The Power of the Appraisal Addendum in a Seller's Market

As a GREEN Designee, you were exposed to the Appraisal Institute’s Green and Energy Efficient Appraisal Addendum in your training, where you learned that its purpose is to alert the buyer’s lender and appraiser that the home has additional features and value they might not be aware of.

With offers soaring way above the asking price, it’s time to revisit this underutilized tool!

The seller’s market we’ve been living in has grown so hot it’s burning some agents and buyers. Houses are selling faster and for more money than ever, and there doesn’t seem to be an end in sight. National Association of REALTORS® Chief Economist Lawrence Yun predicts new home sales will jump 21% and existing home sales will climb 9% in 2021. He also predicts home prices will rise by 3% in 2021.

There are consequences for market conditions in which your average home is selling for way over the asking price. For example, what happens when the home doesn’t appraise correctly? While this feeding frenzy seems to have uncovered a plethora of buyers with unlimited cash resources who are willing to pay without contingencies, for most buyers, the banks will eventually come calling.

For the listing agent, the Appraisal Institute’s Green and Energy Efficient Appraisal Addendum can be a deal saver. However, most sellers' agents seem unaware of its existence and potential benefits. According to Jacobs Watkins, a Florida GREEN Designee turned energy advisor, “I comb through solar listings on a near-weekly basis, and I have never once seen a Green Addendum attached to any listing, whether it’s solar or other high-performing homes.”

Recently, Watkins was involved in the sale of a house with a solar array. Although it seemed like it would be an easy transaction, the homeowners still had an outstanding balance left on their financed solar panels. The sellers could not pay down the balance of the panels, and the potential buyers could not take on the additional debt at the contract price, as they were already tapped out on their winning bid.

The listing agent reached out to Watkins for advice and assistance. Watkins worked with the agent and got a Pearl Certification for the home, which included a completed Green and Energy Efficient Addendum. The home appraised for $15,000 over contract price, which kept the closing on track.

Watkins understands the power of the Appraisal Institute’s Green and Energy Efficient Appraisal Addendum: “Appraisers are great at their job, [but] a lot of these [energy-efficient] homes have ‘invisible’ features that aren't easily noticed. This leads to inaccurate appraisals at the end of the day.”

The example above had a solar system, which of course could be seen, yet it was still initially undervalued. Imagine selling a house with high-performing features that aren’t obvious—like air sealing, a high-efficiency HVAC system, or increased insulation. How do listing agents convey that value during the sale?

For example, consider the real-life story below:

When homeowner Gary Fisher decided to sell his home, he faced a problem: Finding a listing agent who understood the multiple, significant energy-efficient improvements he had made to his home. These improvements included solar panels, geothermal radiant heated floors, runtal radiators, and more. His search for an educated and qualified agent led him to Craig Foley, an Advisory Board member for the National Association of Realtors Green REsource Council and a certified instructor of the NAR’s Green Designation. Foley put Fisher in touch with Agent Kathy Niver, who had taken Foley’s Green Designation class and understood how to price and market the high-performing home. The house went under contract in 10 days, but the next step was assuring that the appraisal took into account the value of the energy-efficient elements, so that the home would appraise for its purchase price.

Niver took a three-pronged approach to market the home. First, she got the home Pearl Certified and used language provided by Pearl in the MLS listing. Then she placed a Pearl marketing package in the home for REALTORS® touring the home with their clients. Lastly, she had a detailed takeaway flyer for agents and buyers with additional info provided by Fisher and Foley.

Niver’s strong marketing was crucial in the sale and appraisal. When presented with the information on the energy-efficient features of the home, the buyers’ agents understood their significance and value. “At first, the feedback was that the price point was too high,” said Niver. “But when agents saw the marketing materials, they got it.” Niver, as a green homes expert, used the tools available to her to make sure the energy-efficient features of her listing were front and center.

According to Fisher, “Our big concern was finding an appraiser that had the kind of background to understand these kinds of houses.” “I think [the Appraisal Institute’s Green and Energy Efficient Appraisal Addendum] certainly had an influence on the appraiser. Most appraisers don’t put a lot of value on solar, but he was willing to take into account the info we provided to him, and it was properly appraised,” he said.

In a seller’s market where buyers are fighting to pay more than ever for a property, you have the power to make them feel good about the transaction. As a GREEN Designee, you can help sellers pass on the green upgrades they made in their home to a buyer that truly understands how it will enhance the quality of their lives.

Here are some important tips on how to use the Green and Energy Efficient Appraisal Addendum:

• Upload the Appraisal Addendum to the MLS in the documents section.

• Include a copy of the Appraisal Addendum in the contract of sale. Having this written into the contract requires the bank to use an appraiser who is competently trained on using the addendum.

• Provide a copy of the Appraisal Addendum along with any supporting documents to the appraiser when you meet for the appointment.

In sum, the Appraisal Institute’s Green and Energy Efficient Appraisal Addendum is an important tool in your arsenal for selling a high-performing home. Your sellers have invested a lot of time and money into making those upgrades, and buyers can feel good about buying a house with these features. But...the bank doesn’t care! If the home doesn’t appraise correctly, none of it matters. Protect yourself and your client by including a completed Appraisal Addendum in your listing when selling a high-performing home. It’s an easy win-win.

*Originally posted in the May, 2021 edition of REsource News, by the National Association of REALTORS, GREEN Designees