New addendum could help appraisers give credit for green features

The three-page Appraisal Institute form should guarantee at the minimum that an
appraiser will take notice of a home’s energy improvements and seek to come up
with a value adjustment for local market conditions.

Here’s some good news for homeowners who’ve installed energy-saving features
but haven’t been sure appraisers will credit them with higher valuations: Thanks
to a new industry-issued appraisal addendum, the odds have improved that such
upgrades get the fairer market value they’re due.

The Appraisal Institute, the country’s largest and most influential association in
its field, published the long-awaited addendum late last month. It’s designed to
be attached to any standard appraisal report covering a property with
significant green features. Owners, sellers, buyers, refinancers and realty
agents don’t have to wait for an appraiser to use it. They can download it at no
cost and ask that it be made part of the appraisal submitted to the lender.


The new addendum won’t guarantee you that the appraiser will raise your
property value by the tens of thousands of dollars you spent on your solar panel
array, high-efficiency windows or geothermal system. But it should guarantee at
the minimum that he or she will take notice of the energy improvements and seek
to come up with a value adjustment for your local market conditions.

The three-page form is a response to growing concerns that although the Obama
administration and many state governments and utilities are pushing homeowners
to invest in energy-conserving components, standard appraisal forms — including
those used by financing giants Fannie Mae and Freddie Mac — are not set up to give adequate

recognition to those often costly improvements.

The inevitable result: Owners are frustrated at what they consider lowball
valuations. Refinancers can’t get the loan amounts they seek because the
appraisal report doesn’t factor in the monthly utility savings they’re getting
from their solar panels. Appraisers, for their part, say local real estate
listing documents often don’t spell out in detail all the energy-efficiency
improvements or they get the facts wrong.

For example, appraisers complain that some realty listings claim that the
house is an “Energy Star Home” when in fact there’s nothing more than a few
Energy Star appliances installed in the kitchen. The Energy Star Home
designation is a much higher standard: It requires qualifying under a
comprehensive set of criteria for the lighting, windows, water heating and
high-efficiency appliances, among others.

The institute’s addendum runs the gamut of improvements and ratings, and goes
well beyond energy efficiency. Though it has basic sections covering insulation,
windows, lighting, heating, air conditioning and solar, it also covers
sustainability features such as the presence of water-saving or reclamation
systems, landscaping that lowers either water or energy use, and even the
presence — or lack — of public transportation nearby that might help lower fuel

Of special significance to owners who have had their houses audited or rated
for green features and energy efficiency, the addendum asks for detailed
information on the rating or auditing entity, the dates of the rating, average
utility costs in the area and estimated monthly savings based on the rating

Any certifications such as LEED (Leadership in Energy and Environmental
Design) must be attached to the report along with information on any changes
made by the owners to the property since the certification. If the house has
solar installations, the addendum asks for such details as the age of the
panels, the energy production in kilowatt hours for each array, and other
information relating to the energy savings attributable to the solar

Appraisers using the new addendum should now be better equipped to identify
accurate, recent “comparable” sales in the area — a key part of coming up with a
valuation, according to Joseph C. Magdziarz, 2011 president of the institute. In
other words, if you have a highly efficient, audited house with extensive
energy-saving features as demonstrated by the addendum, an appraiser should look
for prices of houses that sold recently with and without energy-efficiency
features for indications of your home’s true market value.

Appraisers who have training in green valuations can also use one or more
techniques that essentially capitalize the documented monthly savings on utility
bills into a specific value adjustment appropriate for the local market. Sandra
K. Adomatis, an appraiser in Punta Gorda, Fla., who teaches green appraisal
courses and is a nationally recognized expert, said the higher the utility
charges in a jurisdiction, generally the higher the value gain from solar panels
and other energy-saving installations. For instance, in a relatively
high-utility-cost state such as California, said Adomatis, the value increment
from the same improvements might be double that in a relatively low-cost state
such as Florida.

The addendum is available at the Appraisal
Institute site, at


Source: 10/9/11

By Kenneth R. Harney


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