Ever wonder how appraisers develop value of houses with green or energy efficient features? Residential Green Valuation Tools was published last month by the Appraisal Institute. The 189-page book has 13 chapters that address the most often asked questions about the valuation process and green building. As the author of the book, I found the challenge of writing this book a great learning and networking tool. The topic became a passion for me six years ago. It is difficult to analyze something that you do not understand. My challenge was to discover how the green rating building science compared to the building science of the standard building code. Appraisers must understand this distinction because the typical energy efficient home often must be appraised using sales that are traditional code-built houses that do not possess the same degree of energy efficiency. The book has tables, studies, short stories, and charts that simplify the concepts in a way that is more meaningful to the reader. If we could articulate the benefits of a high performance house (an energy efficient and/or green house) in a simple way that buyers in the market could understand, the demand for them would dramatically increase.
The first chapter starts with the basics of defining green building and the six elements of green building. With all the green wash in the market, the basics of what green building is must start the conversation. This chapter is followed by identifying the challenges appraisers have in valuing green and energy efficient houses. Understanding the challenges of valuing these homes will help the real estate professionals understand how they might assist in overcoming the challenges.
Appraisers have requirements to be competent prior to accepting an assignment for the secondary mortgage market such as Fannie Mae and Freddie Mac. FHA also requires competency prior to accepting an assignment. VA is the only one that does not require competency in the property type prior to accepting the assignment. A chapter discusses the competency requirements with references that support the statements. The lender is held responsible for hiring a competent appraiser even if they use an Appraisal Management Company (AMC). Simply stated, competency is not accomplished using an appraiser rotation list.
A chapter is dedicated to illustrating the tools appraisers have in developing value for energy efficiency or other green features. If the real estate professionals understood the tools appraisers can use and the data required to use the tools, it might give them ideas of how to make data more accessible. Real estate agents and builders should spend some time in this section and consider what they have in their files that may not be reaching the appraiser.
Chapter 6 has an extensive description on how to complete the Appraisal Institute (AI) Residential Green and Energy Efficient Addendum (ARGEEA). The ARGEEA is a communication tool that enhances the typical appraisal form used by lenders, the 1004, that does not address the green features and only has two references to energy efficiency. The ARGEEA is being more widely used in the market by builders, appraisers, real estate agents, homeowners, and retrofit contractors. Those new to completing the form often have questions on how to complete the ARGEEA and this book will answer their questions by providing resources and illustrations on how to add meaningful statements about the data provided.
Steps to solving the problems many markets experience with this new building technology are identified. Chapter 12 identifies steps to a more efficient transaction for a high performance property. Emphasis on networking with all real estate professionals is key to success. For too long the builders, appraisers, real estate agents, energy raters, and lenders have had little interaction. The public will become more knowledgeable about the energy efficient or high performance house once all the real estate partners have the ability to articulate the benefits. Real estate agents are the best group to move the high performance message to the public.
Last week, I lead two workshops in Oklahoma where builders, real estate agents, appraisers, and energy raters spent seven hours reviewing their market challenges for an energy efficient house. One builder made the comment that he had never attended an event where so many different real estate groups came together. He asked why these groups had never worked together before. Every person in the room could identify something that they have in their files or ability to collect to assist in the data gathering problems appraisers face.
The target audience for the book is appraisers, real estate agents, builders, energy raters, lenders, and home owners. If you are facing difficulties in your market and need a resource to learn how you can make a difference, this book is for you.