Category Archives: Energy Efficient

Green building, sustainability, passive solar, geothermal, and all that great stuff.

Should Green Building Be Valued at 100% of Cost?

“Green homes face a red light”  Full Article: CNN Money

I meant to comment on this a while ago, just reread it and it really bothers me.  So I need to comment.  It’s not the lenders, nor appraisers that need to “appreciate the value,” it’s the consumer who drives the market.  If everybody was willing to pay for the green improvement at what it costs, than it would be an open and shut case, because the market would reflect the value at 100% of the market.

There are special loans that allow for the energy savings to be applied to the appraised value.  I blogged on this last month: ““Buyers: Why Green is Worth It” and the Energy Efficient Mortgage Program.”   Lets be real…when somebody builds a house and customizes it with all these great upgrades (granite, high-end cabinets, exotic wood floors, etc.) the overall cost to construct/reproduce does not typically bear out on the market. Many of these items are taste specific and the amenity adjustments given to the comparable sales are derived by the depreciated cost method or reflect the anticipated market response.  Adjustments are not typically supported by the cost to construct.

Not all appraisers are knowledgeable about appraising green features, which is huge problem.  There are different ways to come up with a value.  I blogged about this too: “Appraising Green/Energy Efficient Housing” .   Choosing an Appraiser that is knowledgeable in appraising green features is not even possible anymore…due to new regulations, aka HVCC, lenders can no longer choose the appraiser.   So somebody with no experience with green appraising may be doing the appraisal.

So builders and remodelers need to explain this to their clients. A top builder in my area even has it written in their contract…that the buyer is responsible even if the appraised value comes in low.  I know this creates tension with the buyer because they need to come up with extra funds, this wasn’t too much of a problem in an UP market, but it is now!  Explain it up front so they are at least aware that all those custom upgrades may not appraise out.

So my answer is: IT DEPENDS!

-Just my thoughts.

www.TopNHhomes.com

www.JACoteAppraisals.com

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Appraising Green/Energy Efficient Housing

Just a brief look at how appraisers determine the value of a feature, green or otherwise, when appraising a home.

The difficulty in appraising green building is the availability of comparable sales.  It is unusual to find comparable properties with the same green features as the subject.  Therefore, how do appraisers come up with an adjustment for the feature?

First we need to determine if the green product is market accepted.  Would a typical buyer be able to operate it?  This comes from knowing your market area.

I appraised a home in Amherst, NH back in ‘02, when values were increasing, high demand/short supply, and under 3 months marketing times (so much easier to do my job back then).  The house was a passive solar envelope home…a very simple way to heat your home for almost nothing.  There was a forced-warm air heat system fueled by solar, oil, or electric.  The control panel in the basement looked like a Nasa control station.  It was mind-boggling, certainly would confuse the average home-buyer.  This would not be market accepted.  Keep it simple.

Cost savings is the main way I figure out my energy efficient adjustment, but the cost savings is not always market equivalent for energy-efficient homes.  It is a way to justify the adjustment.   You can find good sources for cost savings on the web, or talk to green builders.

Every sub-market will be different.  An entry-level home would most likely not see much, if any, added value.

There is a great subdivision here in Milford, NH called Sunview Homes (great name).  The houses were all placed to take advantage of the sun.  Heating/cooling costs are minimal and they all had quilted window coverings.  Most agents in the area don’t market them as passive solar homes.  Is there value there?  If the buyer doesn’t know about the energy efficiency then they certainly will not pay more for it.  The biggest problem I have when I appraise these homes is finding documentation supporting they are passive solar.  I’ve researched the line of deeds since the properties were built and haven’t found anything.  Because of my interest/knowledge in green/energy efficient building, and my discussions with homeowners who purchased the homes when they were built…I know.

There is so much to discuss on this topic, green building is such an expansive topic.  This is only the beginning.

Google my favorites:  passive-solar, geo-thermal, envelope homes, or sustainable design.

Some great links:

http://www.pr-inside.com/earth-advantage-institute-addresses-disparity-r1296769.htm

http://www.greenhomebuilding.com/QandA/financial/appraising.htm

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