Real estate appraiser doesn’t care about energy efficiency
Recently had an appraisal done for a refinance loan. I have a four year-old 9 kWh solar system (provides near 100% of electricity); a one-year old top of the line Lennox Signature 98V furnace (98% efficiency, VSM, modulating burner) and a one-year old Lennox Elite 16 SEER AC.
Was also recently at a local home & remodeling show. One of the solar companies was touting research that solar adds something like $40,000 on average to a home’s value. For the solar, furnace & AC, the appraiser added ZERO value to my home. I did a bit of follow-up research and see that the Appraisal Institute has an addendum for energy efficiency appraising which the appraiser did not use.
Anybody have any thoughts/experience with this issue? Thanks.
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P.S. I own the solar, it's not leased.
Surely it's fairly straightforward? If PV doesn't increase the market value of house in a certain area, the appraisal will reflect that. For now, whatever its other merits, solar isn't a feature that has sufficient mainstream appeal to affect appraisals.
It is a sad reality that the things we obsess about on this site have not proven to add value to a home when you go to sell it yet. I wanted to buy a home with solar already installed zero homes came to market with solar in the 6 months within 100 miles of St Louis Mo. At this point the people that put in solar are not selling their homes. The buyers care about neighborhoods, bed rooms, baths and schools. The realtors do not know how to market solar or high performance homes. As such you cannot blame the banks for not seeing the value you have added.
Hopefully your neighborhoods, bed rooms, baths and schools are good enough that you can refinance.
Walt
Bic,
First of all, can you tell us your name?
GBA has written lots of articles on this topic -- enough articles to keep you reading for at least an hour. Here are some links.
A Move Toward More Helpful Appraisals
Seeing Red on a Green Property Appraisal — Part 1
Seeing Red on a Green Property Appraisal — Part 2
Seeing Red on a Green Property Appraisal — Part 3
To Capture Green Value, We Need a Long Perspective
A Step Toward Fairer Green Home Valuations
Green Building Appraisal and Financing Issues
When Green Poses an Appraisal Problem
Getting a Grip on Green-Home Appraisals and Insurance
Green Home Appraisal Woes
One Broker's Take on the Selling Power of Green
Marketing High-Performance Homes
You can blame Appraisers, Builders, Lenders, Realtors and Homeowners for the inefficiency in green appraisals. Several years ago, the Appraisal Institute developed the AI Residential Green and Energy Efficient Addendum (AI Form 820.05) to facilitate Appraisers to better evaluate a property built with green or high-performing guidelines, but unfortunately, the whole industry is uneducated, lazy and self-destructing for its own good.
In every class I’ve taught for NAHB and DOE over the last 7 or 8 years, I’ve always inform participants that THEY are the ones that need to start the process. 99% of participants do not have a clue about the AI Residential Green and Energy Efficient Addendum. To add insult to injury, (a) Appraisers are not enrolling in the AI’s Professional Development Program and get certified under the Valuation of Sustainable Buildings Professional Development Program, required to value green buildings (b) Builders do not provide custom home information to the MLS system so Appraisers can get accurate data for comps, (c) Lenders do not require their Appraisers to be approved and certified to work with AI Form 820.05, (d) Real Estate professionals would not know this if it hits them in the face, and finally, (e) Homeowners who rely on “Professionals” to guide them through the full process, do not self-educate about their largest investment they will ever make. It’s a total system failure.
Please help spread this information... it takes a village! - https://www.appraisalinstitute.org/professional-practice/professional-practice-documents/green-energy-efficient-addenda/
I'm still at a loss to see how it is an appraiser's job to advocate for anything, be it "green" features or say, a big garage or granite countertops. Their role is to accurately predict what a lender or borrower can expect receive if the home is sold.
There is something else at play here. A moral dimension creeps in. We wish energy-efficient homes were valued by homeowners because we believe energy-efficiency is a good thing. And fair enough, Armando is right that if we want to make this come about we need to educate all the parties involved. But that shouldn't obscure the fact that right now it generally isn't the case, and appraisals would be accurate, not the products of wish-fullfillment.
