A "green" home can save owners plenty of money on their utility bills. But when it’s time to sell, do investments that reduce a home’s energy use receive fair value in the marketplace?
Before you answer that, here are three quick questions on green real estate to ponder:
- Can a seller truly get fair value for his or her home if energy-saving and green upgrades are totally ignored in the appraisal — even if they cost thousands of dollars and save tons of money on utility bills? I believe the correct answer is no.
- Is a Realtor who lists a house with significant green and high-performance features properly representing the seller if he or she doesn’t at least help compile data on those features and ideally attaches a "green and energy efficient" addendum — readily available free online — to the listing? Again, the answer is no.
- And is a bank or appraisal management company complying with professional competency standards if it assigns the appraisal of a home with important green features to an appraiser with no training or experience whatsoever in this area? A resounding no!
The reason I bring these questions up is that last week the Appraisal Institute, the largest group representing real estate appraisers, issued a revised version of its "Residential Green and Energy Efficient Addendum," including a practical new online tool to compute the market value of solar photovoltaic (PV) systems. The addendum is an important resource for anyone who believes energy-conserving capital investments in real estate deserve to receive fair value in the marketplace.
Though the addendum is designed to help appraisers, it’s also a potential marketing aid for Realtors. It can be attached to any listing in an area where the local multiple listing service has not yet added "green fields" to their data input forms.
Only about 210 of the 860 MLSs in the U.S. have done that so far, according to industry estimates, so the addendum has potentially wide use on listings around the country. The National Association of Realtors, home builders, appraisers and environmental groups strongly support the move to properly recognize the value of green improvements, and have sought to encourage MLSs to add green fields to listing forms through a campaign called "Green the MLS."
The presence of green fields on a listing not only allows appraisers to identify potential comps more readily, but also facilitates shopping by the growing numbers of buyers who care about the cost of energy in houses and prefer properties that are at least energy-efficient if not certifiably green.
The addendum attaches to the standard Form 1004 used by Fannie Mae, Freddie Mac and FHA and doesn’t require an advanced degree in math to figure out. Home sellers or appraisers can gather the information needed to complete the addendum — things like the presence of high-efficiency HVAC, Energy Star appliances, heavy duty insulation, solar arrays, energy audit reports and the improvements made. But Realtors can and should get involved in the process as well.
For instance, if it’s clear that a house has significant high-performance or green features, the listing agent can walk the seller through the basics and obtain the information the addendum requires. Then the agent can make sure that either the addendum is attached to the listing or that the green fields on the MLS form are filled out. Or both.
Sandra K. Adomatis, a specialist in green valuations with a senior residential appraiser (SRA) designation from the Appraisal Institute, says the revised addendum is particularly helpful when the seller has installed solar panels.
The "PV Value" tool incorporated in the addendum was developed by Sandia Labs and Energy Sense Finance, and is designed to answer underwriters’ questions about the incremental market value that solar systems add to a property. The tool is Excel-based and "modeled similar to the discounted cash flow used on commercial properties for income streams," says Adomatis.
The results then become part of the overall appraisal report and cannot simply be ignored by underwriters. Adomatis, who runs an appraisal company in Punta Gorda and teaches courses on green valuation nationwide, says Realtors and homeowners need to get more aggressive with appraisal managers and mortgage lenders.
For example, when an appraisal management firm assigns an appraiser to value a home with significant green features, either the home seller or the listing agent needs to check on whether the appraiser has any training in valuing such components. Without training, Adomatis says, the results are almost invariably the same: they count for little or nothing in the appraisal report that’s sent to the lender.
The remedy: when the appraiser calls to make an appointment, the sellers or agent can inquire about training or education. If the answer is none, "then the (seller) shouldn’t schedule an appointment," advises Adomatis, but instead contact the lender and request the assignment be given to someone with professional competency – a key requirement under USPAP, the governing standard for appraisers nationwide.
Adomatis goes further: She says when a house with noteworthy high-performance or green features is appraised by someone with no training, the lender opens itself to potential future buyback or indemnification demands by Fannie, Freddie or FHA — all of whom require professional competency for an appraisal to be considered compliant.
Bottom line here: Check out the new addendum. Download it. Not only might it help market a property, but it also might help your sellers — and buyers — get the fair valuation they deserve.