Wednesday, February 28, 2024 | The Latest Buzz for the Appraisal Industry

Appraising Eco-Friendly Homes: Things to Consider

The advent of green homes and energy-efficient improvements has made appraisals more challenging. Evaluating sustainable properties is an uphill battle primarily because of scarce reliable data. When appraising eco-friendly homes, consider these factors to perform your job correctly.

 

 

 

 

Relevant Forms

In March 2023, Freddie Mac and Fannie Mae announced the Uniform Mortgage Data Program (UMDP) — an effort to improve the quality of mortgage data. This initiative involves building a single flexible report and retiring current ones — including Form 1004 — to standardize appraisal data by 2024. Dynamic reporting, increased objectivity, Uniform Appraisal Dataset expansion, MISMO alignment and data review democratization are some benefits you can expect from it.

The UMDP can solve the pain points you face when evaluating eco-friendly homes. Currently, Form 1004 provides space for special energy-efficient items, referring to features optimized for sustainability. Personally owned solar panels, high-performance windows, demand-type water heaters, programmable thermostats and insulated ductwork fall under this category. The same applies to energy-efficient ratings and certifications.

When adjusting property values, Fannie Mae lets you use either the cost or income approach. You can also analyze market demand for relevant energy-efficient home features.

Considering Form 1004 treats green home features as an afterthought, you must still fill out the Appraisal Institute’s Residential Green and Energy Efficient Addendum to give them justice in your report. Freddie Mac and Fannie Mae’s new appraisal form design will probably be as comprehensive as this secondary document — if not more — to keep up with the times and help you produce more accurate valuations.

 

Green Appraisal Training

The system has been so unfit for sustainable property valuations that the Appraisal Institute started to provide training on how to appraise them. This program has produced a crop of professional appraisers attuned to assessing green homes and conventional houses with energy-efficient features.

You must undergo the Appraisal Insitute’s Valuation of Sustainable Buildings Professional Development Program and pass requisite exams to see your name in this public database. Its courses will give you a primer on green buildings, present you with case studies, teach you the ins and outs of solar valuations, and prepare you for real-world challenges.

Being a green appraiser is advantageous for your career. It opens more doors for you since green builders encourage homeowners to ask mortgage lenders to choose a qualified professional who can form a more credible opinion of value on eco-friendly properties. With this title, you’ll be to ordinary home loans what energy consultants are to energy-efficient mortgages.

 

Homeowners’ Documents

Proper documentation is the key to green appraisals’ success, so fastidious record-keepers are your friends. The more homeowners realize their role in green assessments, the more motivated they’ll be to document all things energy efficiency to help you do your job well.

Homeowners can compile contracts, certifications and other relevant third-party documents related to their green improvements. These papers can help you put a value on asphalt shingles with a three-year solar reflectance of 0.15, garage doors with a 20.4 R-value, skylights with a U-factor of 0.60 and so on.

 

Multiple Listing Services (MLS)

Multiple listing services (MLS) are as vital to you as to realtors and agents. Yet, these databases still need to be more helpful regarding green valuations.

You may end up empty-handed if you use an MLS when finding comparable sales (comps) to finish a report on a house with high-performance qualities. The listings either exclude or hide green features in the private comments. They fail to paint a complete picture of homes’ energy efficiency for appraisers.

Moreover, the MLS leaves out custom homes and favors resales, hurting the interests of sustainable housing developers and environment-conscious buyers. You can’t find green comps quickly and accurately until real estate agents include them in the databases.

Filling out the free-to-download Residential Green and Energy Efficient Addendum is an excellent workaround. The Appraisal Institute’s president-elect Sandra Adomatis suggested it to realtors and agents at the 2023 REALTORS Legislative Meetings. Completing this form and attaching it to the MLS is extra work, but it will be a massive step toward identifying the right comps.

More insightful photographs make a difference, too. Some listings only feature a few images and provide little to no evidence of green features, disqualifying them from comps consideration.

Minimal photographic evidence should no longer happen in the digital age. Real estate agents should ensure all listings have a library of images and highlight snaps of high-performance home components to aid green appraisals.

 

Alternative Comps Sources

Broadening your search area and going back further in time are pragmatic techniques to increase your chances of finding green comps. Before you take this route, check out sale-by-owner homes and look into public records to discover private sales. These sources are a gold mine for properties outside MLS databases.

 

HERS Index Scores

Use Residential Energy Services Network’s Home Energy Savings Database (HERS). This public resource gives you access to critical information on properties’ energy efficiency based on the HERS Index scores, and helps you determine how far or close they are from net-zero homes. This database includes details about HERS raters so you can verify their certification status.

 

Overcome Green Appraisal Challenges

Green appraisers have made inroads over the years, but some of the long-standing sustainable housing valuation hurdles persist. The industry’s somewhat slow response to such obstacles can be frustrating, but the worst part is over. Soon, the stars will align to simplify the green appraisal process and make your life easier.

Tom Armstrong, MAI

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