New addendum could help appraisers give credit for green features
Original Post Date: October 9, 2011
By: Kenneth R. Harney
Here’s some good news for homeowners who’ve installed energy-saving features but haven’t been sure appraisers will credit them with higher valuations: Thanks to a new industry-issued appraisal addendum, the odds have improved that such upgrades get the fairer market value they’re due.
The Appraisal Institute, the country’s largest and most influential association in its field, published the long-awaited addendum late last month. It’s designed to be attached to any standard appraisal report covering a property with significant green features. Owners, sellers, buyers, refinancers and realty agents don’t have to wait for an appraiser to use it. They can download it at no cost and ask that it be made part of the appraisal submitted to the lender.
The new addendum won’t guarantee you that the appraiser will raise your property value by the tens of thousands of dollars you spent on your solar panel array, high-efficiency windows or geothermal system. But it should guarantee at the minimum that he or she will take notice of the energy improvements and seek to come up with a value adjustment for your local market conditions.
The three-page form is a response to growing concerns that although the Obama administration and many state governments and utilities are pushing homeowners to invest in energy-conserving components, standard appraisal forms — including those used by financing giants Fannie Mae and Freddie Mac — are not set up to give adequate recognition to those often costly improvements.
The inevitable result: Owners are frustrated at what they consider lowball valuations. Refinancers can’t get the loan amounts they seek because the appraisal report doesn’t factor in the monthly utility savings they’re getting from their solar panels. Appraisers, for their part, say local real estate listing documents often don’t spell out in detail all the energy-efficiency improvements or they get the facts wrong.
For example, appraisers complain that some realty listings claim that the house is an “Energy Star Home” when in fact there’s nothing more than a few Energy Star appliances installed in the kitchen. The Energy Star Home designation is a much higher standard: It requires qualifying under a comprehensive set of criteria for the lighting, windows, water heating and high-efficiency appliances, among others.
The institute’s addendum runs the gamut of improvements and ratings, and goes well beyond energy efficiency. Though it has basic sections covering insulation, windows, lighting, heating, air conditioning and solar, it also covers sustainability features such as the presence of water-saving or reclamation systems, landscaping that lowers either water or energy use, and even the presence — or lack — of public transportation nearby that might help lower fuel usage.
Of special significance to owners who have had their houses audited or rated for green features and energy efficiency, the addendum asks for detailed information on the rating or auditing entity, the dates of the rating, average utility costs in the area and estimated monthly savings based on the rating itself.
Any certifications such as LEED (Leadership in Energy and Environmental Design) must be attached to the report along with information on any changes made by the owners to the property since the certification. If the house has solar installations, the addendum asks for such details as the age of the panels, the energy production in kilowatt hours for each array, and other information relating to the energy savings attributable to the solar features.
Appraisers using the new addendum should now be better equipped to identify accurate, recent “comparable” sales in the area — a key part of coming up with a valuation, according to Joseph C. Magdziarz, 2011 president of the institute. In other words, if you have a highly efficient, audited house with extensive energy-saving features as demonstrated by the addendum, an appraiser should look for prices of houses that sold recently with and without energy-efficiency features for indications of your home’s true market value.
Appraisers who have training in green valuations can also use one or more techniques that essentially capitalize the documented monthly savings on utility bills into a specific value adjustment appropriate for the local market. Sandra K. Adomatis, an appraiser in Punta Gorda, Fla., who teaches green appraisal courses and is a nationally recognized expert, said the higher the utility charges in a jurisdiction, generally the higher the value gain from solar panels and other energy-saving installations. For instance, in a relatively high-utility-cost state such as California, said Adomatis, the value increment from the same improvements might be double that in a relatively low-cost state such as Florida.
The addendum is available at the Appraisal Institute site, at http://www.appraisalinstitute.org.