Green Home Appraisals Might Not Mean More ‘Green’ In Your Pocket

Green Home Appraisals Green home requests are fueled by the knowledge that these types of homes can potentially save owners hundreds of dollars in heating, cooling and lighting expenses versus a home not equipped with green features.  However, while demand is growing, green home appraisal values are not.  Owners and purchasers are running into roadblocks because traditional models of home valuations do not take into account the economic benefits of green efficiency.

Here’s a few of the problems with green appraisals, areas that are showing signs of improvement, and ways you can help obtain an appraisal that better reflects the investment of green technology.

Green Appraisal Problems:

Lack of Education: While green home construction is on the rise, education among appraisers about the costs and benefits of green construction is in its infancy. Green education is not part of the certified appraiser curriculum.  If appraisers are interested in being more knowledgeable in this area, courses above and beyond the initial program are required.

As a result, many builders find it difficult for appraisers to recognize the value of green features, which makes them think twice about offering them.  Since green homes are assessed with the same guidelines as homes that are not, builders are unable to pass greening costs to consumers because they are not reflected in the report.

In turn, this puts a damper on the green industry. Green product creators cannot produce as much without builder demand, creating a bottleneck in the greening of American homes.

Since green education is patchy across the country, consistency in home values is virtually non-existent.

Lack of Consistency: Since green appraisals are still “new,” appraisers may assign worth to green features differently, leading to inconsistent valuations.  This inconsistency can be traced to a shortage of adequate sales data and the fact that many real estate listings don’t even acknowledge green features.

Under current guidelines, appraisers base their valuations on what the market is willing to pay in a particular neighborhood.  With the lack of green sales data, it’s difficult for appraisers to recognize the value of an environmentally friendly home or say with certainty that people are willing to pay more for it.  Essentially, they can only work with what they know. Until green homes saturate more of the market, folks who have them or want to buy them will likely experience this discrepancy.

Hand-in-hand with the lack of consistency is the non-existence of green appraisal guidelines that appraisers can use to establish value.

Lack of Green Appraisal Guidelines: Currently, there are no guidelines that appraisers can use to establish value appropriately for green homes. While hardwood floors and granite countertops are considered premium amenities, homes with money-saving features are still not appraising higher.  Despite green homes saving owners money on yearly operating costs, appraisers find it difficult to quote potential energy savings. Often they are not even factored into the value of the property.

Many builders incorporating green features are frustrated with this practice and some have stripped them from homes in order to get an appraised value that is similar to others in the neighborhood.  In essence, owners are reaping for free what builders have paid for; making green features a bad investment from a builder’s perspective.

Ultimately, appraisal guidelines will need to be changed at the federal level so appraisers can confidently assess both homes with and without environmentally friendly features.  Once the value of a green home is established industry-wide, consistency in valuations will be inevitable.

There is some movement with regard to education and awareness that will hopefully lead to broader acceptance.

Areas of Improvement:

Education: Because professionals in the appraisal, housing and mortgage industries need to be educated in green building valuation, the Appraisal institute, an association with chapters around the world, is beginning to address this need. Courses are developed to educate appraisers on how to determine the value of sustainable green homes. Appraisers learn about the National Association of Home Builders’ National Green Building Standard, how the LEED rating system works, and even earn a green certificate through the program.

Awareness: Over the past ten years, green features have caught on thanks to growing public awareness of the green movement.  Builders are noticing an increase in the amount of clients who want an environmentally friendly home and are willing to pay a premium up front in order to enjoy greater savings in the long run.

This viewpoint is affecting the housing market because green homes are often considered to have more value than homes built to standard code.  Data indicates green homes sell faster and for higher prices, which is a boon to the housing industry.  It also provides hope that green home values will increase in the future.

Opportunity: Until home values increase as a result of greening, it’s actually a good time for buyers and investors to purchase green homes. Higher appraisal values will kick in when a standard valuation system is established for green homes. Owners will likely see an increase in their home’s value when compared to those built to standard code.

There are things you can do to move the green appraisal process into a positive direction.

What You Can Do:

Ask Questions: When an appointment is scheduled with an appraiser, confirm the person assigned to your house is trained in green building assessment. If the appraiser isn’t familiar with how to judge energy-efficient homes, it’s ok to request someone who is.

Do Your Homework: While typically it’s the appraiser’s job to find comparable homes to yours in the area, it’s always a good idea to do research to ensure you get an accurate valuation of your home’s green features.  Find out which homes are similar in your neighborhood, and if possible, provide directions to the nearest energy-efficient home.

Lenders often require that comparable homes be obtained from no more than one mile away.  If no green homes are within a mile, the appraiser will need to provide three homes from the area where there is a green home.  They will explain to the lender in writing why they had to go outside the limited radius in order to find an accurate comparable home.

Buying a home with green features or upgrading an existing home to be green is not only good for the environment but your pocketbook as well.  However, until green homes are given due respect industry-wide, you should be prepared for delays trying to get your investment recognized and monetized in the appraisal.

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