Green and energy-efficient homes offer a ton of value to homeowners and homebuyers, thanks to their energy savings and safety, health, and comfort benefits. But how do we figure this value into home appraisals?
Green home appraisals are a hot topic as green and energy-efficient properties continue to gain in popularity. Read on to learn more about green home appraisals and the improvements that are helping the process to become more efficient.
Green Home Appraisal Considerations
When appraising a high-performance home for a real estate transaction, it is essential to ensure that the data on its green features—including builder or homeowner purchase costs—are accounted for. Appraisal assignment is also critical, as you’ll want an appraiser who is knowledgeable about green homes. And preferably there will be comparable data available to evaluate the higher value of a home with green features.
First let’s review some of the high-performance features found in green buildings today:
- Upgraded windows, roof, siding, and doors that reduce energy consumption
- Solar, wind, and geothermal energy systems
- Energy-efficient lighting and other Energy Star–related improvements
- Newer HVAC systems with the latest energy-saving technologies
- High-performance faucets that conserve water and save money on water bills
- Low-flow toilets
- Sprinkler systems with water timers
- Energy-saving kitchen appliances
Challenges with Green Home Appraisals
One of the most crucial components of a home’s appraised value is how it compares against other similar homes in the same neighborhood that have recently sold. If there are no comparable properties (comps) with the same green features, that presents a problem for the valuation of green homes.
There are different types of home appraisals, but most are performed using the sales comparison approach. With this method, the appraisal’s accuracy depends on comparable properties. Appraisers cannot assign value for green features if they don’t have other green homes to use as comps.
Because green appraisals require more focus on property upgrades and the associated costs, it might make more sense if the appraiser used generic stats to adjust values, not specific property stats. This is an area where changes are still needed.
How Green Appraisals Are Becoming More Efficient
Green home appraisals are heading in the right direction, though. Here are a few examples.
HERS score allowances
There are some allowances for green construction in the appraisal process, based on a home’s HERS score (Home Energy Rating System).
A HERS score of 100 means the home reflects 2006 energy efficient requirements. This is the standard home efficiency. A HERS score of 50 means the home is 50% more efficient than the standard new construction home. A HERS score of 0 (net zero) means the home produces as much energy as it consumes, through solar panels, gray water filtration systems, geothermal heating, etc.
Some of the allowances that assist homeowners include the following:
- Fannie Mae allows the energy savings to be included as direct income to the homeowner, meaning that they can qualify for higher mortgage amounts.
- FHA and Fannie Mae have programs in place to finance up to 100% of qualifying energy-efficient improvements.
- Finally, there are other provisions that allow home appraisers to attribute additional value to properties with a low HERS score.
Documentation of green building features
Homeowners and builders can proactively provide third-party documentation to the appraiser on a home’s green features. These should include purchase costs and the cost savings since installing these features.
This documentation can include Energy Star and other green certifications, along with detailed information on all green improvements and home energy upgrades, including solar panels, water conservation fixtures, insulation, heating/cooling, and so on.
Finding an experienced green home appraiser can be difficult. Finding one who is “green certified”—indicating that the appraiser has completed a training program on how to assign value to homes with renewable energy systems, energy efficiency measures, and other green building features—might be even more challenging.
The good news is that Kairos Appraisal Services has spent the past two years building a national panel of certified green home appraisers. These qualified appraisers have experience with green homes and have proven to deliver the high-quality, fast reports that Kairos has set as the new standard.
During a real estate transaction, builders, homeowners, and real estate agents may request a green-certified appraiser—or at least one who is knowledgeable and experienced with green home appraisals. This helps ensure that the home’s green features are figured properly into the valuation.
Residential green appraisal addendum
The Appraisal Institute provides the Residential Green and Energy Efficient Addendum (form number 820.06). This is the first green appraisal form. It ensures that appraisals accurately reflect a home’s high-performance features, benefits, and reduced operating costs.
Anyone involved with the property, including the homeowner, builder, or real estate agent, can complete this form and provide it to the assigned appraiser. Green appraisers can also fill it out based on their inspection and documentation provided by the other parties.
Completing the addendum won’t guarantee that the home will appraise at a higher value. But giving the appraiser this essential data ensures that they will be well-informed as they perform the appraisal.