What’s the value of efficiency?
I’m wondering what the rest of you have seen in regards to the appraisal of highly-efficient homes. Finding comparable properties for construction financing on a PassivHaus or similar high-efficiency models is extremely difficult when it is even possible. I have been involved in a couple of projects that were scaled back or ultimately canceled because too much of the additional costs for efficiency improvements had to come out of pocket.
I was relieved to see this:
http://www.appraisalinstitute.org/education/green_FAQs.aspx
In a nutshell, the Appraisal Institute is offering a continuing-education program that “is intended to arm professional appraisers with the most advanced guidance, case studies, methods and techniques on valuing high-performance buildings, positioning them as solution providers for the real estate sector. The course has been approved by the US Green Building Council (USGBC).”
What’s this community think on the subject?
Thanks,
Matt
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Replies
Great news. It will be refreshing to see the prices of residential dwellings be based on something tangible rather than pure speculation.
I never understand this appraisal question. Why? Have not ever had a customer build a custom home via a bank loan it seems.
I would think getting a bank loan would mostly entail developers and model home packages right?
Thanks for providing this link. Appraisals are a hurdle to financing some of the work I do at the custom residential architecture firm I work at.
As we wait for market values of homes to reflect aspects such as energy efficiency I think there are opportunities for people who can evaluate the drawbacks of existing housing to consult prospective homeowners on what NOT to buy or what issues will come with the house they are considering. This practice might get realestate professionals' attention.
When I had a recommended home inspection by a third party before I bought my home that would have been the ideal time to learn about the difficulties my particular home would have for energy improvements. Now that I think about it maybe I should call that home inspector and discuss with him some of the things I think he should have shared with me on that subject.
I am in the process of beginning to build a high performance house using a long-time "green" architect and a Passive House consultant. It will be somewhat close to meeting the PH standard if all goes well during construction. In response to AJ Builder, I am an owner builder (with 5 yrs construction experience) working through a credit union that I have banked at all my life and what is throwing off our project is not our family's modest income (under $60K) as I thought but a ridiculous appraisal that valued our 2000 sq. ft. house design at $70 per sq foot.
Certainly the real estate market is a huge part of it when distressed mortgages get dumped into the market, but by insisting that new homes compare to houses built decades ago (four of the five comparables in our appraisal were 20 plus years old), the loan process deters building a house today that will still be looked at as a well-built house 20 years from now. All the houses we are getting compared to fell behind code for energy efficiency probably 10 years after they were built.
As for the appraiser, she didn't understand the concept of a passive solar house with tinted concrete floors. She put on the appraisal that we would be using PV on the roof to run baseboard electric to heat the house... I doubt I could even install a large enough PV array on my roof to actually keep up in the winter with EBB.... Maybe I'll mention the continuing ed class to our credit union to see if they can encourage the approved appraisers to get informed.
Jonathon, Like I said, i don't deal with banks or appraisers. The per foot number is at a minimum 4 times lower than my costs. I have built some nice garages at that price. Where are you located and what is your home per foot price coming in at?
And as to appraisals, they have to go by the market resale price, not your actual costs so as to cover the bank if you stop paying, it is that simple.
I'm in the Shenandoah Valley of Virginia, zone 4. I'm doing all the work except plumbing, masonry, concrete slab finish, and excavation. I might sub out drywall and insulation too depending on how the budget is going. Right now I'm at around $90/sq ft for materials, the above labor, and a part-time carpenter's helper. It'll be tight, but I have a good bit of materials salvaged from job sites (100 year old heart pine, slate floor, three Andersen 400 series inswing patio doors etc.).
Its fascinating to me how different banks treat car loans and home loans. My last house was purchased for $67500, which could be a European sedan, and yet the sedan is priced as a new car, very different from similar sedans built 10 years prior. It doesn't seem reasonable to appraise a new house based on old houses any more than giving a new car loan based on older model cars. You get a loan for a new car and as soon as you drive it off the lot it drops. In theory, or at least historically, you build a house and it grows in value (hence the invention of the home equity loan, try accessing the equity in your 10 year old car...). Add to it the mix that at least in the early 2000s the average home mortgage was held for something like 7 years which is not that different than a 5 year car loan.
I understand economics enough to know the bank covering itself concept, that car loans are amortized anyway over a much shorter number of years of payback and that car loans are usually higher APR and lower principle amounts. Still something seems to be not quite copacetic about the whole mortgage industry which might be part of why our economy is where it is right now. Is there anything else in our economy that we assign value to by what the market will pay for a similar used product? New is valued at replacement cost, except for houses, it seems.
Jonathan, you bankroll a home. Your customer stops paying. You take it back via $10,000 in legal costs and sell it at whatever the market will pay for it. That is what a home should appraise for. What you want is an appraisal where the bank loses money. Then the banks go bankrupt and that is what we just went thru that put the economy in the toilet. I never want homes oversold like this ever again. Best to pay cash for what you buy. Borrowing heavily is destroying civilization just slow enough to fool us all into thinking borrowing is wonderful.
But don't you think the appraisal could be wrong, AJ? That's really the thrust of my point and I believe Jon Lantz-Trissel's as well. I appreciate how the system works and I concur that minimizing debt is a healthy and freeing way to live. However, the appraisers in general are 'estimating' market value on incomplete or in Jon's case misreported information. In sections of California and Portland, Or, features like PV and efficiency improvements are showing real market premiums. It stands to reason that a 2011 Passivhaus is more valuable than a 1950 post-war home strictly on the grounds that it has less than 1/4th the operating costs. The appraisal rules cannot take those operating costs into account though. In a time when an automobile's most touted statistic is MPG, don't you think they should?
I think that the houses that look the best sell pretty good. Don't seem to matter much what is in the walls. If they look good they sell good.
Thank you Matthew for getting my point. I also agree with you AJ Builder that I don't want banks to fail again and that excessive borrowing is a problem. But borrowing is amazing. It allows a young person like me to build and live in a decent house for a lifetime instead of as I saw in Guatemala, starting with a small room and adding on a room every 10 years until you have the house you've always wanted at the end of your life.
And banks are going to lose every now and then. If we used your logic for insurance, no one would ever get a life insurance policy. Banks make sure the interest and fees cover the few bad apples and plenty more for the CEOs. The trick is keeping down the number of bad apples, not making it very difficult to be an apple (by ensuring appraisals more than cover the bank, which is also illegal now... no bankers and borrowers influencing appraisers like when I bought my first house and me my banker and the appraiser came up with a price while he was "appraising" my soon-to-be-house.).