It is no secret that log homes do not appraise well. In the past, almost every major log home magazine has posted an article on the topic. The question is raised as to what is the real problem with log home valuation and what is the problem with appraisers working in the niche log home market? Many appraisers in urban areas like Chicago believe that the log home market is irrelevant and is not worth exploring. However, statistics do not support this logic. The last known statistic estimated that 60,000 log homes are built in the United States each year. The American Institute of Architects has estimated that 9% of “Custom Built” homes being constructed in the United States are of log home construction. Log Homes have an average construction cost of $450,000 per unit, which means that the Log Home Industry is a multi-billion dollar a year industry.
It’s apparent when someone has little to no knowledge regarding log home valuation. Currently, the Appraiser Qualifications Board, Course approval Program or Cap, has yet to approve a single class specific to log home valuation. With all the construction of log homes, there needs to be legal and competent appraisals for these homes. The question is how are these homes being appraised?
As an appraiser, you can find a detailed class on how to appraise a water tower conversion to a single-family home or a sub-terrain home, but you cannot find a single class on how to appraise a log home. Are there 60,000 water tower conversions to single family homes being built each year in the United States? Is the water tower conversion market a multi-billion dollar industry?
So, the real question is: How are appraisers following USPAP and meeting competency requirements if there is absolutely no education on the subject of “Log Home Valuation?” Presently, there are several new rules and regulations that could result in major USPAP violations, but those rules vary upon the state, county and/or township. Most of these rules deal with “energy compliance” to see if a log home is up to code or if a log home is illegally being constructed. These energy compliance rules change quickly and without warning. However, the Highest and Best Use Analysis tells us that a log home must be legally compliant and/or Legally Permissible and the findings of the analysis must be relayed to the intended user of the report.
If an appraiser has never heard of the ICC-400 they should NOT be appraising a log home.
The truth is that not all log homes are legal and depending on the location and climate, different log thicknesses are required to be legal. Most appraisers attempt to blame the local building inspectors, builders, or log home sales companies if a log home is not compliant. The real issue is that when the appraiser is preforming a pre-construction appraisal, an educated, knowledgeable appraiser can quickly determine if a log home is compliant with the required building codes and most importantly if that “Subject Property” or log home meets Federal Lending Requirements. In addition, each and every home in the United States must meet a minimal energy compliance standard to be eligible for a federal back loan. These rules do apply to log homes because quite frankly, they have been ignored.
Most appraisers would gladly take a log home valuation class if it was offered to the public. Why wouldn’t an industry as large as the log home industry become proactive and push for better appraisal performance? Why doesn’t the log home industry push appraisers to become better educated on log home valuation? The log home industry or manufacturers are fully aware that log homes do not appraise well. So, why does the log home industry not attempt to contact the Appraisal Institute, American Society of Farm Manager and Rural Appraisers, the Appraisal Foundation, or other national organizations?
Presently, the log home industry is run and funded by the larger log home suppliers. Most log home builders are no longer involved with making industry decisions, while the large suppliers have taken over the log home industry’s standards and compliance research. In recent years, the log home suppliers have developed organizations that have successfully lobbied for lower energy standards in log homes through the International Code Council or wood product organizations. These standards might have gone below the national lending requirements because of the log homes niche market and the lack of monitoring by lenders and appraisers.
An interesting fact is that the first time wall insulation became a national code requirement was in 1965, the year that an R-8 value was adopted as a minimal insulation requirement for residential homes in the United States.
Fifty-seven years later, the log home industry and manufacturers have created a new standard that has lowered R-Values for log homes to an R-Value of 7.5. In essence, the R-Values for log homes now is lower than it was in 1965. That’s hard to believe!On top of that, the log home industry was able to do this without debate or opposition. These new standards attempt to lower the wall insulation requirement by providing the customer with thinner log walls forcing the new home owner to add more roof insulation and/or by adding numerous energy offsets in other areas of the home.
Keep in mind that in most areas were log homes are being constructed, a minimal wall insulation value of R-19 or R-21 is required. Now the R-Values have been lowered to a value that is less than it was when it was established in 1965. And this is in an economy where everything goes up and never down.
The Trade Off
The Log Home Industry and manufacturers could easily force their hand and stipulate that appraisers need to be educated with regards to log home energy compliances and building standards. The Log Home Manufacturers could demand appraisers follow USPAP and require that lenders meet all federal lending requirements. Log home providers and manufactures have weighed their options- do they want better appraisal performances or do they want to sell more log homes? The answer is quite obvious.
Needless to say, the Log Home Manufacturers do NOT want the appraisal industry or the lending industry involved with material standards and/or energy requirements. The log home industry or manufacturers do not want appraisers and lenders asking questions about energy compliances. This could be the biggest reason why the Log Home Industry has never pushed for appraisers, lenders, or real estate professionals to take the required educational courses needed to meet USPAP requirements or to meet Federal Energy Requirements. The manufacturers of log homes do not want appraisers, lenders, or real estate professionals looking over their shoulders asking if their products are legal and up to code.
Current rules do not hold the log home supplier liable if a log home is built below the required energy code. All liability falls upon the license holder, i.e, the builder, inspector, appraiser, real estate agent, or insurance agent and NOT the provider of the log home materials or the home sales agent. The manufacturers, suppliers and sales agents will NOT put the building permits in their names. Suppliers, however, will provide the log home kit and a local builder.
An Independent third party should certify if a log home is energy compliant and legal. Each and every log home should possess a Certification of Energy Compliance. Appraisers should follow USPAP, federal lending standards, and satisfy competency requirements. Finally, a new training manual has been created by the Log Home Council. This new training manual discusses the appraiser’s role in the log home appraisal process. The book is titled “A Log Home Valuation” and includes a detailed method on how to appraise log homes, a Certification of Energy Compliance, and finally the required education necessary to meet USPAP and Competency Requirements.
Please contact us at www.loghomecouncil.org for more information.