Appraising a House as “Green” to Add Value

As homes have become greener and even reached net zero status (i.e., the total amount of energy used by the building on an annual basis is roughly equal to the amount of renewable energy created on the site), it’s become more important for sellers and builders to tout such advantages to buyers who are eager to lower their heating and cooling costs, improve their home’s air quality, and better protect the environment through choices such as low- and no-VOCs (i.e., volatile organic compounds).

 

Sandra Adomatis of Adomatis Appraisal Service in Punta Gorda, Fla.

Sellers can provide potential buyers with a list of green features such as roof-mounted solar panels, LED lighting, and EnergyStar appliances. But getting an appraisal conducted by a person who’s been educated in what represents green is key to a more accurate appraised value just like using a real estate salesperson who has a National Association of Realtors Green or Eco Broker designation when listing a home will help insure proper marketing to obtain the best sales price. Such appraisers can be found on The Appraiser Institute’s Green Registry and also at the Earth Advantage site. We talked with real-estate appraiser Sandy Adomatis of Adomatis Appraisal Service in Punta Gorda, Fla., to share what sellers should be aware of if they own a certified green home or one with a number of green features. She also outlined what buyers should know if a truly green home matters to them when they make a purchase.

 

GREEN: How long have appraisals that play up green features been available?

SA: About nine years. There’s no such thing as a green appraisal but there are now appraisals conducted that take green features into account in valuing the home because more appraisers are becoming educated in how to recognize green features and how to analyze them.

 

GREEN: What type of education is involved?

SA: The appraiser who is listed on the Appraisal Institute Green Registry has taken at least 14 hours of green education courses and passed two exams. The result isn’t a certification, however. It simply illustrates that person has taken proper education courses and passed the exams in this special property type.

 

GREEN: What are the most important green trends the appraiser will identify?

SA: Many different ones are cited by organizations that certify green homes such as the National Green Building Standard or Home Innovation, LEED, and EnergyStar. Appraisers go through the scoring sheets these organizations provide. While they all are a bit different in what they highlight, they all focus on the same six elements of green building known as site, water efficiency, energy efficiency, indoor air quality, materials, and operations and maintenance. If a home is considered net zero—which means it produces as much energy on site as its occupants consume over the period of a year—that’s covered in the energy efficiency element of green building.

 

GREEN: But how do you quantify the home and its features’ greenness?

SA: The best way is for a seller to provide the Appraisal Institute’s Residential Green and Energy Efficient Addendum, which is recognized by the market as a communication tool. For example, it would list what the HERS rating is, which indicates the home’s energy efficiency. We also look at its lighting to identify energy efficient light fixtures using LED and CFL bulbs, and the efficiency of mechanical systems and appliances. The HERS Report will indicate how tight the envelop is using air changes per hour at 50 pascals and a high performing house will have a tighter envelop than required by code. Energy-efficient windows will contribute to the efficiency of the structure. The orientation of the home and placement and types of windows and doors also affect the efficiency of the structure and provide good solar gain for daylighting. We compare results of the home’s features to what the area’s building code requires; the goal is to have features higher or better than what the code requires.

ResidentialGreenandEnergyEfficientAddendum final

 

GREEN: How many green features do homeowners need to indicate they have a really green home?

SA: If they want it certified by one of the green certifying organizations, they are required to follow that group’s requirements. There’s no single answer because each green certifying organization has a different scoring sheet, though all focus on the six elements of green building noted earlier. LEED has the highest standards. There are so many shades of greenness. And it’s also important to know that some builders don’t have their homes certified green but still call them green because they have incorporated some green features. Some real estate pros call homes with solar “green” homes but those do not by itself make a home green.  This kind of communication creates a lot of confusion in the marketplace for all. The lack of one green standard and limited knowledge of a true green home also hurts the appraised values of homes that are truly green.

 

GREEN: But is it accurate to say that a house with solar panels might be the most green?

Solar panels on multiple energy efficient homes.

SA: No, that’s just one green feature, though it’s a highly visible one. Different features matter more in certain markets. For example, in an area with low electric costs the panels may not contribute much or any value while in a market with high electric costs like California or Hawaii they might matter greatly because of electric costs that exceed $0.20 per kilowatt hour. The market still commands good location whether the house is green—or not!

 

 

GREEN: Any other documentation that’s important besides the AI Addendum?

There is some confusion among realtors as to just what constitutes a green home.

SA: Yes, for the word to get out on an MLS listing. Of the 700 MLS’s in the country, about 225 have a green searchable field, yet very few of those are filled out by real-estate professionals. It’s gotten better over the last eight years but it’s not good enough. So real-estate salespeople need to populate the green fields that apply to a listing accurately. The first few words in the comment section should identify the green features that provide special benefits to the owner. Simply using words like a home with green features or solar is not an appropriate description and leads to confusion or total loss of the green features. Instead, attach a completed AI Residential Green & Energy Efficient Addendum to the listing, put a jpeg of the green certification and HERS Rating in the photograph gallery, check the RESNET US website to see if the address in question has a HERS Rating, and accurately document all in the MLS.  Unfortunately, there is no national mandate that requires that all real-estate pros have to be educated about what’s green, but real-estate pros like appraisers are held responsible for competency in the property types they list/sell or appraise.

 

GREEN: Is it safe to say that part of that may be due to the fact that not all buyers are yet interested in paying more for a green appraised home?

SA: Right. Again, it depends on the market. Some buyers purchase green homes without even knowing they are green for a variety of reasons. A homeowner once stated they had no clue their home was green, they bought it because it felt good because of the good air quality and lighting, which are a result of its green features. And some informed buyers care greatly and seek homes with green features. In a 2015, Washington, D.C. study, we found that green-certified homes increase a home’s sales price between 3 and 5 percent. A recent study in Austin, Texas, showed an even higher 6 to 8 percent increase in the sales prices of green home sales between 2008 and 2016. But I’ve seen less interest in green housing in the Midwest. I conducted a program in a 5,800-square-foot green home in Fargo, N.D., with an annual heating bill of just $700, most of the sales pros and appraisers who attended had no idea that this kind of savings was possible.

 

GREEN: What can a seller or buyer do to have an appraiser appointed by a lender who understands green since the bank makes the choice, not the homeowner?

SA: Buyers can download the “Appraised Value and Energy Efficiency: Getting It Right” brochure that has a list of documents they should take to the loan application including a sample letter identifying the home as green or with green features.  The sample letter alerts the lender that, based on secondary mortgage market guidelines, they are required to hire an appraiser with knowledge of this property type. The link to the Appraisal Institute’s Green Registry is given to assist the lender in finding someone in their area with education in this special property type. However, if the borrower doesn’t identify the property as being green or having green features when they make this loan application, they won’t alert the bank to the importance of hiring the right appraiser. And the green features may not be included in value and may be totally overlooked

 

GREEN: What about buyers doing some research to find out if a home they’re interested in has green certification?

SA: There is no single database but they should check to see if it has had a HERS index recorded by looking at the RESNET US site. It’s a great place to start if the real estate pro or appraiser isn’t aware of the certification.  Some green organizations do provide access to their certified properties by address such as Home Innovation Research-NGBS and also offer a site to find a green home at http://www.ngbs.com/.

 

GREEN: Any other important resources for a green valuation?

SA: Yes, a textbook resource for completing the AI Residential Green and Energy Efficient Addendum is available. It can be purchased at the AI website, and was written by me and published by the Appraisal Institute.  It covers all elements of residential green building and its target audience is appraisers, real estate pros, lenders, builders, and energy raters. It’s not likely to be purchased by buyers and sellers but it is an invaluable resource for industry practitioners.

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