The new Austin Energy Audit ordinance is in play now, and we’re already starting to see it affect some deals. The official start date of the ordinance is June 1, 2009, but that means any home subject to the ordinance that is closing on or after June 1 will have to comply.
Covered homes must be 1) ten years old or older, 2) located in the city of Austin city limits, and 3) be a utility customer of Austin Energy for water and/or electricty service. If your 10+ year old home is located in Austin but you get your electricity from PEC and don’t get water from Austin Energy, your home is not subject to the ordinance. If your home is located in the Austin ETJ, is is not included. Condos are not subject to the ordinance at all, but townhouses are. Homes that have received over $500 in Austin Energy green energy rebates, or completed any 3 improvements under the rebate program, are exempt for 10 years and not required to have an audit.
There are a lot of additional details we could cover, and the links to the Austin Energy website are below if you’d like to know more, but what I want to write about now is how ordinance this will affect actual real estate transactions. Sylvia and I currently have homes under contract and listed that are subject to this new ordinance.
Example #1. Our buyer wrote an offer on a house covered by the ordinance. Prior to the offer being executed and signed, I asked Sylvia if we had received an Energy Audit along with the Seller’s disclosure. She said no, we hadn’t. After discussing it, we decided not to ask for it until the contract was signed by the seller, as we didn’t want to introduce a new variable into the negotiations. Once we had the signed deal, we requested the other agent provide us with the Energy Audit prior to the end of the option period.
The other agent at first said that it wasn’t June 1st yet, so the ordinance wasn’t in effect. We had to explain that the property will close after June 1, thus the Audit will be required. The agent said he needed to look into that. He later called back, still confused, and said that since the Effective Date of the contract was before June 1, that it was not required. Again, Sylvia had to explain that the closing date is what controls whether the audit is required (more specifically, it’s the deed recording date, which would obviously be on or after after the close date anyway).
We’ve cleared the option period after negotiating repairs, and still don’t have the Audit. The buyer is moving forward nonetheless, mainly because the audit isn’t actually a required condition of the contract. More on that later.
We don’t think these Energy Audits will be deal killers, but when we represent buyers, we still want to see it during the inspection period because we do think under certain circumstances the information in the audit could affect the value of the home.
Example #2: On our other buyer deal, the agent provided the Audit without being asked. I’ll post a copy of a blank audit at the bottom of this article, but here is a sample of what that Audit said, for a 1980s home:
1) Windows and Shading: Solar screens recommended? No
2) Attic Insulation: Add R-22 of insulation to bring the overall R-Value to 38. (to the attic)
3) Heating Cooling and Air Duct Systems: Perform duct seal? No. – Repair/Replace/Insulate Ducts? No.
4) Air infiltration: Weather strip exterior doors? No. – Caulk plumbing penetrations? No. – Seal Attic Hatch? Yes.
Pretty basic stuff actually. At the end of the audit there is a list of other recommended actions, such as installing low-flow toilets, and the report indicates for all suggestions whether or not a rebate program is available.
My initial impression is that these audits are not going to cause a lot of trouble once we get a few months into it and some standards of practice among Realtors have time to emerge.
Example #3: On our listing that will require the Energy Audit, we’re not having it done because the house is also for rent and if it rents the seller would not be required to provide an energy audit. But upon receiving a sales offer, my first call would be to my inspector to find out when he’d be able to go do the audit, so we’ll know that we could provide it during the option period.
The city of Austin and some auditors have been to our Keller Williams office twice in the past few weeks to answer questions and talk about the audits with agents. There remains a lot of confusions. I must say I’m a bit surprised at how angry some agents seem, and how worried they are that this is somehow going to be a big hassle. It’s not.
One question was “what if my seller can’t afford to pay for an Energy Audit”?
I’d say, write the deal up so the buyer pays a $300 Option Fee and use the money to pay for the energy audit. Audits will cost from $275 to $350, plus extra for additional A/Cs or homes bigger than 2,000 sqft. Each auditor has their own pricing, but that seems to be the pricing range.
Another question was “how does this Austin Energy Audit program benefit my seller”?
Well, it wasn’t written to benefit your seller. It’s a dumb question. It was written so hopefully Austin can avoid building another coal fired power plant in the next 30 years by reducing consumption of wasted energy in homes. It benefits the community, of which your seller is a part.
