I recently attended the Energy Efficient Building Association conference and was pleasantly surprised to find that there are a number of builders getting significant value added to the appraisals of their home because they know the process and more importantly they know what the Appraiser needs to know to add value.
The Appraisal Process:
Back in the day there was a “good old boy” mentality in the appraisal world. If you needed a house to appraise at ‘X’ amount, you worked your relationship with your favorite appraiser because you could choose to hire them directly. Of course that has changed. Today Lenders require an Appraisal Broker to run the process. The Broker randomly assigns an Appraiser to evaluate the value of the builder’s property. This new system works well to ensure that unbiased people are doing the work. However, it does not take into account the complexity of different properties. Also, some Appraisers have more knowledge about various types of construction than others and therefore, better understand value-added features incorporated into a high-performance home.
As a builder of these homes, you should explore your Appraiser’s experience with appraising high-performance homes. Simple yet important questions to ask:
- Have you appraised high-performance and energy-efficient homes before?
- Have you used the Residential Green and Energy Efficient Appraisal Addendum Form 820.04?
- Are you familiar with the HERS Index?
- How will you assess the energy features in this home?
If the Appraiser answers are not to your liking, you have the right to request another Appraiser (in a kind manner, of course) who has the appropriate knowledge base for the house in question. You can also suggest (kindly) that s/he continue to learn more about the value of high performance home features, in order to be assigned to your projects in the future.
So here we are, at a point in the discussion where we know Appraisers need to be better educated on high-performance homes. We’ve known that Sales Agents, Superintendents, Trade Partners, Code Officials (really just about everyone) needs to gain a better level of understanding about not only what high-performance home features are, but why they are valuable. Successful Builders are taking matters into their own hands by educating as many people as they can in an effort to increase the appraised value of their homes. Why? Because the appraisal is a tool used to justify the price of a home to lenders. If it costs X amount more to build a well-performing home and a builder wants to be compensated for that extra amount, the house needs to be priced appropriately. If a buyer agrees to that price, the Lender needs to be able to justify the loan risk, which is the purpose of the appraisal. Therefore, if the asking price is higher due to it being a well-performing house then that value can be accounted for on the appraisal.
Besides face-to-face training, site walks, open houses, and other professional education events the Residential Green and Energy Efficient Addendum Form 820.04 is another educational tool that Builders are using to help the appraisal industry get up to speed. The Appraisal Institute’s Green Addendum is the first developed by Appraisers, for Appraisers. The Addendum highlights features in homes that can add value to the appraisal. Proactive Builders are taking it upon themselves to fill out Form 820.04 and provide it to the appraiser. A Builder cannot unduly influence the appraisal process but they can ensure that the right person is on the job and has the correct resources to do that job well. Providing the Green Addendum ensures that.
If an appraiser is supplied an Addendum Form for every high-performance house, it would leave little question on the comparability of the data. It also aids in a more accurate valuation of the property. EnergyLogic highly recommends getting involved and using this valuable resource.
There are a quite a few interesting YouTube videos on the Residential Green and Energy Efficient Addendum located here
A couple of the best are:
- AI’s Residential Green and Energy Efficient Addendum: What Appraisers Need to Know
- Appraisal Addendum Webinar: Meritage Homes’ Perspective
Thank you to Michael Hobbs with Pahroo Appraisal & Consultancy in Chicago for his technical review of this piece. Michael is a certified appraiser and a wealth of information and has offered to answer additional questions. Michael can be reached via email at email@example.com
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