Appraisers moving forward with green home valuation strategies
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Property appraisers in the United States are gearing up to better evaluate properties with high performance and green aspects with the first of three Valuation Advisories.
In June the Appraisal Practices Board (APB) of The Appraisal Foundation announced the adoption of the first of three Valuation Advisories related to the valuation of green buildings: the Valuation of Green and High Performance Property: Background and Core Competency.
The Advisory offers voluntary guidance to appraisers on the background and competency necessary to credibly value green buildings and/or energy-efficient features. These Advisories are part of an ongoing joint project with the United States Department of Energy (DOE) to develop guidance and educational materials for appraisers on green valuation. Representatives from the DOE are actively participating in the development of these Valuation Advisories as Subject Matter Experts (SMEs).
In June of 2011, The Appraisal Foundation signed a Memorandum of Understanding with the Department of Energy to collaborate on a series of initiatives focused on educating appraisers on green valuation. These Advisories will offer guidance to appraisers so they will be able to provide appraisals in compliance with the Uniform Standards of Professional Appraisal Practice (USPAP), the Congressionally authorized standards for real property appraisers. Over the coming months, the APB will adopt Advisories focused on the valuation of green residential properties, as well as green commercial, multifamily and institutional properties.
In an exclusive ProudGreenHome.com interview, John Brenan, director of appraisal issues at The Appraisal Foundation, discussed the initiatives to provide real property appraisers with the knowledge and tools they need to value both commercial and residential green buildings in a competent and ethical manner.
Q: What is the purpose of the Valuation Advisory: Valuation of Green and High Performance Property: Background and Core Competency?
A: This first Valuation Advisory delivers background information and core competencies to give appraisers the lay of the land in regards to what green building is all about.
It familiarizes them with things like the HERS rating, Energy Star and other programs that are out there, as well as different terms and resources. It's not necessarily the single source on the subject but more of a framework of what resources are out there, a compendium of things like textbooks, courses, websites and journals, those kinds of things.
When an appraiser gets an assignment to value a green building, he or she can read through this to better understand what they're getting into.
Q: What will be in the next Valuation Advisories?
A: One of the next two Advisories will cover valuation of green buildings for one to four unit residential properties and the other will be dedicated to multi-family and commercial and institutional properties. Those two Advisories will be more focused in terms of showing appraisers the specific steps and techniques that are available to familiarize them with green building. It will provide techniques they can implement to properly evaluate green buildings.
They're not meant to be a sole authority on the subject, but they are meant to make sure that appraisers who do see these types of assignments know that they can go and find information and understand the assignment thoroughly. These documents will talk specifically about the methodology that's used to value green buildings.
There will be initial exposure drafts of these documents out in a few months, and stakeholders will be able to comment on them.
Q: How does these Appraisal Foundation's initiatives interact with efforts to add green building information to multiple listing services for the real estate industry?
A: Data is an appraiser's lifeblood, and for an appraiser to make a determination and come to an opinion as to what a property is worth and what the features of a property are worth, appraisers need to have sufficient data. Missing data from the MLS when it comes to green features is a bad recipe for appraisers trying to be able to determine what these features are worth and what people are paying for them in the marketplace.
Adding green features to the MLS is a key component for appraisers to be able to accurately understand what features the property has and to be able to make a determination of what the market is paying for these particular features in any specific market.
Q: What are some of the challenges appraisers face in evaluating green and high performance home features?
A: The one thing from an appraisal standpoint that is tough for property owners to keep in mind is that cost doesn't equal value. You can put a $250,000 house on the market and spend $100,000 on green features, but that doesn't mean you'll get a $350,000 price. But if you have a $250,000 house with $10,000 of green upgrades you may receive a dollar-for-dollar valuation, or maybe even more.
I have solar panels on my home, and when I refinanced the house the appraisal didn't mention the PV system even though I gave the appraiser information on it. So I had them revise the appraisal, and they added $10,000 in value for a "special heating and air conditioning system."
So even I have had issues with having green aspect of my home valued correctly.
There are no formulas that say if you add solar panels to your home that it will add a specific dollar value to the home. That's why the goal for these efforts is to make sure there are appraisers with a good working knowledge and understanding of how to value green properties.
Read more about building green.
Companies: U.S. Department of Energy
Gary Wollenhaupt / Gary Wollenhaupt is an experienced writer and editor, with a background as a daily newspaper reporter as well as corporate and agency public relations and marketing. He is constantly looking for affordable green upgrades to make to his home in eastern Kentucky.