A Solution for Appraisers--the Weak Link

"Money makes the world go 'round," goes the old saying, and it's certainly true in the world of residential energy efficiency.  Many worthy home House and dollar sign symbolsenergy upgrade projects are cancelled or put on hold because the owners feel they won't get their investment back if they should sell soon.  Likewise for new construction, many builders in the speculative home market feel forced to build to the lowest performance standard, because energy upgrades won't "appraise out."

Plainly put, the appraisers are not doing their job, which should be to give a valuation adjustment for each feature of the home that is either above- or below-average, as compared to recent comparable sales in the area.  Is it right for a house to receive additional value for granite countertops, glass mosaic tile and a whirlpool tub, but no additional value for a 95% efficient furnace, 19 SEER air conditioner and third-party verification to a high performance national certification?  Of course not, but that is the current state of affairs.  However, help is on the way......

Residential Green and Energy Efficient Addendum

The Appraisal Institute recently released a three-page form called the Residential Green and Energy Efficient Addendum to collect information about energy efficient and green features, such as insulation values, efficiencies of heating and air equipment, high peformance windows, geothermal heat pumps, ENERGY STAR qualification or a HERS Rating, etc.  The form is meant to be used by appraisers, lenders, home energy raters and builders.  The Appraisal Institute is encouraging Fannie Mae and Freddie Mac to use the form and even request it from appraisers.  This form should be extremely helpful by somewhat formalizing the process, and also by educating all of the stakeholders.

If Your House is Above-Average.......Say So!

Few people realize that they have a right to request that their lender assign an appraiser who is skilled and competent at performing valuation adjustments for energy efficiency features.  It is perfectly acceptable to provide documents and information to the lender or appraiser about features of your home that you think are above average.  It is the appraiser's job to verify that information, and give it an appropriate value.

While the appraisal industry may be getting a little pressure to change from above, it certainly won't hurt to apply some pressure from the grassroots.  For your next involvement in any aspect of a special, high performance home, remember to put the Residential Green and Energy Efficient Addendum in someone's hands, and say, "This house is above-average......price it that way!"

 

(originally posted on Home Energy Consultants Blog).

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Comment by Laura Reedy Stukel on October 7, 2011 at 10:52am
Wow. Here's a shining example of role builders/contractors play in a more effective green appraisal.  Too bad it takes so many extra steps, but the work does pay off! For What It's Worth - EcoHome Mag
Comment by Laura Reedy Stukel on October 7, 2011 at 10:32am

This form is such a critical first step on so many levels!  Thanks Gary for the great recap. The comments are all spot-on as well.  Getting to value for energy efficient homes is a bottom-up, top-down solution.  The top-down, systemic changes mentioned are needed and daunting.  We are making some progress.

@Gary - Amen:  "My hope is that this simple form is a tool that may have a disproportionately large impact if we can get it into the mainstream."

 

The form is a critical and necessary step forward bottom-up on two levels.  First, it helps contractors understand what data points appraisers need to do their job and value home features.  Second, it serves (or it should!) as a flag for appraisers about the scope of a green appraisal.  Legislation has made appraisals a commodity business. But consumers still have an enforced right to a competent appraiser.  The addendum can be a trigger for an informed and trained green appraiser to calculate value.  Hopefully it will also be a flagged for the uninformed listing agent or appraiser (there are a heck of a lot more of them out there in the world!) to seek more resources or pass the appraisal file on to someone more qualified to process it.  

Sandy is an educator and leader in the green movement among appraisers.  She got the ball rolling by getting this Addendum in play.  It will/must evolve over time...and hopefully it won't be necessary at some point soon when we are able to fix the big top-down issues too!

Comment by Bud Poll on October 7, 2011 at 7:29am

G

As Kent stated, "the appraisal issue is a much bigger problem" and one area that needs to be addressed is the increased property taxes that will inevitably follow an increase in evaluation.  Even though an increased tax evaluation would support an increase in the appraisal, it has that negative incentive we would like to avoid.  If we could implement an abatement for the increased evaluation due to efficiency improvements, then it would offset the negative issue and at the same time provide a positive incentive for home owners to improve now, depending upon the provisions of the abatement.

I have talked to both real estate and property tax appraisers and both were of the opinion that any change would have to come from a higher authority.

I know the tax issue doesn't help efficiency improvements, but, if we can provide an answer then perhaps it won't hurt as much.

Bud

 

Comment by Gary Kahanak on October 7, 2011 at 3:33am
@Nickerson, great suggestions.  Keep them coming.  I'm sure this form can be improved significantly.  I will forward remarks to Sandra Adomatis, primary author of the form at the Appraisal Institute.  In the meantime, Let's use the form as is; I would appreciate feedback on responses and results.  Thanks.
Comment by William H Nickerson on October 6, 2011 at 5:59pm
The blower door reading becomes discrestionary to the auditor, problems there too.
Comment by William H Nickerson on October 6, 2011 at 5:42pm
Solar hot water gets a check box but PV panels and fancy names get a whole page?We need to get on our feet before we drive in to the ditch! 
Comment by Gary Kahanak on October 6, 2011 at 3:56pm
@Kent Mitchell, you're certainly right, there are a lot of systemic issues here.  My hope is that this simple form is a tool that may have a disproportionately large impact if we can get it into the mainstream.
Comment by Kent Mitchell on October 6, 2011 at 8:38am

Our thought is that the appraisal issue is a much bigger problem than just getting energy efficient and green methods valued correctly.  The appraisal system is reactive rather than factual.   Appraisers seem to be woefully underpaid.  Housing recovery will likely drag out until the appraisal process is improved and until housing values improve - the entire economy will continue to falter. 

 

Making our voices known to organizations such as the Appraisal Institute will not only help our industry but the entire economy.  This particular subject needs to be addressed at many levels.

Comment by Evan Mills on October 2, 2011 at 9:28pm
Hear Ye!
Comment by Gary Kahanak on October 1, 2011 at 4:44pm
Thanks, Bud.  We've just begun the process of distributing the form to area stakeholders, and it will be interesting to get their reaction.  Typically, mentioning energy efficiency prompts a deer-in-the-headlights look or a shoulder shrug.  I am hopeful that this form lends some legitimacy that will be hard to ignore (especially when the form has already been filled out by the homeowner or realtor, the lender will know they need to take appropriate action, or they will have a contested appraisal on their hands).

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