How to Help Appraisers Fairly Value Home Energy Efficiency Improvements

In 2013, we published a blueprint with the National Home Performance Council that outlines a seven-step process to make energy efficiency visible and properly valued in the real estate market. Appraisals are a key part of the process because the appraiser serves as a neutral third party who assesses a high performance home and indicates whether energy efficiency improvements contribute to the value.

We’ve witnessed real progress in the appraisal process, including enhancements to the appraiser’s toolkit to better address high performance home valuations. And in locations that have pioneered the green building and remodeling movement, we’re even seeing a growing demand for qualified “green” appraisers. However, we still have a way to go.

Consistently Document Energy Efficiency Features

Nothing works in the appraisal process unless high performance homes are consistently documented (see Step 1 of the blueprint). Right now, the majority of home appraisers use Fannie Mae’s Uniform Residential Appraisal Report (also referred to as Form 1004) to provide opinions on the market value of a given property. But, this form lacks an adequate section in which to document energy efficiency features.

In response to this, the Appraisal Institute created the Residential Green and Energy Efficiency Addendum to collect the additional information an appraiser needs when forming an Opinion of Value on a high performance home. The addendum has been well received, including a recent announcement that the Residential Energy Services Network will auto-populate the addendum, enabling direct transfer of a home’s potential energy performance data from builder or home owner to the appraiser. While all appraisers have access to the addendum online, the problem is, less than 15 percent of appraisers are members of the Appraisal Institute.

We’d love to see the Residential Green and Energy Efficiency Addendum used as the model for a standard, approved approach to record the details needed to value high performance homes. The approach could be defined in the approved underwriting guidelines used by larger federal or lending organizations, or government sponsored entities like Fannie Mae or Freddie Mac. While limited in reach, we’ve seen firsthand that the industry has embraced the template and the related process. Clarifications from the government sponsored entities would formalize this model.

We’d also like to see more multiple listing services follow the lead of Midwest Real Estate Data Corporation and make energy costs accessible on listings. This provides appraisers with important data to help establish a credible value opinion. Appraisers are also better equipped to do sales comparison and income approach methods when this data is available.

Assign the Right Appraisers to the Right Properties

Next, and logically, the right appraisers need to be assigned to the right properties. Finding a competent appraiser who has experience in valuing energy efficiency features can be difficult.

Various training initiatives are happening with some success, but lenders and appraisal management companies continue to struggle in finding qualified appraisers – or even knowing they need to assign them in the first place. An important first step would be to ensure that the existing requirements for assigning appraisers based on competency are enforced for high performance home assignments. Definitions of this competency are starting to be drafted by the Appraisal Foundation.

But we see progress here, too. The Appraisal Institute is in the process of opening its Appraiser Registry to include all students who successfully complete the required sustainability courses (and consent to have their name listed on the registry), allowing for greater exposure and marketability of their qualifications and services. Before this change, the directory only listed Appraisal Institute members who had first graduated a designation course and then went on to complete sustainability courses and exams.

Education provides a great opportunity to better connect these qualified appraisers to appraisal management companies and lenders. Appraiser Sandra Adomatis suggests that appraisers, lenders, underwriters, and builders take courses together. “When all the different players in the high performance home transaction come together for training and discussion, they better understand how they can work well together toward overlapping processes and common goals,” Adomatis said.

Up next, we’re honored to attend a Green Mortgage Appraisal Roundtable on March 11 in Washington D.C. Members of our team will join appraisers, lenders, Realtors, federal agencies, and other stakeholders to discuss the challenges of assigning a value to energy savings. We will continue to work toward progress on these issues through our Value for High Performance Homes campaign.

For more, sign up for the high performance homes newsletter or follow the conversation on Twitter at #VisibleValue.

 

Views: 366

Tags: Realtor, appraiser, assessment, efficiency, energy, estate, high, home, performance, real, More…value

Comment

You need to be a member of Home Energy Pros to add comments!

Join Home Energy Pros

Comment by Sandra K. Adomatis, SRA on March 15, 2014 at 3:18pm

Thanks for asking about the book.  The book will be ready in a couple weeks and can be found at the following website when it is ready.  http://www.appraisalinstitute.org/store/books/

It became apparent at the Green Mortgage Roundtable that we need more appraiser driven studies in areas around the US to valid the appraisal methodology available when sales of high performance houses are not.  The Colorado Solar PV Study is a good example of an appraiser driven study that validated the new free tool "PV Value Tool" by Energy Sense Finance and Sandia National Labs.  A few more studies like this around the US and it will be hard for underwriters to say it is not a valid tool.

The secondary mortgage market is skeptical of the tools other than paired sales.  The studies done using statistics are not support for the income approach and usually are not understood by most appraisers or underwriters. 

