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Folded into the Homeowner Managing Energy Savings program (HOMES) rebate program within the Inflation Reduction Act (IRA) of 2022 is a provision that many people may overlook pertaining to certifications. Broken into two parts below for clarity, it stipulates:
To receive rebates through the HOMES program, homeowners must also receive third-party certification that documents their home performance improvements.
This documentation must enable homeowners to recapture some or all of the value of those investments at time of sale.
Since these are requirements, they suggest a number of important takeaways and implications. For example, as the number of rebates issued increases — and therefore, the number of certifications — will we see a corresponding uptick in the visibility of high-performing homes in the market? That seems like a reasonable expectation, as does the idea that concerns around energy efficiency are going to be increasingly central to real estate transactions generally. And both of these things, if true, point to market transformation.
With that in mind, it’s probably time to dial in on the HOMES Rebate Program’s certification provision — from relevant background information to in-depth analysis to higher-level forecasts and projections around home certification — before ultimately unpacking what this provision means for homeowners, real estate professionals, and broad-based market transformation down the line.
Touted as the single largest investment in climate and energy in American history, the IRA ushers in a wealth of new, extended, and expanded opportunities for U.S. homeowners to implement value-adding home performance improvements at lower costs through a mix of tax incentives, grants, and loan guarantees.
Most directly relevant to households, however, are incentives that come in these two forms:
Rebates: Point-of-sale (PoS) price reductions — or what the Department of Energy calls an “instant discount” — for energy-saving home performance improvements, with eligibility contingent on your annual earnings vis-à-vis the “median household income in your area” (a slightly nebulous concept, since it differs from state to state, but you can use the above link to find out roughly where you stand)
Tax credits: A variety of federal income tax credits for energy-efficiency home improvements, some of which can be (and some of which must be) combined, that will be available through 2032
Connecting these incentives to U.S. homeowners are two key initiatives at the IRA’s core: the High-Efficiency Electric Home Rebate Act (HEEHRA) and the Homeowner Managing Energy Savings program (HOMES).
HOMES Program: HOMES is an integral component of the IRA, which is touted as the largest-ever investment in climate and energy in American history. This program opens up a multitude of opportunities for U.S. homeowners to implement value-adding home performance improvements at significantly reduced costs. It achieves this through an innovative mix of tax incentives, grants, and loan guarantees, all designed to make energy-efficient upgrades more accessible and affordable for households across the nation.
HEEHRA Program: At the heart of the IRA lies the High-Efficiency Electric Home Rebate Act (HEEHRA), a groundbreaking initiative set to revolutionize the way U.S. homeowners approach energy-saving enhancements. HEEHRA offers homeowners point-of-sale (PoS) price reductions, often referred to by the Department of Energy as "instant discounts," specifically tailored for energy-saving home performance improvements. Eligibility for these rebates is contingent on annual earnings relative to the median household income in a specific area. This provision ensures that the benefits of HEEHRA are directed toward households that stand to gain the most from these cost-saving opportunities. With HEEHRA, homeowners have a unique chance to make substantial strides in energy efficiency, thereby contributing to the broader goal of reducing carbon emissions and promoting sustainability.
It's worth noting that a distinctive feature of the HOMES rebate program is its inclusion of a third-party certification requirement. This essential provision ensures that the energy-saving upgrades are rigorously evaluated and meet established standards for efficiency.
While HEERA offers valuable incentives, considering the success of the certification requirement in HOMES, there's an opportunity to explore the benefits of introducing a similar provision to further enhance the impact of HEERA on promoting energy-efficient home improvements
Related Post: How Certification Drives Market Change
In what ways are the HEERA and HOMES initiatives similar? Where are they the most different? A few things to notice.
In many ways, the HEERA and HOMES initiatives share a common goal. HEERA's $4.5 billion allocation is dedicated to assisting low- and moderate-income residents in constructing energy-efficient homes, thereby lowering monthly utilities and reducing carbon footprints. This objective is closely aligned with HOMES, albeit with a more pronounced emphasis on addressing disparities in health, housing, and the environment for specific economic strata.
