To say this is an era of heightened scrutiny of the appraisal industry is an understatement. Flat-lining home sales and prices have sellers – including homebuilders – sharply focused on the fairness of lender valuations, especially those in markets afflicted by foreclosures.
Another factor complicating appraisals: the green home, whose energy-saving features have so far been ignored in most valuations. That’s partly because green homes are still relatively new to the market and suitable comparables difficult to find. It’s also because the market value of green home features has been poorly understood by many appraisers and lenders.
But at least one industry group is trying to address the issue. Last month, the Appraisal Institute, an industry group based in Chicago, issued an appraisal form designed to help appraisers analyze green features in a consistent and fair way. The new document, officially labeled Form 820.03, was presented as an addendum to Fannie Mae Form 1004, a widely used valuation form completed by appraisers and accepted by mortgage guarantors Fannie Mae and Freddie Mac, and the Federal Housing Administration.
If it’s filled out, will lenders use it?
It’s a reasonable first step, since it will help bring green features to the attention of lenders. Whether lenders will choose to factor those green features into their valuations is another matter. A look at the three-page form indicates they should consider green features if their valuations are going to be fair, since the items listed on the addendum focus almost entirely on features that can reduce energy costs when the home is occupied and fully operational.
Items eligible for consideration within the appraised value of a property include insulation systems (their type, location, and R-value); water efficiency systems; daylighting features; appliance performance ratings; average utility costs; energy audit data; photovoltaic systems; LEED for Homes and National Green Building Standard certifications and scores; and government incentives that may have been applied to the purchase or installation of the property’s energy efficiency systems.
It will take time for the green-home addendum to catch on, although pressure from homebuilders and other home sellers who have invested in energy efficiency measures – a steadily growing group – are likely to keep the pressure on until they’re satisfied the improvements are fairly factored into valuations.
“We hope this new form will be a big step toward establishing more accurate home valuations that recognize all of the key features of a home,” Kevin Morrow, senior program manager of green building programs at the National Association of Home Builders, said in a press release touting the addendum. “Green homes can offer significant cost savings to home owners over a comparable home built to code, so we are pleased that this new form will finally provide a vehicle to demonstrate some of these key differentiators.”