New Form to Help Appraisers “See” Green

Energy efficiency is about to become a brighter shade of green for homebuilders, thanks to a new form put into play late last month by the nation’s largest professional group of real estate appraisers.

Intended as an addendum to the standard appraisal form, the new three-page form for the first time presents appraisers with guidelines they can follow to identify a home’s green features and make an accurate analysis of what they add to its value.

Fannie Mae Form 1004—the appraisal form most widely used for home loan lending purposes—makes scant mention of energy-saving features. So even if a home is loaded with solar panels, low-emissivity windows, and Energy Star appliances, their value is rarely factored into the appraiser’s analysis.

Builders have been complaining about their inability to get “color-blind” appraisers to see green since the sustainability movement began catching on several years ago.

Builders gripe that if they can’t recoup the cost of the energy-efficient features they want to put into their homes, they can’t add them. If a house doesn’t appraise for what it costs to build it, they point out, buyers won’t be able to obtain financing unless they are willing to pay the difference in cash. And few buyers have that kind of money sitting around nowadays.

“Appraisers just don’t get it,” says William Nolan, a Florida consultant to builders. “We can’t get them to appreciate the value [of green products]. And if we can’t get the values recognized, we can’t justify moving these products forward.”

Real estate professionals also grumble about the appraisal issue, maintaining that because green is not part of the process, owners are rarely able to recoup even part of what they spent on energy-efficient features they added to their homes since they moved in.

But the new Residential Green and Energy Efficient Addendum should go a long way toward solving the appraisal problem. It covers practically every green feature known to man—from insulation to appliances to water efficiency to public transportation. There’s even a place for the home’s “walk score,” a rating that measures the ability of the home’s occupants to accomplish everyday tasks without using an automobile.

At first glance, the new form has won high praise. Kevin Morrow, senior program manager for green building programs at the National Association of Home Builders (NAHB), called it “the first domino that needed to fall in order to get proper valuations for green houses so they can compete in the marketplace.”

Jerome Nagy of the National Association of Realtors, however, was a little more reserved. He said his members were “intrigued” by the addendum, adding that real estate agents have long supported anything that “helps consumers get more value for the green features they put into their homes.”

Even industry consultant David Porter—one of the harshest critics of the failure of appraisers to account for the value of energy efficiency—was pleased, calling it “a good start.”

Not that there are not issues with the new form, which is optional, not mandatory.

Morrow of the NAHB, for example, notes that the section that asks for the property’s green rating mentions only the Leadership in Energy and Environmental Design (LEED) certification program. Left off the form is the National Green Building Standard, the only residential green building rating system approved by the American National Standards Institute (ANSI). (ANSI oversees the creation, promulgation, and use of thousands of norms and guidelines that affect business in nearly every sector of the economy. The NAHB’s model green building guidelines served as the starting point for the ANSI standard.)

Porter of Porterworks, a Standwood, Washington–based consulting firm focusing on sustainability, and a longtime lending industry nemesis who believes the mortgage market has all but ignored the green movement, also notes the absence of not just the National Green Building Standard but the many “very legitimate” regional certification programs as well.

“I’m very happy the Appraisal Institute has taken the lead. The form has some really good components,” says Porter, whose firm offers courses of green lending and green valuation. “But several sections need to be tweaked.”

Among other things, Porter says he would like to see the form revised so that the e-certification section comes first—with a line for the appraiser to note whether the certification is third-party verified. “Whether or not [the certification] comes with a pedigree is very, very telling,” he says.

He also says key information about water conservation is missing, as is the window’s U-factor, an important measure of heat gain. “The form,” he says, “is not as complete as it could be.”

Nitpicking? Perhaps. But while the powers that be battle that out, homebuilders who want to get credit for the energy-efficient features in their houses need to make sure that, first and foremost, the appraiser assigned by the lender is trained in green building.

It is “your legal right” to be certain the appraiser assigned by the bank is trained to put a value on your house’s green attributes, Porter advises. “‘Competency’ should be a fighting word,” the consultant contends. “You should expect the appraiser to have a competency in valuing green building.”

Beyond that, builders will want to make sure the appraiser is aware of the new Appraisal Institute Reports Form 820.03. While the institute is the largest trade group for appraisers in the United States, it has just 24,000 members, or only about a third of the nation’s 90,000 licensed appraisers.

Builders can download the form from the Appraisal Institute’s website (look for the news release section, fill it out, and give a copy to the appraiser when he or she arrives at the property).

It’s against the law to try to influence the appraiser in any way. But there’s nothing illegal about speaking with him or her or providing information that will help the appraisal be as accurate as possible.

In fact, Joseph Magdziarz of Appraisal Research in Rockford, Illinois, and this year’s Appraisal Institute president, suggests not only making sure the appraiser is licensed, qualified, and designated, but also accompanying the appraiser during the inspection to point out energy-saving features he or she might otherwise miss.

Meanwhile, next on the agenda of energy-efficiency proponents is an effort to awaken antiquated multiple-listing services to the existence and importance of the green movement. In that regard, watch for an industry collaborative project called the Green MLS Toolkit that will help buyers find green houses, make it easier for sellers to promote their homes’ green features, and support apples-to-apples comparisons in the appraisal process.