When Green Poses an Appraisal Problem
For those who build green in areas where green-construction comparables are scarce, getting an appraisal that will satisfy current lender criteria can be a challenge
In the same press release the National Association of Realtors reported a 2.4% uptick in existing-home sales for May, the group also repeated its concerns about appraisal methods that, according to NAR economist Lawrence Yun, “compare traditional homes with distressed and discounted sales.”
That has been an issue, of course, for almost everyone in the building trade and real estate business since distressed and foreclosed properties began flooding the market more than a year ago. But appraisal problems, particularly in today’s risk-averse lending climate, are not always related to disparities between standard listings and homes with troubled financial histories.
In some markets, a dearth of appraisers familiar with green construction – or perhaps even more critically, a scarcity of nearby listings with comparable green features – can frustrate prospective homebuyers and homeowners who wish to refinance.
The comparables question
One otherwise creditworthy couple in a rural section of Wisconsin’s Richland County found themselves unable to refinance because their home, built two years ago, has ICFInsulated concrete form. Hollow insulated forms, usually made from expanded polystyrene (EPS), used for building walls (foundation and above-ground); after stacking and stabilizing the forms, the aligned cores are filled with concrete, which provides the wall structure. walls and an outdoor wood-burning furnace – two features that are apparently unique in their area, according to a recent story in the Wisconsin State Journal.
Although the couple, Gail and Larry Berberich, had no trouble securing a loan to build their home two years ago, their quest to refinance was thwarted by the relative isolation of their home, which meant lack of sales comparables, and a lending climate in which banks that want to eventually sell portions of their mortgage portfolios on the secondary market require not only excellent borrower credit scores but compliance with stricter appraisal guidelines set last month by secondary-market company Freddie Mac.
Appraisal concerns – many of them focused on appraisers’ knowledge of green construction, but also on a lack of comparables – also dog the commercial market, notes a story recently published by the Daily Journal of Commerce, in Portland, Oregon.
But in home construction, at least, builders likely will do their utmost to find appraisal workarounds until green construction becomes more common. Mike Vilstrup, a builder and president of the Madison Area Builders Association, told the State Journal that he had no problem getting financing to construct two green-certified homes this year.
“If you work with your lenders and everybody attacks it as a team, there are ways to make things work,” he said.