Understanding the Residential Green and Energy Efficient Appraisal Addendum
Most appraisers likely agree that research has always been the most time-consuming part of the typical residential appraisal process. Unfortunately, this is especially true when the home being appraised has atypical features that are not openly comparable to other homes in the area. In today’s real estate market, the increasing number of homes with green or energy efficient features has compounded the research issue for many appraisers.
Why changes are desired by the use of the Residential Green and Energy Efficient Addendum?
The Appraisal Institute, a leader in the appraisal industry, has recently taken steps to bring about welcome change in the way real estate appraisal research is analyzed and reported to mortgage industry professionals. As part of this effort, the Residential Green and Energy Efficient Addendum, a seven-page guide originally issued back in 2011, has been updated.
Originally intended for use as an optional addendum for standard appraisal forms for mortgages sold and guaranteed by government agencies and government-sponsored enterprises, the form assisted appraisers in standardizing and communicating certain features of the residential properties.
Updates in the addendum reflect housing market changes that reflect the rising number of homes on the market with some level of solar power or green building features. The addendum’s additional details about these homes can assist real estate industry professionals not only in the appraisal segment, but also in the agent, buyer, and lender segments.
At what point should the Residential Green and Energy Efficient Addendum be added?
With the addendum’s ability to be attached directly to the home’s multiple listing service (MLS) listing, the additional details it offers can serve to help bring welcome attention to any high-performance features the property may have. In that past, many of these added-value features have been largely overlooked during the showing and selling process. Since many valuable green or energy-efficient home improvements may not be easily visible, such as thermal barrier systems, high-efficiency insulation, greywater reclamation systems, Energy Star appliances, and others, they may be easily overlooked.
How can the use of the Residential Green and Energy Efficient Addendum improve the entire real estate process?
In the past, valuable upgrades like these may have only been noted by the lender or appraiser if the real estate agent mentioned them in the marketing materials or the seller listed them on seller disclosure documentation. While some green improvements, such as roof-top solar power systems may have been easily noticed, those that were not easily seen or specifically documented may have had their value discounted or even omitted entirely.
Another objective in which the Residential Green and Energy Efficient Addendum is expected to show improvements is by helping to standardize the way in which incentives for green or energy-efficient home improvements, systems, and appliances are handled in the cost approach section of the appraisal report. If the incentive remains available to the next owner to help with deferred maintenance or repairs, it is of value and should be appropriately explored and valued during the home appraisal process. If, however, the incentive has been exhausted, such as those that apply only to the original building process, it likely has no further impact on the home’s actual appraised value.
What information can be found in the Residential Green and Energy Efficient Addendum?
While the Residential Green and Energy Efficient Addendum can have many benefits, one of the most important will be helping to educate all participants in the real estate process about the real value of green and energy efficient home-building techniques, materials, upgrades, and appliances. Highlights of this information found in the updated version of the addendum include:
- a detailed definition of green building and how it applies to the structure and process of the home
- a simplified list of the six elements found in green building that must be considered, including the site, water, energy, materials, indoor environmental quality, and maintenance and operation, including any savings potential that exists, such as those that would apply to water and energy savings
- a green certification section with checkable boxes for commonly verifiable minimum thresholds, such as certifications by the Environment Protection Agency (EPA), Passive House Institute US, or EnergyStar
- energy labeling from approved sources, such as Department of Energy (DOE) calculation scores
- verified energy improvements, specifically those that have documented cost information available
- sections for specific areas of the structure that are commonly improved under green and energy efficient building or updating processes, including windows, insulation, the envelope of the structure, and appliances
- sections for specific details about water efficiency, indoor environmental quality, and utility costs to help illustrate actual benefits
- a complete section describing home solar systems, including the panel specifications, inverter, battery storage capabilities, and array information
- additional factors that apply to the homes overall energy efficiency such as its walk score, public transportation availability and site benefits, such as water efficient landscaping
- information on incentives, including those that apply on federal, state, or local levels
- Improved documentation, available to all parties involved in the real estate process can help simplify appraiser research, as well as improve the valuation efficiency for the home being appraised.