Achieving energy and environmental targets for increasing adoption of clean energy and promoting equity for all requires a new generation of approaches for energy retrofitting of residential buildings. The building envelope plays a significant role in mitigating thermal loads. Prefabricated panelized exterior insulated envelope systems are gaining momentum as a viable approach for retrofits that could improve energy efficiency and occupant comfort, but also shorten installation time, minimizing disruption to occupants. However, with any panelized system, there is a risk of air leakage between the seams which can negatively impact energy use and occupant comfort. Therefore, it is critical to quantify the leakage effect on the hygrothermal performance of these systems. One of the main challenges lies in modeling of airflow through cavities and cracks, where determining the leakage path is difficult. The present study investigates the use of numerical tools to predict the impact of air leakage on thermal performance of a prefabricated panel assembly for an energy efficient retrofit envelope system. Three physical panel prototypes were studied, including an opaque panel with no seams, a panel-to-panel with a horizontal seam, and a panel-to-panel with a vertical seam. Models were created with the in-house developed CHAMPS-BES software. The data from climate chamber experiments was used to validate the simulation results. Temperature distribution across the assemblies was simulated considering the leakage effect. The mean absolute percentage error was 3.9%, showing an agreement between the simulation and measurements, demonstrating that numerical modeling methods for predicting air leakage were successful. The results also showed 9–27% increase of effective thermal conductance of panels with seams in comparison with the reference panel without seams.