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Green Building Curmudgeon

What’s Going On With Home Performance?

As incentives wind down, energy experts wonder whether the market for home performance contractors will wither away or thrive

The author using a Minneapolis Duct Blaster to test duct leakage in an old home.
Image Credit: Robert Soens

I’ve been involved, if somewhat peripherally, with the Home Performance industry for quite a while. I was one of the original group working on Home Performance with Energy Star in Atlanta quite a few years ago. As I learned more about this evolving field, I felt that it was both important and necessary, and thought that it had potential to be a profitable business model.

I had concerns that the program was being managed by building science types (read: geeks) who were focused on collecting reams of data from performance testing and using this to sell improvements to homeowners. Fairly quickly, I determined that unless it moved from a technical to a sales focus, it wasn’t going to go anywhere.

While there are a few companies who have managed to balance the technical aspects with the necessary sales skills, most auditors and contractors have struggled to create profitable, sustainable business models. Early on, there was a focus on keeping the auditors independent in order to provide an unbiased report that a homeowner could use to compare proposals from contractors for the work. I saw this as a cumbersome model that increased costs, complicated the sales process, and might not help advance the program in any meaningful way.

Performance enters puberty

Fast forward about eight years, and home performance is beginning to mature, benefiting from government and utility incentives designed to stimulate an industry that would sustain itself when those incentives were gone.

On the positive side, many local programs have moved to the combined auditor/contractor model, which, despite its drawbacks, does lead to more completed projects. I am concerned that where the auditors are employees of specialized improvement contractors that they may suggest solutions through the lens of their business operations. HVAC contractors may focus on HVAC solutions to the detriment of envelope improvements. Insulation contractors will likely find insulation is the answer to problems they uncover.

If all you have is a hammer, everything starts to look like a nail. I still believe that the combined auditor/contractor model can work, but maybe I am just being naïve.

Will it survive into adulthood?

The big question is, what will happen to the home performance industy as incentives go away? It will probably fare better in regions with high energy costs, where paybacks are faster. Where energy audits or HERS ratings are required at the time of sale, there may be some more demand.

My fear, however, is that in many markets, demand will start to wither, homes will go unimproved, and many of the thousands of trained professionals, many of whom entered the industry after their old careers dried up, will, once again, be looking for new lines of work.

12 Comments

  1. Mike Collignon | | #1

    Always interesting
    Carl: Thanks for your outlook on this topic.

    To all those who don't want green in the building codes, if what Carl is saying does indeed come true, the building industry will have committed the biggest blunder since Buckner in '86.

  2. Karl Oberjohn | | #2

    Don't give up on the independent energy auditor model
    I agree that many home energy auditors are too geeky for their own good, bless their hearts. (I include myself in this group.) But I would prefer to see energy auditors sharpening their business and presentation skills and trying to make it on their own rather than being added to the payrolls of HVAC or insulation companies, where their perspectives will be different.

    Working with an independent energy auditor is really the best way for a homeowner to receive both an unbiased report *and* an opportunity to solicit multiple bids on a thoroughly-specified energy efficiency project. I envision the process being similar to hiring a licensed engineer to evaluate a house's foundation before getting bids from basement foundation/waterproofing companies (something I'm going through right now). Or maybe I'm the one being naïve...

  3. User avater
    Carl Seville | | #3

    On being naive
    Karl - I think in theory the independent auditor model is better in terms of the end result for the client, but I just don't see how it can be successful on a large scale, given the limited incentives available and the general population's desire for simplicity and low cost. People want purchases to be easy and cheap, and the auditor model is pretty much the opposite. Regardless that it will give the consumer a better end result, most of them don't seem to care enough. When I was a contractor, we went from bidding on architects plans to having on staff designers and architects because the design/bid/build process was so cumbersome. I see a parallel in the auditor/contractor process for home performance. It will be interesting to see how it matures. If energy costs were to quadruple, it would probably be rocking and rolling pretty quickly.

  4. Daimon Doyle | | #4

    A Success Story...for now
    I am not going to bet my entire future on it quite yet but I think we may have found a winning combination.