There are variations in the rebate amounts offered by each program. HEERA provides eligible participants with rebates of up to $5,000 for a single measure and over $14,000 in combined rebates, offering substantial financial relief for households seeking to invest in energy-efficient upgrades. Rebates can also be combined, so an eligible household may qualify for more than $14,000.
Rebates available through HOMES are tied to two distinct energy-efficiency pathways: "modeled-performance rebates" projecting future efficiency gains and "measured-performance rebates" based on real-world demonstrable results, as officially termed.
Now that we have a comprehensive understanding of both initiatives, let's delve into the unique certification provision integral to the HOMES rebate program. We'll explore its implications and its role in driving market transformation.
What’s the big deal about a provision mandating that third-parties not only intervene but facilitate the data collection and documentation that links energy-efficiency home improvements to rebates — and home value in turn? To a large degree, the answer is right there on the surface of the question.
For starters, it represents a gigantic leap forward in ensuring that cost-saving, high-impact home performance upgrades get the visibility they deserve.
This has long been something of a gray area for several reasons. Previously, for one, appraisers may have assessed high-performing homes without the necessary training or expertise to understand this unique market segment, not to mention too little awareness of shifting demands and expectations around sustainability among prospective homebuyers, with lower-than-expected property valuations resulting from it. In fact, this is precisely why Fannie Mae, Freddie Mac, and FHA require lenders to select appraisers who have competency and knowledge specific to the type of property being evaluated.
Issues around data — specifically, access to and visibility — have been another culprit. When data pertaining to sustainable home features gets left off of or improperly entered into MLSs (“multiple listing services” — the databases that real estate professionals use to document, manage, and facilitate transactions), for instance, these features are at risk of becoming invisible to appraisers, almost as if those investments weren’t made in the first place.
The HOMES rebate program may also be tantamount to a framework for market transformation. Indeed, even the very act of requiring advanced state-level planning around the implementation of HOMES’ new certification provision, by effectively placing the onus on individual states for the development of Market Transformation Plans. So while helping to ensure that the certifications are more consistently and appropriately factored into market valuations for homes that demonstrate energy-efficiency upgrades and other high-performing features is undeniably key, it may also be just the tip of the iceberg.
Related Post: Building to Last: Painless, Inexpensive Market Transformation and the Inflation Reduction Act Residential Rebate Programs
How all of this gains traction and takes shape, needless to say, remains to be seen. But it stands to reason that as visibility into the link between home value, performance upgrades (together with other so-called “special features”), and certification increases, so too will awareness of the roughly 5% resale premium currently enjoyed by Pearl Certified homes. All of this in turn should open up new opportunities for professionals in the residential contracting and real estate spaces.
But make no mistake about the magnitude of the tectonic shift that’s already underway. Indeed, the certification provision in the HOMES rebate program signals that we may be on the cusp of a watershed moment — one which will likely entail heightened awareness of the value of home performance improvements along with their more widespread adoption by homeowners at large and simultaneously bring certification into the spotlight as never before. And, taking into account the dramatic scale of changes like those, to go one step further and propose that all of this will be part and parcel of broad-based market transformation sounds hardly radical at all.
But it’s only because of third-party organizations like Pearl, which can bridge the gap with both the real estate and appraisal industries to ensure that rebates projects are actually incorporated into the value of a home.
For now, if you’re interested in learning how Pearl works with public-sector entities like state energy offices, visit our Pearl for Public-Private Partnerships homepage. Meanwhile, to learn more about IRA incentives, home performance improvements, and the market for sustainable homes in general, bookmark Pearl’s blog, where you can find actionable insights, guidance, and resources from recognized real estate, home performance, and energy-efficiency experts.
Pearl is transforming the housing market by scoring, verifying, and certifying the performance of homes across the country.