Help an Appraiser Value Your Green Home

Appraising a home is difficult work that’s made more difficult with the growing popularity of high-performance homes.  Appraisers have access to training to learn how to better value energy-efficient homes, but a lot of what’s in the home is behind the drywall.  Or may not be apparent with a site visit.  Which is why I like this addendum created by the Sustainable Finance department of the Earth Advantage Institute.

Download Appraisal Addendum for High Performance Homes [PDF]

The appraiser can take the addendum and (1) attach the first page to the appraisal report, (2) incorporate the findings from the addendum in the energy-efficiency section of the appraisal report, (3) use the costs and items included to arrive at the value of the home, or use some combination of these three options.

As discussed by Matt Kirkpatrick, owner of the Harpoon House, the addendum is meant to be filled out by the homeowner or realtor and presented to the appraiser at the time of appraisal.

This gives the appraiser more information and, perhaps, some help in deciding whether to make positive and negative adjustments when it comes time to evaluating comparable properties.  I see this as a great resource … green appraisers, what do you think?


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  • Anonymous

    This form is a great first step in that is simply acknowledges that we have a giant roadblock to building better in the legacy format of appraisals. That said this model form is loaded with “solution prejudice” which is neither helpful, nor essentially correct in the long run. 

    For example the section on insulation is full of product bias. The first item is “Exterior Foam Insulation” – ? The issue here is adding insulation beyond the standard 2×4 or 2×6 wall, and furthermore creating an insulated thermal break for your wall studs. To that end there are several different products that are appropriate – such as mineral wool which I think is much superior to foam in this application due to its high vapor permeability. The form then goes on to target specific products and wall systems such as SIPs, ICFs, Blown-in insulation, and spray foam – When the issue here is really the amount of insulation incorporated in comparison to the minimum required by code. 

    So Kudos for creating a model form. Big forehead slap for bungling the form itself and creating a free advertisement/imperitive to use certain sanctioned products. Its nearly as bad as the International Residential Code has become….

    • http://www.jetsongreen.com Preston

      Thinking about that … perhaps the solution prejudice that you see could be viewed as a starting point for someone to fill the form out.  It’s not a checklist, and I’ve seen a Word version floating around; I imagine it could be modified accordingly.  Also, I’m not sure I see the product bias.  This is something that would be used upon completion of the home or renovation and not necessarily as a design or construction reference. 

      • Anonymous

        I’m not confusing the forms role or timing in the process. I just think the categories its chosen to set out the nature of the investment in High Performance is too specific on a line by line basis – because it is relying on a reference to specific products which will likely be only a subset of possible high performance strategies. This is essentially a financial analysis of where you have spent more than required by code to achieve higher performance. It should be organized by the primary principles by which performance is improved, not a menu of products. If I were to redesign it I would organize it around insulation value, air sealing, and product upgrades. So for walls we have a place where the cost of any type insulation technique can be listed, efforts to make a wall more airtight can be accounted for, and better windows and doors can be accounted for.

        The second big problem with the approach of the form is it attempts to simply take the additional value and add it on to the comp value of the appraisal. It simple does not work this way, and I doubt any bank or lender will buy into that. 

        What needs to happen is the form needs to plot how these investments in energy performance play out over the lifetime of the loan – so if additional insulation reduced energy costs over the life of the loan, that means there is additional cashflow available for the home owner to apply to servicing the debt. So there is a specific value number that a given performance improvement will deliver, allowing the increase of the overall loan amount. That is the value that should be added to the comp appraisal value. It may be more or less than upfront cost of the improvements depending on how long the loan is, and at what rate we consider the cost of energy to be increasing.

        So if additional insulation has a 5 year payback, and the loan is 30 years, that means there will be 25 years where the insulation value is actually contributing value to the house beyond the upfront cost this form attempts to add on. In that sense it is throwing away value – better than where we are now, but it fails to make the complete argument for improving performance. 

        • Dakota

          Hello,

          As the creator of the addendum that you’re criticizing (without contacting me for details, I might add), I can speak most directly to what is trying to be accomplished. I have years of personal experience worked in lending and green building and also consulted with some of the top green appraisers in the country to generate the addendum. It is intended not as the end-all solution to appraising green homes, rather a starting point to get a conversation started and the ball moving in the right direction.

