No Praise Yet for Green Appraisals
Experts say that even as the number of environmentally certified homes continue to rise there's no clear proof that putting more green features into your home will put more green in your wallet.There's a fair amount of blame going around as to why higher values aren't better reflected in green home resales. The issue created fierce debate at the recent International Builders Show, where developers did agree on one thing: Appraisers and their appraisals are the main impediment to getting more green homes built.
Their argument boils down to this: A home's value is determined mostly by its appraisal. No matter what a buyer might be willing to pay, if the appraisal comes back lower than the offer price, either the lenders or the buyers will balk and walk.
Until lenders and appraisers find a way to recognize the value of green innovation and the money it can save new home buyers, there's no incentive for developers to build green homes on a large scale, said Bill Nolan, the Florida home building consultant who moderated the first of three "green" panels at the Builders' Show.
But should appraisers really shoulder all the blame? These professionals compare location, home features, and recent sales data of "comparables" to come up with an estimated value. But, "If the comps aren't there, what are we to do?" they ask.
"The problem most appraisers are having is that we don't have enough sales of green homes or enough built to do that kind of comparison," says Sandra Adomatis, an appraiser in Punta Gorda, FL. who travels the country giving three-hour seminars about inspecting green homes.
In truth, the blame probably lies with outdated computer software and lack of education across the many professionals with a hand in home sales, from builders and realtors to appraisers and lenders. If all these people were better at identifying green homes and features, and tracking them in their systems, they could all can get a better handle on the true value of these upgrades and use that data to better educate each other and the home buyer. Those changes are coming, but slowly.
For starters, the software these professionals use needs to be greened.
Appraisers often use software that provides check boxes for certain home styles and features and adds a predetermined value for them. Because there are no check boxes for green features, appraisers end up having to compare a green home to a traditional home and make adjustments as best they can on the fly.
And of course, they have to know the features are there in the first place. They can easily overlook money-saving features like fiber cement siding or Energy Star-rated appliances and fixtures if they don't know what they're looking for, Adomatis told HousingWatch. Right now it's up to the builder, homeowner or real estate agent to know about these features and to make sure the appraiser spots them and considers them in his calculations.
New training should help there.
In the last three years, 4,000 agents nationwide have become certified EcoBrokers through Colorado-based EcoBroker International, and the National Association of Realtors introduced a green designation for agents in 2008 and now has more than 4,000 agents that carry it. The National Association of Home Builders has a green certification for its members, and so do appraisers. Underwriters can also find classes to keep them in the loop.
Then there's the all important Multiple Listing Service, which tells agents what homes are on the market and tells appraisers what people paid for them.
"If the listings in the Multiple Listing Services doesn't tell you that a home is Energy Star-rated, how can the appraiser find those homes?" Adomatis asked rhetorically. The appraiser needs to be able to search the MLS and say "show me all of the green-rated houses that sold in the last year." Right now, in most parts of the country they can't. So there go the comparable sales they rely on for their magic formulas.
Real estate agents and appraisers are working on upgrading their systems make these changes. And we can already see that when they do, it makes a difference.
One realty in the Seattle area got its members to add a green-built designation to the local MLS a few years ago. The result: GreenWorks Realty reported in a late 2009 study that environmentally certified new homes in Seattle sell for 8.5% more per square foot in 22% less time and make up 33% of the market.
Let's hope more cities follow suit-soon.