Valuing Green Homes for What They’re Worth

Are your green homes undervalued?  Maybe it’s not the market, but the appraiser.

The problem of homes being undervalued during appraisal can be particularly confounding when it’s a green or high-performance home. Such homes are known to be more energy and water efficient and even more durable than typical homes.

Theoretically, these characteristics should add real incremental value because they can save the occupant real money over time in utility bills and maintenance.

However, too often features that make a home perform better aren’t considered in the appraisal process. There are several reasons for this, but ultimately the issue is that too many green appraisal jobs are going to appraisers who simply aren’t trained to recognize the features and adjust valuations accordingly. This is unfortunate, because it hinders growth in high-performance homes. Builders and owners are simply less likely to invest in features they aren’t sure they can recapture when they sell.

One clever builder and remodeler, Matt Belcher of Hibbs Homes in Wildwood, Mo., came up with a simple solution when he ran into this problem: He just made hiring a qualified appraiser a requirement to buy one of his homes!

Belcher (who certifies his projects to the ICC 700 National Green Building Standard and other sustainability programs) developed relationships with several local lenders who all agreed to require any appraiser assigned to his projects had undergone training, such as that offered by the Appraisal Institute, to become qualified to appraise high performance homes.

For buyers preferring to use their own lender, Belcher developed a clause for his sales contract for the requirement. The language, which has been reviewed and enhanced by the Appraisal Institute, states:

This Home is being built/renovated/updated to nationally recognized standards above prevailing code. It is designed and constructed with unique features and materials and with high efficient equipment and in accordance with high efficiency standards. The Lender shall choose an Appraiser educated and knowledgeable in this type of valuation of these specialized Homes, preferably an appraiser who holds a professional appraisal designation that requires advanced education on such issues as the valuation of sustainable buildings (e.g. MAI or SRA designations from the Appraisal Institute). The appraiser shall provide verification of green valuation education of 14 hours or more from a qualified educational provider and knowledge to be permitted to conduct the appraisal for this project.

The requirement seems to be working too. After one recent episode in which Belcher thought the project was undervalued, he called upon the clause to request another appraisal from the lender, this time to be done by a person whose qualification he could verify. The second appraisal came back reflecting a much fairer value.

NAHB is working with many other organizations to institute change and address several issues, including appraiser qualification, that hinder growth in green building. Builders and remodelers who face green appraisal challenges are encouraged to refer to theNAHBGreen Toolbox: Overcoming Appraisal Challenges for additional ideas.

For more information about this item, please contact Kevin Morrow at 800-368-5242 x8375 or via email at kmorrow@nahb.org.

http://www.nahb.org/generic.aspx?genericContentID=210458

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