This is more than wish-fulfillment. IMO, the housing industry has made great strides in the last 25 years, but we need to do more…
According to the new residential construction report released by the Department of Commerce in 2016, there was 432,000 new single family units. In 2016 Energy Star certified over 92,000 homes, that’s over 21% of the market… just Energy Star!
From the USGBC: “It is estimated that by 2018, the green, single-family housing market will represent about 40 percent of the market”. I hope that happens, and if so, can a buyer get fair appraisal?
Please, read the Introduction Summary on Page 1 of the 2014 McGraw-Hill SmartMarket Report - Green Multifamily and Single Family Homes: Growth in a Recovering Market. There is quite a bit of data, and with plenty of color charts so is easy to see. Read projections for 2018.
https://www.wm.com/documents/Smart%20Market%20Report%20-%20Green%20Multifamily%20and%20Single%20Family%20Homes.pdf
To some degree, I guess I'm one of those homeowners expecting "professionals" to do their job. I try to self-educate myself on just about everything that substantially affects my life--homes, cars, medicine, etc. I'm in the architectural stage of building a new home. That's how I recently found this excellent web site.
I've been researching HVAC, insulation, siding, roofs, windows, framing, flooring, decking, and so on. It's all a bit overwhelming. I can't learn everything and at some point we all have to depend on "professionals" to some degree. As much as I learned about solar before purchasing a system, it never crossed my mind that a "professional" appraiser would disregard it for a lack of comps.
I've since done my own (belated) research and came across the appraisal addendum Armando mentioned. Of course, I wish I had found that before the appraisal, but we can't always catch every contingency.
BTW, guess I should have learned my lesson selling a house a decade ago. It had brand new HardiBoard siding, two sets of new patio doors, a new top of the line Trane heat pump and gas furnace, new water heater, etc. All anybody cared about was they didn't like the wallpaper in the kitchen.
Nothing starts in home construction without a set of plans. Homeowners and Builders should work with Designers and Architects that have EXPERIENCE in high-performing houses. I often get calls to “green” a set of drawings when nothing was plan ahead, and it’s all left to the subcontractors to figured it out in the field. Homeowners and Builders waste outrageous amounts of money and time fixing stuff, instead of paying a fair price for professional Plans and Specifications done upfront.
Any more, especially in big cities, Homebuilders are what I call “cell phone Builders”. They don’t even get out of their air-conditioned Ford F350. Most big city Builders don’t have a clue about codes, systems and methods, and rely on poorly educated and trained labor to do what is right.
I better stop… I’m getting hot under the collar!
Since I only design Zero Energy Ready homes, I advise all my clients to start with 3 basic and simple goals:
1. 1ACH50
2. HERS 40-45, without PV
3. 1 ton of heat and air per 1000-1500 square feet.
Done correctly, it will solve 99% of all your problems.If your “design professional” don’t know how to achieve that for your house design, FIND SOMEONE THAT DOES, otherwise you’ll be wasting money and time. Anyone can put lipstick on a pig, but still a pig.
Armando,
Thanks for the links. I agree entirely that the way forward is making the types of projects you do the expected standard. Once poorly-built housing become the exception, it will be penalized on appraisals and hopefully shunned by buyers.
PS: The front page illustration on that Smart Market report is the most useful Green Roof I've ever seen.
BIC2,
From my perspective you did the right thing by installing solar on your house. Unfortunately, like many early adaptors, the investment isn't currently adding financial value in your real estate market. There is a fair amount of uncertainty about the future of net-metering agreements, and leased solar panels. There is also a political dimension to the discussion, which brings it's own uncertainty. Hopefully all these things will pass and a few years down the line the people who buy your house will see the fruits of your labour in terms of value added to the house.
I've relocated several times in my career. Real estate appraisals are based on $/sq ft for a given neighborhood. Home with custom features, be they energy efficiency measures, exotic materials, or spectacular landscaping will never have those features valued at what they cost. If you are going to spend substantially more on your green home, make sure you understand this reality.
As a professional real estate investor I have become all to familiar with the changing face of appraisals today. The very short version is that appraisers are paid a very low price to perform an appraisal and by and large the quality of their appraisal does not affect how much future work they get. Any appraiser who puts anything beyond the minimum time and effort into your appraisal is only doing it because they still have pride in their work.
