Guest blog post by Woody Fincham, SRA, AI-RRS, RAA, and RAC Member
In today’s real estate market, as more buyers and sellers turn to energy-efficient home features, it’s important to understand how these features contribute to a home’s overall value. Appraising a high-performance or “green” home is very different from appraising a typical home without these features. In fact, the Appraisal Institute decided it was different enough to warrant a special addendum, the Residential Green and Energy Efficient Addendum, to use in appraisal reports.
The Residential Green and Energy Efficient Addendum is a six-page document that identifies the high-performing aspects of a home. From a market analysis standpoint, the addendum doesn’t differ much from the usual appraisal form. What is different, however, is that the addendum relies on properly trained third-party professionals to test and report on the various components and systems that contribute to the high-performing home.
The addendum is set up this way for a couple key reasons:
- Very few appraisers are trained or competent in the individual metrics required to complete this form accurately, and
- Attempting to complete the form without proper training may result in liability issues for the appraiser.
This is why the credibility of the third-party certifier is critical.
An appraiser does not have to be an Appraisal Institute member or affiliate to use the addendum. However, in order to be considered for this type of valuation, the Appraisal Institute offers a professional development program – Valuation of Sustainable Buildings: Residential. Once successfully completed, you will be placed on their registry, which lenders and clients use to locate an appraiser educated in energy efficiency.
Let’s walk through some of the key components of the addendum, how it works, and why it’s such an important tool to use when appraising a green and energy-efficient home.
KEY COMPONENTS OF THE ADDENDUM FORM
After identifying the property and client, the form jumps into a list of guidelines that the appraiser must attest to when using the form, followed by a short overview of green building and the six elements of green. These are the elements the form is built around – the cornerstone of high-performing home technology. Every subsection within the form deals with these points in some way or fashion.
Third-Party Verifications Section
In this section there is space to list third-party certifications. The form comes pre-filled with a few common certification organizations to select from. There are also several companies across the country with credentials to perform the certification. I frequently work with Pearl Certification, a credible company whose work I trust.
Pearl Certification is a nationally recognized firm that third-party certifies high-performing homes across the country. Pearl’s certification makes home value visible in homes with upgraded renewable and energy-efficient features, and it includes verified information captured in the Appraisal Institute’s Residential Green and Energy Efficient Addendum. Additionally:
- Pearl’s certification system is approved for use in the U.S. Department of Energy’s ENERGY STAR program for existing homes.
- Pearl is a member of the National Association of REALTORS Sustainability Advisory Committee.
- Pearl is licensed by the Appraisal Institute to complete their special addendum as a third party.
- Types of and R-values of the insulation present
- Building envelope tightness and ACH (air change hourly) for the home
- Type of and style of windows
- Water Heater
- Indoor Air Quality Equipment
- Water Efficiency Equipment and systems
- Utility costs period and number of occupants
- Comments – this section allows homes that may not have a formal rating system to explain the green features that are present, which helps the appraiser finish out step-1 one of market analysis: property productivity analysis
This section of the form outlines key components of the building systems that add to the overall efficiency of the home:
Solar panels are now also included on the Appraisal Addendum. When I am speaking about high-performance homes to agents and the general public, PV solar systems get the most attention. They are probably the most noticeable feature on a home that has them and often the most misunderstood. So again, a credible third-party certification company who understands solar is crucial.
Pearl Certification is, again, my go-to company for solar certification. Pearl’s Solar Certification gives buyers peace of mind when purchasing a home with this innovative technology and helps ensure the home gets fair market value at the time of resale.
The Pearl Solar Certification Report includes:
- A completed Appraisal Institute Green and Energy Efficiency Appraisal Addendum
- Customized letters for the lender, buyer, and appraiser
- A real estate marketing package for agents that includes a “highlights” page, posts for social media, and placards to be placed around the home
FINAL SECTIONS & PAGES
This section deals with where the home site is located in relation to walkability and availability of public transportation in relation to the home site, to determine options available other than automobile commuting. It also covers orientation of the home and its relationship to the sun, which can have positive and negative attributes.
This is a part of the form that allows the disclosure of monetary incentives such as tax credits and grant monies that can be used to perform energy improvements to a home. Each locality will be different, and it is incumbent on the appraiser to understand what is available to the consumer, as it does affect cost.
The remainder of the form contains instructions, additional resources and glossary terms.
WHY IT MATTERS
While the form is not designed for appraisers to fill out themselves, it is important for appraisers to be familiar with the process, requirements, and terms of the addendum form. While it is rare, there have been instances in my own practice where someone has been less than honest about the energy efficiency improvements they did and didn’t have for their home. Plus, incorporating homeowners and contractors in the home valuation process can make sure that the appraiser is not overlooking items.
Appraisers are an integral part of high-performance home improvement. We want to help appraisers recognize their value in this part of the process, sharpen their tools to do a professional job, and in turn, maximize their own value.
Valuing high-performance homes is a specialization that creates another revenue stream for your appraisal business. And that is truly the kind of value-add every high-quality appraiser can and should take advantage of, now more than ever.
About the Author
Woody Fincham, SRA, AI-RRS, ASA, RAA, Member of RAC is the founder and President of Accurity Fincham and Associates, a Virginia based valuation and consulting firm. He is also a member of the national leadership for Accurity Valuation. Woody specializes in high-value residential homes, conservation easements, high-performance homes (green), review and consulting as well as both lender-based and non-lender-based work. He has been a featured panelist at the Association of Appraiser Regulatory Officials (AARO) and presented at the Appraisal Institute annual conference. He has also been a non-member participant in the Collateral Risk Network (CRN) and is an instructor having taught many times on residential topics.