Another question: How do we explain what the Audit means to our buyers”?
Well, it’s fairly self explanatory. The audit provides the buyer with a list of suggestions, which if followed, will provide a cash return on the investment that is estimated to be around 20% to 30%. Also, Austin Energy has the best and most generous rebate program in the entire U.S., so the cost of those upgrades is subsidized by tax dollars.
There is no better place or better time for a smart buyer to make energy efficiency improvements to a home than right now, right here in Austin TX. And you get a free report handed to you explaining it all when you buy a house. And if it’s a first time buyer, you get the $8,000 tax credit to boot. What is there to explain? Go buy a house!!
Back to sellers, I think what I’ll be doing, and most agents I’ve talked to, is advising sellers to go ahead and get the audit when we list the home, and while we have our inspector there, go ahead and get a pre-inspection as well. Pre-inspections are not widely used in the Austin real estate market, but they are really good to have so that the inspection and repair negotiation process is more predictable. Most of the inspectors who also do audits, as two of our inspectors do, will give a discount for doing both the pre-inspection and the energy audit up front.
For seller who don’t want to do it that way, we’ll let them know that we recommend having the audit done during the option period once they receive an offer. A seller can technically and legally refuse to provide the energy audit until closing, because it’s actually not part of the sales contract or the sales process, but I don’t think buyers will receive that well or that it will become a common practice. A buyer would wonder why the seller is holding back and it might create disharmony with the deal.
But from a compliance standpoint, a seller could say that will comply with the ordinance and nothing more and they could bring the energy audit to closing, and the buyer would receive it there. In fact, at the end of the energy audit report, on page 9, it states:
“The Energy Conservation Audit and Disclosure is not required to be included in the sales contract nor the Seller’s Disclosure form (Texas Real Estate Commission), but instead is a standalone requirement of the City of Austin”.
Odd that it’s called a “Conservation Audit and Disclosure” but in fact is not a required disclosure. It’s just expected that it will be disclosed to buyers.
If a seller completely refuses to provide an energy conservation audit, it won’t affect the deal at all unless the buyer cancels during the Option Period. It will still close. The title company won’t require it. But the seller will be subject to criminal misdemeanor charges after the non-compliance is later discovered by the City of Austin.
Finally, it’s worth noting that when originally proposed, this ordinance was going to mandate repairs and upgrades to homes upon sale. The Realtor community worked with the city to create what we have now, which is a voluntary program. Other than getting the audit, nothing else is required. None of the recommended improvements or upgrades have to be performed. It’s a market based solution, based on voluntary participation, with the hope that educated buyers will opt in because it makes sense to do so.
That said, there are those who strongly fought for a mandatory program, stating that voluntary participation won’t accomplish the needed level of conservation and energy savings. They wanted to mandate $500 to $3,000 of improvements that would have been required by either the seller or buyer upon the sale of covered homes. Those activists are still out there and will be looking for the program to fail, and will be back at the Austin City Council in a couple of years, if not sooner, pushing for mandated energy upgrades at point of sale.
So the success of this ordinance will be measured largely by the level of participation in the Austin Energy Rebate program by home buyers of audited homes. One thing the city people couldn’t answer for me was how they will track upgrades that don’t go through the city rebate programs. For example, if I have my home audited and it need more insulation in the attic, and I don’t care about a rebate and simply call my A/C guy to come blow in some insulation, that improvement won’t be documented at the city and they won’t know that the program worked. So, one of my suggestions was that they create a way to track upgrades and improvements that are done outside the city rebate program. One way to do this would be for the auditor to simply come back and certify the improvements and report them to the city.
If not enough people participate, we’ll probably be looking at major government intrusion into the real estate sale process by the City of Austin in the future. That’s something I’m against. We can handle this ordinance, but ordering buyers and sellers to make home improvements is a whole ‘nother ballgame.
City of Austin Energy Conservation and Disclosure (ECAD) Program.
The Actual Austin Energy Conservation Ordinance
Sample Blank Austin Energy Audit Report form.
360 Home Inspection Website overview of the Energy Audit (this is Bill Deatrick’s website. He’s one of our inspectors)