    A little background...I have been a builder for over 16 years and in the industry for 22. I adopted fully green building 8 years ago and have only become further entrenched ever since. 3 years ago, frustrated with the verifiers and raters who seemed to know little about actual building, I earned my credentials as a HERS Rater, Energy Star Verifier and PTCS contractor. In addition I instruct all of the NAHB Green Building courses along with several regional courses. As the home building market slowed, Washington State implemented a new energy code requiring duct blower door testing for all new construction. I figured I could replace the lack of income on the construction side with the training, testing and verification/rating side. While I did ok, it didn't fill the gap.

    The beginning of this year, I became an employee again for the first time in 15 years. I went to work for another custom home builder who had an impeccable reputation and presence including several EVHA Awards. Not on the home building side of his business, but in his new venture, a company doing energy retrofits on existing homes.

    We have a local non-profit which teamed up with our Economic Development Council and was awarded an ARA grant to subsidize home audits. While they were able to generate over 600 audits in a 2 year period, subsidizing 75% of the cost to the homeowner (homeowner paid just $99), their list of trade partners was primarily the usual trades - HVAC, insulation and windows - with very few (if any) true general contractors. Moreover, no one who was bidding the work was taking the whole house approach and applying real building science.

    The process works like this; the homeowner contacts the non-profit, who sends the lead to one of their auditors (since I was focused on new construction I was never on their auditor list) who goes out and does a report. The auditor often recommends appropriate contractors or a contractor to come bid the repairs and upgrades. We are extremely fortunate to have one of the best auditors around doing the bulk of the work. He doesn't just do a cursory walk through but blower door testing, duct testing if appropriate and extensive IR documentation (he is a level 2 thermographer). we are even more fortunate that he knows the quality and caliber of our work and can recommend us without hesitation.

    In the first 3 months, our success rate after visiting the client has been around 85%. These clients come to us pre-qualified and I believe our whole house approach combined with our experience and knowledge of building science is part of the key to our success. The only question that remains is the sustainability of our program.

    On the positive side, our closing rate has been excellent. Our combined construction background is unmatched. We are still one of the few general contractors doing this sort of work and one of the few suited for it in the first place. One of the more successful parts of our business has been selling and installing DHP. There is no shortage of homes needing work or that have electric resistance or oil heat.

    On the other hand, the agency has nearly exhausted their grant money. We would like to keep the current 3rd party relationship with the auditor if at all possible. Due to the extensiveness of his testing, I believe he is fair in needing to make $300-$500. But will homeowners pay that once it is not subsidized? Can we bring that portion in house or pay the auditor a marketing fee and still be or have him appear objective? That challenge of getting folks to pay for audits has existed since the beginning of these programs and has yet to be solved. Perhaps at some point we will hit critical mass and energy upgrades will surpass new kitchens and bathrooms (most good remodelors I know charge for a full bid) but for now it just ain't sexy.

    I am going to remain optimistic and hope that we can continue this momentum. So far we have all the work we can handle and have added 2 more staff. Perhaps critical mass is closer than we think.

  5. Bill Bennett | | #5

    Seeking comments on this approach
    What if the independent home energy auditor (in this case HERS rater) were to market himself to insulation, HVAC, windows, etc. contractors with a pitch that basically says; here is what I can do, call me if you feel that verification from an independent rater will help sell the job. In other words, rather than any one contractor incurring the expense of having an auditor on staff, he could save money, focus on his core business yet have the flexibility of calling in the auditor when one is called for.

    Is there some obvious downside to this model that I'm missing?

  6. User avater GBA Editor
    Martin Holladay | | #6

    Response to Bill Bennett
    Bill,
    There may be ethical issues raised if you have a business relationship with the contractor. If indeed you have such a business relationship, then you wouldn't be providing third-party verification.

  7. Curt Kinder | | #7

    Similar to Doyle
    Our operation, near Jax, FL, is similar to Doyle's. We have both HVAC and Building Contractor licenses. Though the emphasis is typically on HVAC, since it is the 800 Lb energy gorilla in the south, we do take a systems approach.

    Our basic audit reviews a year's worth of energy bills and estimates where the dollars are going via a report on "Energy Centers", to include HVAC, hot water, Kitchen , laundry, lighting, media, and any other significant loads (pool, spa, water features, sauna, grow lights, whatever)

    Our extended audit incorporates blower door, duct blast, and load calculation compared to actual room-by-room supply airflows. Inevitably there is at least one uncomfy room in the house, and the airflow analysis nearly always validates that comfort problem.

