Appraisers Making Headway in Recognizing Value of Green Home Features

The continuing effort to provide recognition for the added value of energy-saving and other green features in homes will take another step forward around mid-summer when the Appraisal Institute is expected to add a green and energy addendum to its appraisal report form.

Green builders have been waging an uphill battle in recent years to convince the lending community to recognize the difference between homes that are just built to code and those that incorporate techniques, systems and products that can dramatically reduce monthly utility costs, which represent a significant expense for home owners.

Sandra Adomatis, whose firm, Adomatis Appraisal Service, is located in Punta Gorda, Fla., announced the new Appraisal Institute addendum on May 3 during NAHB’s National Green Building Conference & Expo in Salt Lake City.

Adomatis said she hopes the addendum will be adopted by the Federal Housing Administration, Fannie Mae andFreddie Mac. “Builders can fill it out ahead of time and give it to the appraiser,” she said, who “can’t always see what’s behind your walls.”

Adomatis confessed that she herself knew little about the attributes of green homes until she ran into a green builder whose home she was appraising who was kind enough to point out that she didn’t know what she was doing.

She told him it was the first green home she had ever worked on, and that prompted the builder to provide a crash course in green housing, the start of her education on an increasingly important segment of the housing industry about which most appraisers still know next to nothing.

“Ask 10 appraisers and only one has ever seen a HERS report,” she said, referring to the evaluation that a trained energy rater provides on the overall energy efficiency of an individual home.

The Appraisal Institute, she said, has been stepping up efforts to make its members more knowledgeable through its Valuation of Sustainable Buildings Professional Development Program, which is conducted in the classroom and online and whose curriculum includes an introductory course and a course presenting case studies on residential green buildings, with a similar course on commercial buildings coming on line soon.

Some builders have been signing up for the instruction, she added, and more courses will be added as new technologies are developed.

Correcting a ‘Blind Spot’ in Mortgage Underwriting

As commonly discussed during the conference, consumers themselves have a lot to learn about green building, and upgrading the existing housing stock, which lags far behind new housing in energy efficiency, represents a major opportunity for the industry.

Adomatis described one concept, embodied in legislation championed by Sen. Michael Benner (D-Colo.), that would correct a “blind spot” in current mortgage underwriting and home appraisal practices by adding expected energy costs to the principal, interest, taxes and insurance now entered into the equation when qualifying a buyer for a mortgage.

The SAVE (Sensible Accounting to Value Energy) Act would hand a clear advantage to new homes over existing homes, she said, but also would create a healthy retrofit market.

The second phase of the program envisioned by SAVE would tackle water consumption.

Adomatis recommended Home Energy Saver Pro as a tool for assessing average utility bills for homes compared to other homes in the same zip code. “This is a good tool for appraisers,” she said.

Finding Qualified Appraisers

Along with other panelists, Adomatis emphasized that finding appraisers who are experienced in green is key for green builders and their customers.

“Qualify the appraiser,” she said, and determine “what education and experience they have in green. Ask lenders to ask for them.”

“The appraiser is still under pressure from the lender,” she added, stemming largely from policies in the secondary mortgage market, where extra construction costs for green are not allowed to be used in valuations.

“The comparables have to be there,” Adomatis said, making it important to pair up houses to demonstrate the savings in average monthly utility bills in a more expensive, and valuable, green home over a comparable home built to code.

In cases where there are disagreements over appraisals of green homes, Adomatis directed builders to guidance provided by Fannie Mae last year.

“If the lender has concerns with any aspect of the appraisal that result in questions about the reliability of the opinion of market value, the lender must attempt to resolve its concerns with the appraiser who originally prepared the report,” she said, and “try to work it out with them.”

However, if the appraiser has overlooked certain green features and has not correctly described the quality of the property, that can be the basis hiring someone else to complete the appraisal report.

If they are unable to resolve their concerns with the appraiser, “the lender must obtain a replacement report prior to making a final underwriting decision on the loan,” Adomatis advised.

Greening the Multiple Listing Services

Including green attributes in the homes on Multiple Listing Services has received a major push in the past couple of years from those who understand the need for sales comps to show appraisers and lenders how green certifications and features can boost the value of green homes and to enable prospective buyers to more effectively search for the green homes they want.

On that battlefront, there has been considerable headway, according to Al Medina, director of the National Association of Realtors®’ (NAR) Green Resource Council, but there is considerably further to go in aggregating data from the MLS system.

Comps are the “holy grail” in the quest for a system that can support proper green home appraisals, Medina said, but the going has been slower than he would like because the nation’s 862 MLSs are independently owned and the NAR is not constituted so that it can dictate to local Realtor® groups what they must do on this issue.

A Realtors® survey at the end of last year found that 80 of the MLSs, or 13%, had live searchable green fields.

About 70, or 11%, were in the process of implementing these fields, and about 80, or 13%, said they were in the planning stages.

That leaves several hundred MSLs that have yet to take steps to incorporate green into their listings, but Medina pointed out that there were fewer than 20 of the services that acknowledged green in their listings before the NAR launched its Green MLS Tool Kit in April of 2010.

Designed to support the flow of green home information in the marketplace and provide a step-by-step process that MLSs can follow to include green in their listings, this educational resource is already receiving a makeover.

The Tool Kit 2.0 will be more concise and better organized, and it will provide the opportunity to make “another marketing and communications push to MLS owners and operators,” Medina said.

A Need for Documentation

The Realtors®’ Green Resource Council is also working to address some of the significant shortcomings that have been found in the early adapters of adding green to their listing fields.

“The problem is, agents aren’t using the fields or are putting in wrong information,” Medina said. “The MLS has to have a way of preventing erroneous entries, and some only have one serviceable field.”

With a focus on comps and appraisers, efforts are now underway to ensure that the MLS green fields include documentation, with possible certifications including the National Green Building Standard, a RESNET- orDepartment of Energy-approved HERS rating and Energy Star Qualified New Homes.

“Appraisers need validated comparables,” he said. “Documentation is critical.”

Efforts are also underway to link green programs to MLSs, he said, starting with builders, architects and contractors. Evolving retrofit programs include the Better Buildings Initiative in 35 communities, Home Performance With Energy Star and DOE’s Home Energy Score.

Medina also reminded builders that NAR Green Designees are available to lend their expertise.

Keeping Up the Pressure

Leading efforts for years to make green mortgages a mainstay of the financing options available to home buyers, David Porter, of Porterworks in Stanwood, Wash., indicated that now is hardly the time to ease up on exerting pressure on the lending, appraisal and sales community.

While there are many lending products available that recognize the value of green homes, both for new housing and renovations, none is being consistently offered by lenders, he said.

“Force lenders to learn these programs,” Porter said. “Require lenders to get trained and offer programs to borrowers at the time of loan application.”

Builders should also be pushing for the inclusion of green in consumer search sites.

And “when you build green, have the certification recorded with the title so that it will travel with the property,” Porter said.

“Communicate to the buyer what the power of green is,” he said. “Go through the list of green features and turn them into benefits, such as a higher R value equals lower utility costs.”

And builders need to ensure that the appraiser evaluating the home is competent, with the experience and education needed to do the job competently.

Porter also gave a plug for the Database of State Incentives for Renewables and Efficiency (DSIRE), which he called a “great resource.”