Certification or Label?: How States Can Meet IRA HOMES Program Requirements

The terms "home certification" and "energy label" may appear interchangeable. Understanding their nuances, however, can significantly impact how homeowners engage with energy-efficient upgrades and how those upgrades are evaluated within the real estate market.

While it’s true that both labeling and certifications can help transform the housing market, only one can ensure your program meets the third-party certification requirement of the IRA Home Efficiency (HOMES) statute. Let's delve into the distinction between the two.

Certification and Labeling: How They’re Different

Home energy labels like the Department of Energy’s (DOE) Home Energy Score (HES) or Residential Energy Services Network's Home Energy Rating System (HERS) Index provide homeowners, homebuyers and renters with information about a home’s energy consumption. This type of label is akin to a car’s miles-per-gallon (MPG) rating. Both labels estimate a home’s energy total consumption, and show how the home compares to other homes on a standardized scale: HES uses a scale of 1-10, and HERS a scale than can range from 130 or more to less than zero. This information is valuable if you want to know whether you home is efficient or whether improvements would be beneficial. This information can play an important role in a real estate sales and valuation context by enabling the real estate market to compare the cost of operating different homes.

Suppose a home energy label is akin to an MPG rating. In that case, a certification is more akin to the "CARFAX" report, documenting the history of an expensive asset – in this case of a home, not a car. Specifically, the certification documents the home’s energy and other high-performance features, — while also capturing performance metrics and connecting the dots between those two elements and the “home’s” current market value.

A well-designed certification also translates the home’s features into benefits, helping consumers understand how these features impact their quality of life and providing tools for real estate agents to showcase the home’s high-performing features, and for appraisers to understand how an efficient home differs from its neighbors. This ability to engage the real estate market is critical to driving demand for high-performing homes, which in turn is foundational to creating market transformation.

Pearl Certification leverages the Appraisal Institute’s Residential Green and Energy Efficient Addendum to capture a home’s energy-efficient assets and communicate the value of those assets for appraisers during the valuation process.

The Inflation Reduction Act’s HOMES program specifically requires a certification as a condition of issuing the rebate. The statute requires a certification that documents the home’s high-performing features in a way that supports higher valuation. However, the statute also requires an estimate of the home’s energy costs, which implies that the information from the label should be embedded in the certification.

How Do Certification and Labeling Work Together?

The answer is: seamlessly. The certification provides the home’s modeled energy consumption; the certification lists and describes the home’s features in ways that engage home buyers and the real estate industry. Together, the two meet the IRA’s statutory requirement, and are a powerful driver for market transformation.

Pearl’s Offering

Pearl’s certification documents the energy-efficient features of a home and translates into increased home value, incentivizing homeowners to invest in energy-efficient upgrades over time. In addition to the Appraisal Institute Addendum, Pearl Certification equips real estate agents with education and marketing tools that help them effectively communicate the value of each certified home. Pearl also provides important support in the form of marketing resources, Multiple Listing Service (MLS) checklists, and other tools to support the real estate transaction and ensure the improvements made are included in the valuation of the home.

Pearl can seamlessly incorporate the Home Energy Score into its certification. Pearl Certification is a DOE Home Energy Score partner and DOE-recognized remote QA Service Provider. This gives state energy offices the flexibility to leverage the benefits of both the HES and the rich context provided by the certification. Homeowners benefit from having both the MPG and the Carfax report at their fingertips.

Pearl Certification bridges the gaps between energy usage, energy upgrades, and home value. It includes incentivizing elements beyond energy savings — comfort, health, and resilience to name a few — that resonate with the market. This, in turn, drives demand for energy-efficient home improvements at scale, whether or not rebates exist.

When choosing a certification partner under HOMES, it’s absolutely critical that states understand the distinction between a home energy label and a certification. By selecting a certification that meets the HOMES requirements, states can ensure full compliance with program requirements while simultaneously catalyzing market transformation by incentivizing energy-efficiency upgrades at scale.