Seeing Red on a Green Property Appraisal — Part 2
How to work with your appraiser to document the value of green upgrades
[Editor's note: Roger and Lynn Normand are building a Passivhaus in Maine. This is the 16th article in a series that will follow their project from planning through construction.]
If you have read my previous blog (“Seeing Red on a Green Property Appraisal – Part 1”), you know that the appraiser failed to list or value any of the green/energy efficient aspects of EdgewaterHaus. Does it matter?
Most borrowers include the cost of the green enhancements as part of the overall construction cost. They then get a loan to cover some or all of the up-front construction cost. If the appraisal doesn’t value the green enhancements, the lender will likely reduce the value of the loan accordingly, particularly if the borrower is already at the maximum loan to value amount. It’s the “no tickee, no laundry” syndrome.
What are you willing to give up?
Without the money to finance the up-front cost of green enhancements, the borrower may be forced to decide among competing priorities. What to give up: Upgraded kitchen cabinets? Imported granite countertops? Backyard deck? Garage? Thicker walls for higher R-valueMeasure of resistance to heat flow; the higher the R-value, the lower the heat loss. The inverse of U-factor. insulation? Triple-pane windows for double-pane? Geothermal HVAC(Heating, ventilation, and air conditioning). Collectively, the mechanical systems that heat, ventilate, and cool a building.? Photovoltaic(PV) Generation of electricity directly from sunlight. A photovoltaic cell has no moving parts; electrons are energized by sunlight and result in current flow. or solar thermal systems?
BLOGS BY ROGER NORMAND
That’s a tough call for many people, even for those who want to go green. Green enhancements are often invisible — you can’t see the extra insulation; a window is a window. Yet it’s easy to fall in love with very visible upscale kitchen appliances, custom draperies, or the lovely landscaping. These amenities provides an immediate, visceral connection of quality and beauty, while the former is invisible to the casual observer.
Immediate gratification or delayed gratification?
Some green enhancements — like a tighter building envelopeExterior components of a house that provide protection from colder (and warmer) outdoor temperatures and precipitation; includes the house foundation, framed exterior walls, roof or ceiling, and insulation, and air sealing materials. or a PVPhotovoltaics. Generation of electricity directly from sunlight. A photovoltaic (PV) cell has no moving parts; electrons are energized by sunlight and result in current flow. system — provide an economic benefit, but the payback period extends over a period of years. I’m not a sociologist, but I think most Americans prefer immediate versus delayed gratification. So they opt for the lovely imported tile floors — and so what if they spend $100 a month or more on utilities?
I should also clarify shades of “green” here. Good for you if you are going to replace incandescent bulbs with CFLCompact fluorescent lamp. Fluorescent lightbulb in which the tube is folded or twisted into a spiral to concentrate the light output. CFLs are typically three to four times as efficient as incandescent lightbulbs, and last eight to ten times as long. CFLs combine the efficiency of fluorescent light with the convenience of an Edison or screw-in base, and new types have been developed that better mimic the light quality of incandescents. Not all CFLs can be dimmed, and frequent on-off cycling can shorten their life. Concerns have been raised over the mercury content of CFLs, and though they have been deemed safe, proper recycling and disposal is encouraged. bulbs, or use Energy StarLabeling system sponsored by the Environmental Protection Agency and the US Department of Energy for labeling the most energy-efficient products on the market; applies to a wide range of products, from computers and office equipment to refrigerators and air conditioners. appliances. Just don’t expect the appraiser to note or value that.
These are “typical” upgrades. I am talking about more substantial improvements, like additional wall, ceiling or sub-slab insulation beyond minimum code requirements. And while use of sustainable materials is noble for the environment, I suspect somewhere between few and not many individuals would be willing to pay more for a home that includes sustainable materials. Perhaps more importantly, there is really no way for the appraiser to objectively quantify the marginal market value of these materials.
So go for sustainable materials; just don’t expect them to be valued in the appraisal.