    The ideal customer is looking at a system changeout, so we try to get in and advocate envelope improvements that will allow the new system to be downsized 30-40%. We strongly advocate sprayfoam since most hot Florida attics are where the ducts are located. We test that the foam job is truly complete and air tight as possible so as to deliver promised performance.

    At the moment, half or so of our biz is helped by a DOE grant funding audits administered by a local utility.

  8. Karl Oberjohn | | #8

    Agree with Bill's idea
    I like Bill's idea of home energy auditors offering verification services to contractors. I don't see an ethical problem with this arrangement if there is no finder's fee or commission involved, and if it is not an exclusive partnership. The contractor would be free to select any BPI/RESNET certified energy auditor. It would then be up to the energy auditors to distinguish themselves by their technical proficiency and quality of presentation.

    The energy auditor would serve a similar role to a building inspector. For example: just as a builder would call on an electrical inspector to check the rough wiring before moving on to drywall installation, an HVAC contractor would call on an energy auditor to perform duct blaster and combustion safety testing before the homeowner signs off on the project. Same thing with an insulation contractor and envelope testing.

    Of course, this added step would only be feasible if the market understands and appreciates the added value of this service (certainly a big "if"), and/or the service is a prerequisite for receiving local or federal incentives.

  9. Charles Bowles | | #9

    Carl's concerns are valid
    After 25 years in the business my experience is that when the incentives dry up the phone stops ringing. Both Doyle and Gary indicate success with a good business plan but customer incentives provided by either a non-profit grant or utility are probably the driver in a large percentage of the audit requests. I have found to survive in the energy and environmental consulting arena you must diversify; forensic building investigations, training, system designs, etc. in order to survive. Don't get to comfortable doing well with only one or two basket of eggs.

  10. User avater
    Carl Seville | | #10

    3rd Party
    Martin - many, if not most, home performance programs do not require 3rd party verification. Typically they allow companies to both audit and perform the work, testing their own improvements. usually the organization that manages the program spot checks their participating companies to (hopefully) make sure that they are doing high quality work. I think that with the right QA program in place, this model can work, probably even better than one with separate auditors and contractors, because they tend to lead to more and faster sales. Whether the quality of work is as good remains to be seen.

  11. Aj Builder, Upstate NY Zone 6a | | #11

    Ethics. First home I was the
    Ethics. First home I was the GC of. Called for final inspection for the CO. Inspector, "Sure thing, you did nice work. I'll just mail it."

    All my electric inspections are done by private nationwide companies. Meet at site, chat, pay fee, done. I would say at most, the inspector glanced away from me five seconds which is the actual inspection part of the stop by.

    Why? Approvals, done, low stress, no arguing, no getting thrown off the second floor accidentally.

    Great discussion but just ask NASA if a flawless system can be designed when humans are involved. Two shuttles gone. Both from errors in the human decision making system in place.

  12. Robert Hronek | | #12

    At Home Energy PRos they
    At Home Energy PRos they have a posting The End of PRofits for Auditors. There are 9 pages of comments to the origlnal blog. http://homeenergypros.lbl.gov/forum/topics/the-end-of-profits-for-auditors-raters?xg_source=msg_com_forum&id=6069565%3ATopic%3A63931&page=1#comments

    I think whatever business model you choose it comes down to the ethics.

    I think what is important is that the homeowners are given correct information and the work is done correctly.

    I was at a house recently that an independent auditor provided and audit. The insulation came out and did some air sealing, corrected attic/soffit vents, and added insulation.

    I couldn’t get the homeowner to agree to what I suggested as he had felt that he spent way too much money already and didn’t get the results he should have. We parted ways without doing anything. The homeowner blamed the process for health issues when the house was flooded with dust when the soffits were opened and dust from 40 years blew into the house. He had other ongoing issues with the work that was completed.

    After the work the 75 year old homeowner was sealing the seams along decorative wood beams in the family room from the inside with silicone. There was a couple of other of air sealing issues. The work was completed by one of the largest insulation companies in the metro.

    I gathered my information from a brief introductory meeting at the home. It was about a 1300 square foot split level of average quality built about 1970.

    I think anyone talking to this gentleman would likely shy away from an audit and retrofit.

    Personally I think the auditor should be part of the work process and possibly operate similar to a general contractor. Selecting trades that will do the work correctly and making his profit off of a completed project versus providing a list of what needs to be done.

    I know many will say that is a conflict of interest but it is better than the alternatives.

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