Identifying the value of ‘green’ homes

Ken P. Wilson

Energy-efficient homes can provide numerous benefits to homeowners, including lower energy costs, improved comfort and reduced pollution. Lenders who issue loans on high-efficiency properties can also see great returns. While homeowners and lenders can benefit from energy-efficient properties, appraisers can help make the case for green appraisal value.

Residential ‘green’ construction trends McGraw Hill Construction released findings earlier this year from a new Green Home Builders and Remodelers Study produced in conjunction with the National Association of Home Builders. Green homes made up 23 percent of the overall residential construction market in 2013 and are expected to grow to between 26 percent and 33 percent of the market by 2016. This equates to a doubling in the value of green home construction over three years, growing from $36 billion in 2013 to $83 billion to $105 billion in 2016, based on the current McGraw Hill Construction forecast for total residential construction. The study reveals customer willingness to pay for green features:

• Sixty-eight percent of builders report their customers will pay more for green, up from 61 percent in 2011. • Eighty-four percent of remodelers report the same, up from 66 percent in 2011. • In 2013, 16 percent of builders were dedicated to green building with more than 90 percent of their projects green, and an additional one-fifth were highly invested in green activity with 61 percent to 90 percent of their projects green. • Twenty percent of builders expect by 2015 to work exclusively on green buildings, with nearly an additional one-fourth doing 61 percent to 90 percent green work. • Remodelers are also increasing their attention to green work, with 16 percent reporting more than 60 percent of their projects are green today; that figure is expected to grow to 23 percent doing this amount of green remodeling in 2015 and 32 percent by 2018.

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Evaluating competency The Appraisal Institute has been training appraisers for six years on evaluating high-efficiency properties and making supported adjustments for green and energy-efficient features. A disconnect remains, however, between lenders’ expectations about valuing green features and the tools, techniques and requirements appraisers use and adhere to when generating credible, reliable opinions of value for such properties. Contrary to some misconceptions, lenders – as well as builders, borrowers and agents – have a right to demand a competent appraiser. Since June 2008, the Appraisal Institute has offered more than 400 individual courses on green and energy-efficient valuation, and nearly 5,600 professionals have participated. The Appraisal Institute recently expanded its online registries of residential and commercial appraisers from its Valuation of Sustainable Buildings Professional Development Program. Placement on the registries shows potential clients and employers that these individuals have obtained knowledge on this specialized topic. The Appraisal Institute expanded the list of those eligible to be listed in the online registries in response to requests from clients seeking to hire commercial and residential appraisers who had taken AI’s green and energy-efficient valuation education.

Residential Green and Energy Efficient Addendum The Appraisal Institute released its Green and Energy Efficient Addendum in September 2011 and updated it in March 2013. The first form of its kind intended for appraisers’ use, the addendum is offered as an optional addendum to Fannie Mae Form 1004, which is the valuation profession’s most widely used form for mortgage lending purposes. The recently updated addendum is intended to be easier for appraisers, lenders and consumers to use and understand. It reflects input from the U.S. Green Building Council and the National Association of Home Builders. The updated addendum also includes a glossary to assist appraisers, lenders and consumers. The Appraisal Institute encourages lenders to provide the addendum to homeowners so they can fill it out and return it to the lender, who then can share it with the appraiser.

Future growth and knowledge When lenders begin to qualify appraisers by requiring proof of competency and minimum education requirements, this qualification will become the standard for valuing green and energy-efficient homes. The Appraisal Institute earlier this year released a new book, Residential Green Valuation Tools, by Sandra K. Adomatis.

Ken P. Wilson, MAI, SRA, of Plano, is the 2014 president of the Appraisal Institute, the nation’s largest professional association of real estate appraisers. Based in Chicago, the Appraisal Institute has nearly 22,000 professionals in almost 60 countries.