Automated efficiency model
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Automated efficiency model (AEM) is the name given to a service that can provide an estimate of a real estate property’s efficiency using a mathematical model combined with property-specific and/or aggregated housing characteristics. AEMs are similar to automated valuation models (AVM) in terms of how they are used, advantages and disadvantages.
AEMs calculate specific efficiencies such as location, water, energy or solar efficiency. The Council of Multiple Listing Services defines an AEM as, “as any algorithm or scoring model that estimates the (efficiency) of a home without an on-site inspection. They are similar to Automated Valuation Models (AVMs), but are more reliant on public data such as square footage, heating and cooling systems, and estimated energy usage.” Most AEMs calculate a property’s selected efficiency by analyzing available public information and may also apply proprietary data or formulas, and user inputs. Housing characteristics such as age of the home or square footage may be provided by an online real estate database or a similar private offering. Public energy usage information may be provided such as through the Residential Energy Consumption Survey by the Energy Information Administration.
Usage Examples
By design, the AEM score output is provided as a preliminary comparison tool so the score of one property may be compared to other homes, against an average score for the area, etc. Primary users may vary from buyers and sellers to real estate agents and appraisers as they complete relevant comparisons. For example REColorado, the multiple listing service covering the Denver metro area, presents a UtilityScore widget on homes for sale. Zillow publishes a Sun Number score on the home fact sheet so website visitors can compare the solar energy potential of prospective properties. Trulia has published a report using automated estimates from UtilityScore to present water, natural gas and electric rates into a single price per square foot by zip code. Beyond usage for consumer preliminary comparisons, usage of AEMs varies by industry. AEMs may also be used by solar installers, home improvement contractors, efficiency inspectors, and mortgage lenders.
In the photovoltaics industry, installers use Sun Number to reduce the soft costs associated with motivating consumers to invest in solar systems on their homes and evaluating properties to create quotes. The U.S. Department of Energy has found that Sun Number eliminates 7-10 days from the quotation process when solar suitability is determined digitally and eliminates the need for an onsite inspection.
AEMs have been used in the mortgage industry to support a niche loan product called a Location Efficient Mortgage (LEM). During underwriting, an AEM such as the H+T Affordability Index is used to calculate the location efficient value. According to National Mortgage Professional Magazine energy efficiency AEMs may one day be incorporated into loan underwriting as well, “Since utilities are as big or bigger part of home expenses than even real estate taxes, we may see (estimated utility usage) begin to be factored into underwriting.”
Methodology
AEMs generate a score for a specific property based on both publicly available housing characteristics about the subject property as well as mathematical modeling. AEMs are technology-driven scores without an onsite inspection or human assessment. For more accurate information unique to a specific property an onsite inspection such as an energy audit is required. Detailed information on the data accessed to calculate an AEM, the modeling formulas and algorithms are generally not published. A summary of general information is listed in the table below.
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Advantages
According to the Council of Multiple Listing Services advantages are, “AEMs provide consumers with a quick comparison of all properties across a specified market. Since most focus on the attached systems and structure, they are only meant to reflect the efficiency of the real property.”
Disadvantages
According to the Council of Multiple Listing Services advantages are, “AEMs are dependent on data used, the assumptions made, and the model methodology. Since models and methodologies differ and no on-site inspections are performed, accuracy may vary among scoring systems.”