Wednesday, February 21, 2024 | The Latest Buzz for the Appraisal Industry

Sustainable Housing Isn’t Getting the Appraisal it Deserves. Why Is That?

Home appraisals can be a nerve-wracking but exciting time for homeowners. How much has your house’s value changed in the last few years? In 2023, the housing market is still favorable to sellers. Your property value can vary based on numerous factors, including the upgrades you give it.

 

 

 

 

In the last few years, homeowners have emphasized sustainability, completing renovations to reduce energy consumption and minimize their carbon footprint. Green building has increasingly become a critical factor to buyers, but they don’t affect the appraisal significantly. How can appraisers fix this problem? What sustainable features add the most value to a home?

What Negatively Affects an Appraisal? 

Appraisals are a critical component of the process, whether you’re buying, selling or refinancing a home. The lender needs an appraised value to calculate how much they’ll offer you in a loan for the property. While many features can boost home value, other factors decrease the value in an appraisal. Some examples include:

  • Poor maintenance: An overarching theme for appraisers is how well you maintain your house, whether construction finished in 1910 or 2010. They’ll start with structural components like the foundation. Appraisers will also look at each room to see how you’ve maintained the floors, walls and electrical systems. Showing neglect for particular areas can bring down your home value.
  • Outdated interior: A well-kept interior can still lose home value if it’s outdated. Appraisers will look in your house — especially the kitchens and bathrooms — to see if any areas need remodeling. Even if the rooms are tidy, they’ll still need modern appliances and colors. For example, a white refrigerator was popular in the ‘80s and ‘90s, but in a recent survey, 75% of real estate agents said stainless steel is the most popular among buyers.
  • Flood risks: Another part of a home inspection is its vulnerability to flooding. The appraiser will investigate whether your house is in a flood zone according to the Federal Emergency Management Agency’s standards. Though homeowners can’t control the weather, flood risks still impact the value. A Stanford University study found houses in floodplains lost about $11,526 on average because of their location.

Why Are Appraisers Undervaluing Sustainable Housing?

Global warming has become a more significant issue in real estate. Many home buyers are concerned about how long a home will last, considering how the planet’s climate has changed. Homeowners have started renovating to improve their sustainability, reaping benefits now and when they sell. Green features extend the life of a home, but appraisers often don’t give the credit the houses deserve.

One issue comes from multiple listing services (MLS) — databases for real estate agents, buyers and sellers for listing properties. But the MLSs have problems with green buildings. Appraisers often compare nearby houses in the MLS when setting a home value, but problems arise when an MLS only accounts for resales and excludes custom homes. Leaving out custom homes negatively impacts developers who want to construct green buildings.

For example, say a lender pre approves a customer for a $500,000 home. The buyer gets everything they want in the home, including an array of solar panels on the roof. The value of the panels is $20,000. However, the appraiser might not include the cost of the solar panels in the appraisal, leaving the buyer to cover the cost themselves with cash.

Appraisers often leave out green features like solar panels because these aspects fall under custom homes. One way to fix sustainable housing values is to include green elements in the databases — it’s easier to see the impact of green features in cities and states with more programs. But more work is necessary for rural homes with fewer comparisons.

What Sustainable Features Add the Most Home Value?

Whether buying a home or building a customized unit, sustainability has become a critical factor for buyers. Sellers are using green components to increase their home value and sell faster. These three sustainable features add the most value for homeowners.

1. Green Windows

Home value starts with energy efficiency — one of the highest priorities for home buyers who want to decrease their carbon footprint. One way you can increase your home value and energy efficiency is with green windows. A National Association of Home Builders (NAHB) found 83% of buyers desire Energy Star-rated windows. Thirty-nine percent say this feature is essential when buying a home.

Green windows are a significant upgrade when your current windows are old. Natural lighting is essential inside a home, but the sun’s rays can increase the temperature of your interior, leading to increased use of your air conditioning unit. Windows with multiple panes increase insulation in your house and make it more comfortable. They also help your wallet by increasing energy efficiency by 30% and lowering utility bills.

2. Solar Panels

Another excellent way to increase energy efficiency is by installing solar roof panels. This upgrade requires a more significant investment, with panels typically costing thousands of dollars for a 6-kilowatt system. However, the federal government has incentivized homeowners to install solar panels for the next decade. The recently signed Inflation Reduction Act extends the solar tax credit through 2034 and homeowners can get a 30% tax credit for installing solar panels.

Solar panels are an effective solution for homeowners to save money now and add home value for the future. A study by Zillow shows homes with solar panels sell for about 4.1% more than comparable houses without solar energy systems. That number can increase depending on the market you live in. For example, homes in Orlando, Florida, sell for about 4.6% higher with solar panels.

3. Energy-Efficient Appliances

Your home’s interior has a significant impact on the appraisal value you receive. One way to update your home and make it appealing to buyers is to get energy-efficient appliances. Specifically, you’ll want devices approved by Energy Star — a program part of the Department of Energy and the Environmental Protection Agency. Homeowners typically save about $450 annually by using Energy Star appliances.

In the NAHB study, 81% of home buyers say they want to see Energy Star-rated appliances in the home and 33% say it’s a must-have feature. A study by Zillow shows efficient systems sell a home faster. For example, a tankless water heater improves a home’s time on the market by two days and a programmable thermostat sells a house six days faster. 

Getting an Improved Appraisal

Appraisals can be unnerving for homeowners looking to sell or refinance their homes. The details can quickly become nitpicky. Maintaining a high home value is challenging, but homeowners can do it by emphasizing green features that improve resale value.

Sometimes, sustainable housing doesn’t get the appraisal it deserves because an MLS doesn’t account for custom houses. If you want to sell your home, find an MLS that accounts for custom-built homes — it will acknowledge your green features and increase your property value.

Tom Armstrong, MAI

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