Imagine a buyer expecting the builder to provide a proposal for a new home without knowing what they plan to build. What a ridiculous and impossible request! Well imagine an appraiser being required to value a house without knowing the details of the construction and, most importantly, the high-performance features. That is not too far off from what often happens in high-performance appraisal requests.
If you had a tool in your toolbox that saved you time and money, would you use it? That’s exactly what the Appraisal Institute's Residential Green and Energy Efficient Addendum is – a valuable new tool in your green home marketing toolbox. The Addendum is a high-performance communication tool that standardizes terms for lenders, appraisers, real estate agents, and homeowners. This makes it easier for all parties to understand the benefits and value of the high-performance homes you build.
To do their jobs effectively, appraisers must choose comparable sales of houses that compete for the same buyer. The informed buyer of a high-performance house would only consider other high-performance houses as substitute properties. If the appraiser cannot find a higher performance sale in the area, they need sufficient detail to identify how a given high performance house differs from a code-built house that might be the only comparable they can use. An Addendum completed with emphasis on how a property compares to the code-built house will assist appraisers in analyzing appropriate adjustments for energy, quality, and/or green features. It also assists real estate agents or sales teams in explaining the benefits of high performance to potential buyers.
But, just like any tool, if you do not use the Addendum appropriately, it will not produce good results. Ideally, NGBS Green Verifiers and builders of NGBS Green Certified homes are the most qualified to complete the Addendum, because they have the most significant details about performance and knowledge of how it differs from code. The following tips will enhance your use of the Appraisal Addendum providing optimal results for the appraiser using it or resale agent marketing it.
Complete this section whether or not a third-party verifier/certifier has rated the property. NGBS Green Certification and LEED are the two green building rating systems recognized on the Addendum. If the home is seeking or has already been certified to the NGBS, indicate that and mark the certification level. You may also attach a copy of the certificate and a worksheet outlining the points awarded.
We all know that HERS in the home building industry stands for Home Energy Rating System, but for the purpose of the Addendum, use the acronym to remind you to Hammer Energy Real Strong. The Energy Section is where the hammer must come down. This is an extremely important section because energy is measurable, allowing appraisers and buyers a great benchmark for establishing savings. However, they must understand how your house compares to the local building code or competition on the market. Here is where the manner in which the form is completed will be tied to value. If the buyer, real estate agent, appraiser, and lender understand the energy efficiency of the structure and its monthly cost savings, you have applied a direct hit of the hammer to the head of the nail!
If solar does not apply to your property, simply leave this section blank. If photovoltaic or solar thermal panels are installed, however, completing this page will provide useful information for the reader to quickly and more accurately value the income stream of energy produced.
This section provides space to elaborate about the home’s water-saving features. Describing water-efficient landscaping is important for understanding the associated reduction in maintenance costs. With most homes, the largest portion of the water used on site is for landscaping. Clearly identify the landscape type and explain the water efficiency features and what that means to water cost savings.
This refers to the any builder or buyer rebates or incentives that are available to offset the cost to build the home. In new construction, the incentives would be based on the effective date of value or construction. If the appraiser is valuing an existing home, they should consider the incentives available as of the effective date of value. Incentives are not a sales comparison concession adjustment; they are only offsets to the gross cost to build.
This is just a thumbnail overview on what information on the Addendum is valuable to appraisers and how they use that information. Home Innovation has some further resources available on this website. Also, I’ve recently released a book, Residential Green Valuation Tools, which provides a lot more detail and illustrates how the information about high-performance homes is used with a systematic explanation of the methodology for valuing energy or green features. (Sounds like a perfect holiday gift for your sales team, lenders, or favorite appraiser!)***