collected was this: an airplane flew over my neighborhood and took a photo. Google published the photo. And this web site (myutilityscore.com) used the photo to estimate my energy bill.
Did the web site know the area of my house? Not really, because you can't tell from the photo whether the ell on the north side is conditioned space or an attached woodshed.
Did the web site know what fuel I use? Clearly not, since its guesses are completely wrong -- even though public databases exist to show whether electricity or natural gas is available at my address.
Did the web site know my insulation levels, the airtightness of my house, or what type of windows are installed? Clearly not.
The site provides an authoritative-looking bar graph, labeled "Current bill" (see below), reporting my electricity bill. (I don't have an electricity bill.) Does the web site tell me this is an estimate? No. (That's probably just as well, because it isn't an estimate. It's fraudulent.)
The web sites making these claims are hoping to profit from visitors who are fooled by the claims. The claims are false. The profit that the web sites seek are based on false claims. Attorneys general, take note.
[GBA readers may remember that this topic was discussed at length in an April 2017 Q&A thread. Here is a link to that thread: "Utility Score" is now showing up in Colorado MLS searches.]
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Second response to Jacob Corvidae (Comment #3)
Jacob,
There is more gibberish to be found on the myutilityscore.com site.
I just clicked another tab -- the one about windows. What did I learn? I learned that upgrading the windows on my house will result in annual energy savings of $310 to $500 (see screen shot below).
As Michael Blasnik's research has shown, "the amount of energy saved by replacing all of the windows in a home is generally on the order of 1% to 4% of the heating energy usage.” (For more information on this issue, see What Should I Do With My Old Windows?)
So the savings touted on the myutilityscore web site can only be true if my current annual heating energy bill is in the range of $7,750 (the low estimate) to $50,000 (the high estimate). For the record, it isn't.
This gibberish leaves me stuttering, especially since many of my windows are triple-glazed windows with fiberglass frames. How am I going to save money by swapping out my windows?
To summarize, then:
1. The site is wrong when it tells me that I can save money by installing new windows. My house doesn't need new windows.
2. Even if all of my windows were old and in need of replacement, my savings would be about 1/10 the savings estimated by the web site. This is not an ordinary error; this is an order-of-magnitude error.
When forced by circumstances to come up with an estimate, engineers often perform a bracketing exercise. Using the best available information, they'll state: "The answer is unlikely to be less than x, or more than 10x." The purpose of this type of bracketing exercise is to come up with an answer that is accurate within an order of magnitude. Myutilityscore.com failed even this test for its bracketing exercise -- the order-of-magnitude test.
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Compost theory
The operating theory here seems to be that if you pile up a big enough heap o' B.S. and let it sit long enough maybe it'll eventually becomes something useful(?).
Dimwitted apps based on alternate facts and WAGs seems to be popular (maybe even entertaining to some), but it's really a form of disinformation.
In #3 Jacob Cordivae writes:
"We are also about to conduct an accuracy assessment of these estimates so that companies or organizations that want to use these estimates can understand the range of how rough or accurate the estimates are. Different uses of this information will have different thresholds for how accurate is accurate-enough. "
So, fill in with some random boilerplate, then maybe start at study to see if the boilerplate (against all odds) sufficiently resembles some reality that might be useful to somebody with fairly low standards regarding what's factual and what isn't?
By the time you're up to your neck in it, perhaps it's already too late to start shoveling.
Dana
Aren't there really only two possibilities?
They don't believe any of this stuff and just want their strart-up to make money. In other words, it's all deliberately disingenuous.
The really do believe it, which means they have nothing useful to add the conversation.
I can't decide which is worse.
An accuracy assessement?
Myutilityscore.com is estimating the natural gas bill for houses that don't have access to natural gas, and the site is also estimating the electricity bills for houses that don't have access to electricity.
How does one assess the accuracy of these estimates? If a student estimates that the blood pressure of a rock is 130 over 90, how accurate is that blood pressure estimate?
Oh the possibilities... @ Malcolm
They could really actually totally believe it, and want their start-up to make a ton o' money for the truly groundbreaking, industry-transforming innovation they have provided.
Or is that just the "...nothing useful to add..." option using different words?
Martin: The blood pressure of that rock is high enough to warrant monitoring (or even meds!), which could be valuable information to sell to public health officials, or a Visiting Nurses Association, and see if insurance will cover the services. This could be a MAJOR innovation you're on to! Let's develop an app that estimates blood pressure of rocks based on ZIP code, linked to health oriented websites! Then we could may be fund a study to hire a VNA to spot-check the BP of a few randomly chosen rocks in various ZIP codes to see how accurate the estimates are.
Like Tendril, Utility Score is hoping that large numbers of folks alarmed at the inaccuracy to click in on the "Claim Your Home" tab to fill in some real data to improve your score. The notion that people who AREN'T selling their home are going to take the time to do that is a bit dubious. For those who ARE selling their home there is a clear incentive to skew the result. If enough homes in an area report and skew the result with overly optimistic claims, those who don't enter data or enter only accurate data are penalized. Without third party verification it's just more garbage-in = garbage-out, same crap, different package. Unless privacy protection laws change there isn't any good way to get a handle on it without both homeowner and utility provider cooperation, or third party professionals with some credentials they intend to keep meaningful.
Short of more direct measurement a "street view" drive by or flyover using infra-red imaging can potentially infer quite a bit if done right, but still might run into legal / privacy obstacles. (I'm sure more than one illegal indoor cannabis plantation has been discovered this way, but getting a judge to sign-off on the warrant after the fact may be tough without a-priori probable cause to perform the infra-red search.)
http://blog.concord.org/infrared-street-view-won-department-of-energys-jump-competition
At least with an infra-red scan there is real address-specific energy emittance data to work with, way better than a WAG.
Here's the basic model
Many profitable tech companies use the following model:
1. Pretend to provide a service. Hope that "customers" show up.
2. Gather data on your "customers." If possible, lure the "customers" into a trap that forces the customers to provide the desired personal data.
3. Sell the personal data you have gathered on your "customers" -- in fact, they are dupes -- to your real customers: marketers eager to buy personal data.
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