Suggestions for those facing an appraisal
In my web research, I found many articles written about the failure of property appraisers to equitably value green construction, but few suggestions on how to increase your chances of getting an appraisal that equitably values “green,” or how to challenge one that failed to do so.
So here are my suggestions freshly culled from the school of hard knocks. I wish I knew then what I have now learned through experience and research.
1. Work with a lending institution that sees real value in “green.” Lenders who value green construction may be just as scarce as green appraisers. It will likely be an easier case if you will be building or substantially remodeling a home to a nationally recognized LEEDLeadership in Energy and Environmental Design. LEED for Homes is the residential green building program from the United States Green Building Council (USGBC). While this program is primarily designed for and applicable to new home projects, major gut rehabs can qualify. , Energy Star, Passive HouseA residential building construction standard requiring very low levels of air leakage, very high levels of insulation, and windows with a very low U-factor. Developed in the early 1990s by Bo Adamson and Wolfgang Feist, the standard is now promoted by the Passivhaus Institut in Darmstadt, Germany. To meet the standard, a home must have an infiltration rate no greater than 0.60 AC/H @ 50 pascals, a maximum annual heating energy use of 15 kWh per square meter (4,755 Btu per square foot), a maximum annual cooling energy use of 15 kWh per square meter (1.39 kWh per square foot), and maximum source energy use for all purposes of 120 kWh per square meter (11.1 kWh per square foot). The standard recommends, but does not require, a maximum design heating load of 10 W per square meter and windows with a maximum U-factor of 0.14. The Passivhaus standard was developed for buildings in central and northern Europe; efforts are underway to clarify the best techniques to achieve the standard for buildings in hot climates. green standard. Talk to the lender about whether they will support your green efforts before applying for the loan. If not, walk!
You want the lender on your side if your wanna-be green appraisal turns you red, like it did with us. Our lender was extremely supportive, agreeing to discard at no cost to us an appraisal that valued our Passivhaus/LEED Platinum home as “typical” for energy efficiency. The bank then agreed to engage another recognized green qualified appraiser.
2. Work with the lender to find an appraiser with green credentials. This can be tricky on many fronts. Lenders typically have a list of approved appraisers that they work with, and may be uncomfortable using an unfamiliar appraiser. Under new federal loan standards, neither you or the loan officer has any say in which of the approved appraisers will be selected. But you can suggest to the lender individuals from nationally recognized appraisal organizations that have demonstrated green skills.
One such organization is the Appraisal Institute (AI), a global membership association of professional real estate appraisers with more than 24,000 members throughout the world. AI launched a Green Valuation Program in January 2011 to “educate appraisers on the intricacies of valuing high-performance residential and commercial buildings.”
AI maintains a registry of individuals who have completed courses in residential and/or commercial courses in its Valuation of Sustainable Buildings program. Find out which appraisers in your region have completed these courses and suggest to the bank that they select one of these individuals. Fortunately for us, our bank agreed to employ one of the two AI members in our area with green credentials, even though they had never used him before.
3. Make sure the appraiser is properly armed with all the green features in the home. Don’t let the appraiser guess or assume he/she will realize all the features. Lead the horse to water and hope he will drink it!
Be sure the architectural drawings fully identify the green features. Ditto with the list of construction specifications. The appraiser should have access to all the drawings and specifications, and you should be suspicious if none are requested.
Provide the appraiser with a summary, brochure, web link or other reference material that explains the green construction standards you plan to meet. Offer to discuss the green specifics with the appraisers. Even better is to have the builder or architect discuss the green features with the appraiser.
Be specific, polite, and professional. And remember that the appraiser’s job is assess the VALUE on the property based on what other individuals are likely to willing to pay. So emphasize the economic benefits of energy efficient aspects.
4. Take a deep breath and wait for the appraiser to prepare the appraisal.
My next blog will discuss how the appraiser should recognize the green features of the home, and different approaches on valuing green.
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