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Bad Appraisal on a New Green Home

GBA Editor | Posted in Green Products and Materials on

We recently received a very poor appraisal on a new home we are trying to build for one of our customers. They/we are shooting for Gold/Emerald certification under the NGBS. Closed crawl, conditioned attic, upgraded insulation, tight envelope, extremely high performace HVAC, solar water heater, passive solar design, etc. Point is, we are not just doing a few small things and calling it green, trying to go the extra mile, shooting for a HERS below 50.

The appraiser and the bank said they do not give any extra “credit” for green features. One of the comps they used was over 25 years old so not even on par with a code house from an energy code perspective. Does anyone have any experience with negotiating (I mean educating) with appraisers. Are there are guidelines they should be following that I can refer them to. Bank does not seem interested in helping much either.

Any advice at all would be appreciated.

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  1. Riversong | | #1

    Find another bank. Often local savings & loan institutions are both more in tune with the community and more open to different approaches.

    I had a client receive a construction loan and mortgage from an S&L for a super-insulated house built of ungraded roughsawn lumber on a shallow, frost-protected foundation, with no central heat (passive solar and woodstove only), and no flush toilet (the first state-approved indoor site-built composting toilet).

  2. David Meiland | | #2

    Yeah, find a bank that is familiar with energy efficient mortgages and have them send their appraiser out.

  3. Danny Kelly | | #3

    Thanks David - I'll check those out. Yes Robert - recommended a few local banks to him - hopefully he will check them out.
    Thanks guys.

  4. GBA Editor
  5. Danny Kelly | | #5

    Thanks Martin - should have know better - will try a search next time.

  6. greencountryhomes | | #6

    Danny , the real sad truth is unless the Appraiser has Green comparable sales AND understands Green / High-Performance homes , it won't appraise . I'm a licensed Appraiser ( who doesn't actively do Appraisals ) , Green Builder & RE Broker and empathize with you 100% . Despite my strong personal feelings , most Appraisers hands are tied by comparable sales in your area - No Green Comps.... No chance for a realistic Appraisal . It is a cart & horse thing plus an education opportunity for Appraisers & Builders .
    I lost a home last year which was a $340,000.00 lot house package (Gold Level Green ) , an educated appraiser gave me a $25,000.00 "Green" adjustment , the bank review Appraiser struck it down , as there were no Green comparables to make such an adjustment , only common sense . They would not take the Appraisers 40 + years of experience & the fact that the Appraiser lives in a Green home & understands the benefits of reduced heating & operating costs into account . The rest of the story was that the highest comparable sale in the subject township the 3 previous months was $220,000.00 & the adjacent township was $260,000.00 for the same period . Of course , only depressed foreclosures & first time hombuyers were in the market then to buy , at any price . I got an appraisal on the home of $315,000.00 , which was then reduced to $285,000.00 by the Bank Review Appraiser . The homeowners walked because they thought they were "overpaying" by $55,000.00 and there were no comparables in the market to " justify " "real" construction costs , let alone " Green " adjustments .
    At this point in time , Green Building , in many markets , is like the $1,000.00 bath faucet - the appraiser gives you no extra value for the more expensive faucet that does the same job as the $75.00 faucet . They have no comparables to justify the maket paying more . The only type of new homes Appraising , in many markets , is " the code built shoebox with windows " on " severely reduced priced lots " ! Those of you in Markets where Green building is widespread are lucky , as you do have some comparable sales of Green Spec Homes , but in most markets very few Green homes have been resold , so there is no sales data to use . I know this doesn't make your situation better , but reality is often cruel .
    My suggestion is to allow Appraisers to make adjustments for utility savings based on the current interest rates . When Appraisers appraise income producing properties , they factor the cost of utilites into the value of the property... the higher the utility costs ... the less net income ... therefore less value . This would only help with the Energy Saving components to Green , but it would be a start . This would then allow another adjustment from the 25 year old comparable sale to the new subject comparable sale , besides depreciation .
    I would love to hear some other realistic ideas on Green Appraisals ! Keepin' it Green !

  7. Armando Cobo | | #7

    Appraisers and Banks are tied down to their own regulations that unless they can find realistic and updated green comps, there is very little they can do for the builder. Builders need to realize THEY need to start listing their homes, INCLUDING THE PRESOLD, on the MLS listings so appraisers can fin comps. Most builders don’t do it because it cost money and since the house is sold, who cares.
    Bottom line is up to builders to fix this issue. I know in NM and other States, some HBAs are working with the Realtors Assoc. to have a reduced rate to list their presale or custom homes. It’ll take a while to build up, but it’s going to be the only way for some time.