          First and foremost, the intent is absolutely not to push certain products over others. Earth Advantage, a non-profit, does not benefit from a specific product being chosen. The Word version, as Preston said, is being distributed and the builder or Realtor can substitute any product they would like. The checklist closely resembles many green building certification programs across the country and is a general guide to high performance features.

          The primary goal is to inform the appraiser and take some of the load off their shoulders in figuring out what features the home has. Appraisers are time-strapped due to regulations requiring a third party (an Appraisal Management Company, or AMC) to handle the process and take a cut of their revenue. By presenting an itemized list of the features in the home, the high performance upgrades won’t be missed. You are correct that appraisers use a sales comp approach, not cost, and I don’t expect them to equate the cost with the value. It is making absolutely sure the appraiser is aware of the features that is the goal, and it is already working.

          Perhaps you’ve heard of Form 70A, a now-extinct form that Freddie Mac had in the past to incorporate the energy efficiency savings into a net present value for the home? It was discontinued because there was so little uptake in the market because it was complicated and many appraisers simply ignored it. This addendum, however, has prompted numerous appraisers in the Portland market to incorporate an energy efficiency premium that bank underwriters have accepted.

          I don’t believe the market is quite ready for the true energy efficiency premium that you mention, though I agree that is a great goal for the future and one that I’m working toward. In the meantime, please help support what I think is a common target for both of us.

          Feel free to contact me at dgale at earthadvantage.org if you have further questions.

          Best,

          Dakota Gale
          Sustainable Finance Program Manager
          Earth Advantage Institute

  • Anonymous

    Dakota, I apologize if my criticisms were rude. It was not my intention. I appreciate what you are doing, and in fact its the most progressive thing I’ve seen done to try to address this big problem. I am frustrated however that it can not address the actual way value and investment plays out in home ownership. I understand the motivation to spread awareness as far as possible, and to that end simplifying the form certainly helps. 

    I do want to suggest however that I think in the long run dealing with the actual value model is simpler. The model you have hear relies on determining the difference in value between a myriad of high performance building components, and a “base line” of what would be required by code. I think a lot of subjective judgments go into that, and often items are hard to separate from larger assemblies. You need to do multiple calculations for any item you wish to demonstrate added value for.

    By comparison the model I described requires only one basic calculation – the energy performance of the house as it is proposed to be built. I don’t mean to simplify this – there are big obstacles to getting it to work this way. We need standards to be agreed to that establish what is the baseline code energy model, what is the cost of energy in a given region, and also very important is at what rate we will assume the cost of that energy will increase. There may very well be national data on this that is collected for other purposes that could be tapped to serve as the reference standard. I don’t know because that is all beyond my experience. But once established the calculation becomes much simpler, and could be contained in a spreadsheet form similar to what you are distributing now.

    • Richardmills422

      If you check into EE mortgages you will find they make those calc’s. They factor local energy cost so that savings pay for EE upgrades. As a simple rule a $100 energy savings can pay for $15,000 of upgrades (+- interest rate). Having an appriser that can support these savings is another step in helping banks have the confidence to make the loan

      • Anonymous

        Richard, do you know what resources they rely on to determine local energy costs for an EE mortgage? Is there some national reference or index?

  • Richardmills422

    It’s great to see all the pieces that are needed to jump start EE buildings comming together. Along w/ codes. builder training, smart meters and HERS rating in the MLS are the foundation for a sustainable future.

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  • Highlandsreag

    Green building features are, and should be reflected in the appraised value of real estate based upon their contribution to “market value”. The appraisal industry is traditionally slow to adapt to new trends.  It is important to chose an appraiser who is a certified and qualified “Green” appraiser.  This is someone with extensive education, training and experience in valuing “Green” buildings.  I found an appraiser on the internet that does “Green Appraisals” called The Green Appraiser at thegreenappraiser.com.  There are lots of good tips and information on the green building industry and its impact on market value”  

  • Alan Agle

    This form is a huge and welcome step forward in promoting green / sustainable building and remodeling.  Only small wish to add — legal paper size is unappealing for most non-professionals.  Next version, if you could make it fit, standard letter paper would be nice.  Few people load their printers with legal paper, if they even have any.

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