Home Innovation Insights
Good news for builders and buyers of green homes as the appraisal process improves.
Making Significant Strides on Green Home Appraisals
September 5, 2014
“For the loser now
Will be later to win
For the times, they are a-changin'…”
Bob Dylan’s lyrics came to mind this week as I was thinking about the work that the appraisal community has undertaken to ensure that green and energy-efficient features are recognized and valued during real estate transaction processes.
Too often, the value of “green” features of higher-performing homes have been either underestimated or overlooked during the appraisal and lending processes. As a result, builders who are committed to green practices and third-party performance standards, like NGBS Green Certification, are not properly differentiated in the marketplace. Likewise, homeowners may not have benefited from appraisals and resale pricing that reflected the value of a home’s green features and the reduced operating costs associated with these investments.
But the times, they are a changin’.
Over the last year, important strides have been made to ensure that appraisers and lenders are equipped to recognize and value green home features. Whereas builders and homebuyers may have been “losers” when green features were underestimated or overlooked in the past, they are better positioned to “win” with new resources and guidelines coming from federal agencies and third-party organizations. Some recent examples include:
- April 2013: The Appraisal Institute released the Residential Green & Energy Efficient Appraisal Addendum. This form was developed by appraisers and now serves as a tool to help ensure that home appraisals reflect home performance. NGBS Green Certification is one of two national green programs recognized on the addendum. It can be completed by the builder, remodeler, verifier/rater, appraiser, or anyone else connected to the property to document information known about the property. The addendum recognizes the certification level achieved, as well as other green features, completed energy audits, and/or local energy incentives available to homeowners.
- March 2014: HUD hosted the Green Appraisal Mortgage Appraisal Roundtable at the White House. The roundtable was an important forum for assessing barriers to accurate and reliable valuation of green homes. The attendance and engagement level of participants reflected that the issue was of crucial importance to both government and industry leaders. Home Innovation Research Labs was honored to participate in the Green Mortgage Appraisal Roundtable, where we joined appraisers, lenders, Realtors, federal agencies, and other stakeholders to discuss the challenges of assigning a value to energy savings. Fannie Mae, Freddie Mac, FHA, USDA Rural, and other mortgage representatives were involved in the discussion. Anne Evens, CEO of Elevate Energy, provided a guest post for us with her reflections on the meeting’s discussion.
- August 2014: The Federal Housing Administration (FHA) released a draft version of its Single-Family Housing Policy Handbook, which outlines appraiser responsibilities and compliance actions. This handbook represents a big win for those who build and sell high-performance green homes, as the handbook recognizes lender-accepted appraisal methods that better enable green home features to be recognized and valued during the appraisal process.
Home Innovation submitted comments on the draft handbook earlier this week. Overall, our letter praised FHA for recognizing the need to address the value of higher-performing, energy-efficient homes. However, we acknowledges that work still needs to be done. For example, FHA’s guidance for appraisers is specific to energy efficiency and does not recognize other beneficial green features, like durability or water efficiency, that would certainly impact a homebuyer’s operating costs and the home's long-term value. The NGBS and other third-party performance standards take a holistic or “whole-home” approach to design and construction, as that is the best strategy for reducing operating costs, reducing long-term maintenance, and maintaining a healthy indoor living environment. The NGBS requires not only energy-efficiency, but also other green building practices related to Lot Design & Construction, Resource Efficiency, Water Efficiency, Indoor Environmental Quality, and Homeowner Education/Maintenance.
The draft handbook also does not fully address competency issues. The handbook requires appraisers who evaluate green homes to be knowledgeable of FHA appraiser reporting guidelines, but the draft text does not require them to have green-related knowledge prior to accepting an assignment. An appraiser may accept an assignment for which they are underqualified with the intention of becoming competent prior to performing an evaluation. The time period between those two events may only be a couple of days, and it would be a challenge for one to become legitimately competent on a topic as broad as sustainable construction in such a short period. Our hope is that the FHA will respond to letters submitted from Home Innovation and other like-minded submitters and amend the handbook to require upfront competency of appraisers.
This is just a sample of recent activity in this arena, and there are still some issues yet to tackle, but these types of events reflect that government and industry leaders are more focused than ever on this critical topic. Resources for appraisers working with higher-performing green homes are evolving and I’m optimistic that we’ll get where we need to be soon.
I’d love to hear if you’re seeing any of these positive strides in green home valuation trickling into your local market. Or if you’re seeing other positive (or negative) signs of change on the horizon. Let me know!
div class="date">October 9, 2014 10:36 AM
Ryan LaPoma - Earth Advantage
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Sandra Adomatis, SRA, LEED Green Assoc.
div class="date">September 25, 2014 8:30 PM
div class="date">September 25, 2014 1:39 PM