Unless the low value of the appraisal is affecting your ability to refinance, don't sweat it. The fact they they didn't adjust for it in the appraisal doesn't mean it isn't worth something to a buyer.
I have had appraisals of two identical houses side by side come in more than 20% apart.
For at least 30 years, proponents of energy-efficient homes have made the following statements:
1. Tight, energy-efficient homes aren't just "green"; they represent high-quality construction methods that should become standard.
2. These homes are much more comfortable than conventional homes, and have very low -- or in some cases, no -- energy bills.
3. The contrast between a comfortable home with no energy bills and a crappy conventional home is so stark that home buyers will eventually realize the difference, and will seek out energy-efficient homes when they go home shopping.
Sadly, however, item #3 on this list -- a prediction -- never comes to pass. The future world where American home buyers are logical never happens. It recedes into the future. Crappy homes with cheap finishes still wow the home buyers. And as long as that remains true, the appraisers may be right.
But who knows -- some day, the prediction may come true. That day just hasn't come yet.
The good news is that property taxes on a "green" home are likely to be lower than they should be, since they are typically based on the same simple formula, that doesn't take quality into consideration.
#1 Appraisals provide an opinion of market value. Keywords are "market value". It's not the appraisers fault that the market doesn't value your PV array as you would wish.
#2 PV arrays are not permanent fixtures. Like a pool or an outbuilding, they can be removed from the property by the next owner so it's a difficult to arrive at a meaningful value.
Realistically the only way PV arrays will get factored into the value is if they become mandatory via building code. That's going to be difficult to do because the NAHB will fight it since it'll place restrictions on how tract builders orientate their homes.
You should check with your state chapter of the appraisal institute. https://www.appraisalinstitute.org
You should have the right to demand an appraiser with one of the relevant qualifications - green building, energy efficiency, etc. I can't remember the terminology they use.
One think one should, but it doesn't happen... Here in TX there are 3 appraisers approved by the AI that have taken all the courses, one in San Antonio and two in Austin, that's all for the whole State of Texas! A lender that has worked with a couple of my clients said he cant find any Appraisers in our area interested in getting approved. I've talked to two Appraisers that have some of the requirements, but not all, and they said they were too busy to take a week off to continue their education and get approved. I've also talked to a dozen of Appraisers who don't even want to start. Just so you know, TX registers more Energy Star houses that the next 10-12 States combined.
You would think that would be enough incentives for Appraisers, Builders and Lenders to get behind the AI program, don't you? For answer to this question, see my #5 comment.
I know this will hurt some...
After my blog here at GBA two years ago a gentlemen called us who read the article (found my name on the Web) and told me he was forced to move north for his job. Offered us $195K (City assessed at $117K) and a few neighbors have sold for near $130. Then a couple called this fall and offered $225K when they read my blog on Mother Earth News. WE don't even have it for sale! We're not moving anywhere!
Goes to show you just have to prove your house is great. Build it they will come but not until you've written it up some... Thanks GBA:-)!
PK
Paul,
Your story shows that the owners of a high-performance home can recover the value of the home when they sell -- but only if they find the right (educated) buyer.
To sell any house at a price that reflects the way you value it, you need to find a buyer that values the same things you value. In fact, finding one such person does not guarantee that the potential buyer will put those values into an offer. You need two such people to bid against one another. If you don't need to sell urgently, you can be that second person. If your values are not mainstream, then you are dealing with a small pool of potential full-value buyers, so your house may be on the market a long time or you may eventually need to settle for a price below what you value it at.
The houses in my neighborhood are a good example of this. I live in an airpark. Every house has an attached hangar and access to a runway. My neighbors and I value that feature very highly. However, houses in my neighborhood (and vacant lots) are slow to sell because the pool of people that value this feature is pretty small.
When appraisers don't factor in these special features, that reduces the pool of potential full-value buyers even more. Basically, you need someone that i) has enough assets that they can finance a smaller than usual fraction of the purchase price and ii) doesn't expect to sell the house for many years. For high-performance housing, we have a chicken-egg problem. To become mainstream, it needs to be available to people that will be financing 80-90% of the purchase price. In order for appraisals to allow people to finance that much, absent special rules, it need to be mainstream.