Home energy audits may soon be mandatory for all residential real estate transactions.

Ontario is in the process of passing  a couple of pieces of legislation that if passed will make home energy audits mandatory for any residential real estate transaction (full legislation information here and here). Many are elated at the progress this will have on making energy efficiency more of a priority in home ownership, while many others feel that this just another unnecessary cost that will be added to the transaction and are angered that it applies only to residential and not commercial sales.

The first piece of legislation to be brought to the table, the Home Energy Rating Act, was referred to the Standing Committee on Finance and Economic Affairs in October of last year, after its second reading was carried in the Legislative Assembly. The second piece of legislation is currently under consideration for becoming a Bill by the Standing Committe on General Government after being carried through its second reading in the Legislative Assembly March 11, 2009. These legislations will apply to all residential detached, semi-detached and low rise multi-unit buildings that have no more than three stories and are smaller than 600 square metres. This bill would require all sellers to have a home energy rating report to provide to prospective owners or tenants for any new buildings starting January 1, 2010, and for all other buildings January 1, 2011. The full details are still being hammered out. Home energy rating reports would cost the sellers an extra approximately $300.

Forcing energy audits  while home inspections that check for structural, mechanical and safety in the home are not mandatory, seems slightly unreasonable. The safety of the future occupants should be a prime concern. Combining home inspections with energy audits could help to solve this problem and would help to keep the prices of the additional audit lower, as the two services could be performed in one viewing by the same inspector.  Some companies do offer both services, but they are usually performed by separate inspectors, trained with different standards and certifications. Having dually certified inspectors or combining these two certifications could be a definite advantage.

The biggest problem with combining the two services is that it is usually the buyers who purchase the inspection, whereas it would be the sellers who would be required to purchase the audit. Both services are really in place for the benefit of the buyer. If positive reports, both services are really advantageous to the seller. So who should be stuck with the bill? It's complicated.

Standard contracts for real estate sales here in Ontario drawn up by the Ontario Real Estate Association now include a clause in bold alerting the Buyer to the importance of the home inspection and that it is not automatically included in the contract. The inspection and audit can truly assist the buyer in knowing the full costs of their new purchase. These measures allow the buyer to see how to improve the value of their purchase, where problem areas lie, and the best strategy to go about fixing them in the future. The new audit could have the effect of saving the buyer a great deal of money in the future AND increasing the value of their home. It alerts the buyer of any potential problems in the future and prevents unpleasant suprises from occuring.

Some fear that the audit will have the effect of depressing prices and sales volumes as the buyers use the assessments as an additional negotiating tool trying to reduce their sale price. There will surely be some who will abuse these reports, but experience with similar legislation in other parts of the world has had the effect of improving the overall housing stock and reducing costs for first time buyers. Over time, it will only help to increase home values, not reduce them. Properly educating clients (and Realtors) about the realities of what the reports mean will help to prevent them from immediately driving the prices down. 

The Ontario Real Estate Association has recently made a public annoucement stating their opposition to the new legislation. I find this infuriating. The fear that seems to be overwhelming among Realtors is that homeowner's values will decline because they rated poorly in auditing. The reality is that there are currently very few highly-rated homes on the market and this measure will have more of an effect several years down the line once people begin to become more familiar with the importance of energy savings and will not immediately depress home values as they fear. Each successive home owner will be able to make improvements and will only increase the value of each property over time with each upgrade. Without this measure, energy-efficiency in homes takes a last place in importance to much more superficial factors that should have little effect on overall value. Realtors have the duty to help our clients make informed decisions about their purchase and this new legislation provides us with an additional tool to do so. It reveals the more true costs of home ownership.

The public and business sectors, who are responsible for far more energy wasting, should be setting examples for individuals and should be the first amongst the legislated. Unfortunately, the legislation applies only for residential properties. This needs to change.

I'm interested in finding out people's thoughts on the new legislation. Is energy efficiency something you care about in your home? Would you find this audit useful to helping you judge the costs of carrying a property? Do you feel it is another unnecessary added expense to home ownership?

 

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