Comment by Melissa Ulbricht on March 14, 2014 at 8:11am

Thanks for the comment, Sandra! We agree; it's important for more to complete the required courses, and it's our duty, as part of the Value for High Performance Homes campaign, to help show them the benefits of doing so. Where can folks go to access the Residential Green Valuation Tools book?

We're looking forward to your presentation at ACI, too. For other readers here, Sandra is leading a session on appraising an existing energy efficient home, including appraiser guidelines and constraints and acceptable methodology. Here's more: 

http://www.affordablecomfort.org/events/2014-aci-national-home-perf...

Comment by Sandra K. Adomatis, SRA on March 13, 2014 at 1:56pm

Great article Melissa!  The Appraisal Institute opened its Green Appraiser Registry two weeks ago, retroactive, to all students that have taken the required courses and passed the exams.  Now we need to push for more folks to complete the required courses in each state. 

In April, the Appraisal Institute is publishing a new book written for appraisers, real estate agents, builders, lenders, and underwriters - "Residential Green Valuation Tools" - The book will walk you through the tools available to appraisers to value energy efficiency and other features.  It will illustrate the types of data needed to use these tools.  The underwriting guidelines and appraiser competency is also addressed. 

Comment by Melissa Ulbricht on March 11, 2014 at 7:37am

Hi Kent. Thanks for the comment and thanks for reading the post. Great that you’re conducting the training and bringing together real estate, appraiser, and builder communities. We’d love to hear more about how the training goes and how your community progresses. Feel free to reach out to us!

If you're curious about the Value for High Performance Homes newsletter, the sign-up page and more info is here: http://www.elevateenergy.org/value-high-performance-homes/

Comment by Melissa Ulbricht on March 11, 2014 at 7:34am

Thanks Sandra. We look forward to that, too! 

Comment by Sandra K. Adomatis, SRA on March 10, 2014 at 4:54pm
This is a timely article before the Green Roundtable Event tomorrow. I look forward to great networking opportunities tomorrow with good steps forward for a smoother market transaction.
Comment by Kent Mitchell on March 10, 2014 at 1:22pm

Looks like my post lost a line - Our BIA  is sponsoring a training for Appraisers and RE Agents to address this issue...

Comment by Kent Mitchell on March 10, 2014 at 1:19pm

Our Clark County Washington BIA & Green Building Council.  We have a couple trainers coming in and are both very well versed in this subject.  It'll be interesting to see the changes progress. Here's a link to more info:

 http://biaofclarkcounty.org/wp-content/uploads/2012/08/GBC-GreenEd-...

Comment by Melissa Ulbricht on March 8, 2014 at 9:04am

Thanks for the comment, Al. We appreciate you reading the post. It's not an open event, we were honored to be selected to attend. We look forward to the Federal Housing Administration and the White House's continued leadership. For more, check out the newsletter link above, we send regular updates on this topic. Thanks!

Comment by Al Cobb on March 7, 2014 at 2:18pm

Melissa,

Thank you for the update to this very important topic.

I'm wondering if the round table discussion next week is open to additional stakeholders?

I would welcome a seat at the table.

Al Cobb

Home Energy Pros

Home Energy Pros was founded by the developers of Home Energy Saver Pro (sponsored by the U.S. Department of Energy,) and brought to you in partnership with Home Energy magazine.

Latest Activity

Trip Smith joined Hal Skinner's group
Thumbnail

The RCC Classroom (Radiant Control Coatings)

A group where energy professionals can learn about all the different energy saving aspects of…See More
54 minutes ago
Trip Smith commented on Diane Chojnowski's group Facebook Pages
"Just went through the first few pages liking the active Facebook pages. I've found that…"
55 minutes ago
Trip Smith joined Diane Chojnowski's group
Thumbnail

Facebook Pages

Does your company or organization have a Facebook Page?This group is for pros who have facebook…See More
1 hour ago
Profile IconVictor Couto, Melvin Calahan, Mike Burton and 1 more joined Home Energy Pros
1 hour ago
Steven Lewis replied to Christopher Talarico's discussion Heating with Tankless Water Heater & Hydronic Air Handler vs. Gas Furnace
"It looks better on paper than in real life applications.  Both Amana and Lennox came out with…"
19 hours ago
Dennis Heidner replied to Christopher Talarico's discussion Heating with Tankless Water Heater & Hydronic Air Handler vs. Gas Furnace
"Rinnai has application note on how to use their tankless hot water heater with a Rinnai water to…"
yesterday
Hal Skinner replied to Hal Skinner's discussion How much heat energy is lost through the floor of a house?
"I found the buildingscience article interesting.  Interesting that they noted the wet bottom…"
yesterday
Bud Poll replied to Hal Skinner's discussion How much heat energy is lost through the floor of a house?
"With conduction that ends at the bottom of the joists and convection that is naturally suppressed…"
yesterday

© 2014   Created by Lawrence Berkeley National Laboratory.

Badges  |  Report an Issue  |  Terms of Service