  8. Ron | | #8

    "Painted GREEN or Certified NAHB GREEN " Which would you choose?
    I proudly sold the 1st NAHB certified Green and (D.O.E.) Energy Star Qualified Home in my local community. I was not surprised when I heard the appraisal came back lower than expected (breaking even w/R.E. commission fee and Conventional built comps.).The Economy, Lending institutions, Appraisers,Local,State, and Federal government are still riding in the hot seat. Therefore , don't expect any gains at this time.
    I personally informed the Appraiser ahead of time of 2x6 walls,radiant barrier,Certifications, and asked if I could offer more info. His Reply was "I'll call you if I need you."
    My only thoughts would be to consider the amount of foreclosers in your market. These homes have become a large liability for the banks & they seem to be top priority to sell. The comps are controlled or regulated no matter what reason. I have seen alot of so call good old boy system in my 25 years in the building industry.
    The new home owner(s) are extremely happy and fully understand the built home. I would do it all over again, but with a different approach. You as a Builder must really sale your homes! ...

    I gave powerpoint presentations to Brokers,Appraisers, and anyone in site.

  9. Danny Kelly | | #9

    Interesting thought - would be nice if there was a way to compare foreclosure rates of "green homes" vs code built homes - may be something there. Does a green homeowner stay more committed to their home?

  10. Chad Statz | | #10

    No sour grapes here, but the appraisal industry is with the Flintstones when it comes to High-Performance Building. We have had several projects not happen because of the comps. I like Danny Kelly's idea.....not to mention that the typical customer we build for that wants a superior efficient home is most often well researched on the value of what they want.

  11. Robert Hronek | | #11

    First you have to understand value versusu cost. What it costs to build a house may not be what it is worth. If you spend an extra $50,000 o energy efficient features but the market does not value those improvements than cost does not equal value. You have what is commonly referred to as an overimprovement.. Swimming pools in most locations are a classic example of an over improvement, they cost more than they add to value.

    You also have to understand the appraisers job. His job is to measure value based on what is happening in the market. The appraiser has to justify the market value of a home based market acitivity. That is they prove that a similar 2,000 SF home with similar features has sold for $xxx,xxx. The appraiser is able to show a market acceptance and demand for that house.

    Take the same home an add $25,000 or more in enery efficient improvements. If they have been no sales of similar homes how do you prove what the general market will pay for it. You can not use the cost to build.and call it market value because you have not proven what the general market will pay.

    For years we have gotten away from the tried and true methods of lending. Now lenders are going back to demanding proof of value. I dont see how you can blame the lenders when there is not a proven market for such a product. I would not want to be an investor who purchased a loan not knowing its true value.

    You have to also look at it from the appraiser's standpoint. The banks have beaten the fees down for years and have driven out many of the good appraisers. On complicated assignments there are not willing to pay extra. for an appraisal that will take considerably longer to complete and more skill. The bank and the borrower would not agree to doubling or tripling of a fair fee and not a discounted AMC fee.

    The question is how to value these properties at a true market value and not based on the cost to build. When lending you always have to take the view that the borrower may default on the loan. If that happens how much will the next buyer be willing to pay. Will they any thing more, 50% or 100% of the additional costs. Whom should bore this risk. Borrowers may be required to put more more down.until market demand and market value can be proved.

  12. Quick Turn Quality Appraisals | | #12

    Hello, my company has been appraising Green Built & High Performance Energy Star homes for over 4 years in NC. I am making adjustments under Quality of Construction (Green vs. Traditional Built) and under energy efficiency (use the HERS rating, with excel sheet documentation). USPAP guidelines states an appraiser should be competent to accept an assignment. Green Const & High Perfomance Homes are considered to be complex properities. Only an appraiser that is competent in appraising these homes should be assigned.........There is CE credit available and designations available to appraisers finally. I am the "Triangles Green Appraiser" and all my staff are GreenValuation Specialists. We all recently took a 14 hour (2 day) class and exam. Make sure your appraiser is competent to accept this assignment so go back to your lender and request an appraiser that is knowledgeable to do your home. Karin Argeris

  13. Danny Kelly | | #13

    Karin, Thanks for the tips. Will be sure to request this next time.
    We were able to find a new lender and appraiser to get the deal done - pretty sure she did some of the same things you mentioned - when she contacted me while she was performing her appraisal, she did ask several good questions about the efficiency, etc. Not exactly what she did but she did get us extra value for these items. Will keep your info onhand for the next one.

  14. Jeff_Gephart | | #14

    Start asking for appraisers listed on the Appraisal Institute's Sustainable Buildings Professional Development Program Registry:
    There are not many there now but lenders need to be put on notice that they need to hire competent appraisers and this is their industry's professional development program.

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