Comments on: The Time Value of Money and the Energy Efficient Mortgage

By: Scott Hoover

Scott Hoover — Mon, 20 May 2013 17:09:16 +0000

Good article, Allison. NPV
Good article, Allison. NPV is a great metric if you understand it. Thanks for making this topic easy to understand. However, ‘i’ is more accurately described as the discount rate – very often ‘i’ is set to the prevailing investment rate or inflation rate. The discount rate chosen has a large impact on the outcome. Therefore, it is often a point of contention. Dave Roberts has written a great article on discount rates (with Otters!) Check it out:
http://grist.org/article/discount-rates-a-boring-thing-you-should-know-about-with-otters/

By: Ryan Shanahan

Ryan Shanahan — Sat, 18 May 2013 04:16:42 +0000

2 Q's here: 1) Does the
2 Q's here: 1) Does the consumer have to implement the most cost effective EE upgrades you recommend as the HERS Rater or can they select any package of EE measures as long as they show net present value higher than the installed cost? 2) If the HERS Rater suggests air sealing or duct sealing (which they almost always do) does the EIM require that the HERS Rater come back to re-test? (this adds cost to consumer). Lastly, a statement: My experience is that most homeowners/lenders are interested in EIM's for one thing: new windows. More often than not new windows aren't shown to be cost effective (at least in my climate) through NPV calcs. This is hard to explain to the consumer/lender. I can't tell you how many times I've heard, "I just want new windows" regardless of what I recommend.

By: Matt Golden

Matt Golden — Wed, 15 May 2013 18:33:32 +0000

So, why then do so few people
So, why then do so few people actually do EEMs? Last year there were fewer than 1000 for the entire country, and every year there seem to be less than the year before.

I think it is simple math and comes back to how folks make money. The average EEM last year added only $7,500 per mortgage. When you translate that to how a broker or agent gets paid... 6% to agents, 3% to each side, split that 50/50 with the house, and you end up with a payday to each of the key folks in the transaction of $112.50 each.

Considering how an EEM extends the transaction time, adds extra steps, and of course can potentially blow a deal (I have experience personally sinking a sale by finding asbestos ducts).... it is pretty clear that the economics just don't really work.

I think we need to start by making EEMs profitable to those folks who really make these deals happen... and until we do that, they will never fly.

By: Charles

Charles — Wed, 15 May 2013 15:40:05 +0000

EEMs/EIMs get far too little
EEMs/EIMs get far too little attention! And unfortunately BANKS are some of the most ignorant folks around when it comes to these progressive types of mortgages. Appraisers are the other side of this challenge - for if your super-insulated home does not appraise for any more than the cheap stick-built/fiberglass home that is identical in every other fashion, most banks will make short work of you and laugh at your claims for having a superior home - "Hey buddy, they appraised for the same value". It's a frustrating process, but hopefully with more education and more open-mindedness all around it can advance.

And of course another problem can be when you have multiple home energy improvement initiatives, to which do you ascribe your projected savings for projections of ROI (Return on Investment)?

KEY POINT that many - even the "smart folks" - forget, if you are building a home anyway, the focus for the ROI calculation should be on the PREMIUM associated with the investment alternative, NOT the basis. Understand? Sorry I digress off of the basic EEM article (which is a good one), but simply lots of ignorance out there about how to approach this.

Also most banks will not consider the long term historic trends of increasing costs of energy in their FV calculations.