Tag Archives: lending

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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“Buyers: Why Green is Worth It” and the Energy Efficient Mortgage Program.

Just finished reading:

I agree, green is worth it.  From the warm fuzzy feeling you get from doing something good for the environment: your LIVING environment and the GLOBAL environment.  Green is good because you could get a TAX credit.  Green is also good because you may quality for an Energy EFFICIENT mortgage.

Did you even know that there are special mortgages designed that allow you to incorporate the price of an energy efficient improvement into your mortgage?  I just took a fantastic continuing education class that went over some details on this type of mortgage.

HUD’s Energy Efficient Mortgage Program:  www.hud.gov/offices/hsg/sfh/eem/energy-r.cfm

1. Can be up to $8,000.  Only certain improvements/items quality.
2. You do not need to qualify for the additional funds (up to $8,000).

3. The appraisal does NOT need to come in $8,000 above.

4. A home audit will be performed.  Many utility companies  can provide.

5. The improvement is done after the loan closes.

Contact your local utility company to learn about audits.  Here’s the link to New Hampshire’s: NH Home Performance with ENERGY STAR®

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“HUD TAKES ACTION TO SPEED RESALE OF FORECLOSED PROPERTIES TO NEW OWNERS”

http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-011

This is great news for investors!  FHA is temporarily removing the restriction for investors.  FHA didn’t allow a new buyer to purchase a home that was owned less than 3 months by the seller (typically an investor-aka flipper).  The regulation was for curtailing flipping the property.

This change is a smart move for FHA/HUD because many of the homes being purchased by investors are in pretty poor condition and a typical buyer wouldn’t want to, or just couldn’t, purchase the home.  This allows investors to purchase the property, do the necessary improvements, which will usually help the new buyer get a conventional loan on the property.  Many, and I do mean many of these foreclosed properties don’t quality for conventional lending because they are, well, basically a mess!

Doing a quick search for “Flippers” brought up some very negative comments.  They are looked at as the bad guy and that is just inaccurate.  There is good and bad in every aspect of life, profession, business…you get the point.  Flippers are ultimately just investors.  Just like any other opportunity they are looking for a profit…is that bad?  They are assuming the risk.  A property might look like it just needs a couple cans of paint and new baths, but underneath all that could be a dragon rearing it’s ugly head.  The investor will do their due-diligence, but things are missed, and herein lies the risk.

Moving foreclosures off the market is great.  In this market investors will typically price these properties low for a quicker sale and this helps your first-time homebuyer get a house that’s fixed up and a pretty good deal.  Southern New Hampshire has seen it’s fair share of foreclosures, but it has not been the dominant market.  Arms-length transactions have been the norm.

Just my thoughts…

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