New Addendum to Help Appraisers Give Value for Green Features

The environment may not be the only thing anymore to benefit from eco-friendly and energy-efficient home improvements, thanks to a new appraisal addendum which would credit these homeowners.  The LA Times reports:

“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.”

While this addendum probably won’t influence an appraiser to value your home tens of thousands of dollars higher, it will definitely greatly improve your odds that any eco-inspired upgrades in your home will get the fairer market value they deserve.

According to the LA Times, “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.”

Until now, homeowners have been frustrated by these “low ball valuations,” which have block many from refinancing as they are unable to qualify for the loan amount because of an appraisal report that excludes the monthly utility savings they get from energy-saving improvements.   To make matters worse, appraisers are often required to make their assessments based on vague or misleading information about these improvements that local real estate companies present to them.

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.”

Besides energy efficiency, the new addendum covers a wide spectrum of improvements and ratings.  Sections that cover all of the following will be included in the new document:

  • insulation
  • windows
  • lighting
  • heating
  • air conditioning
  • solar
  • water-saving or reclamation systems
  • landscaping that lowers water or energy use
  • home’s proximity to public transportation, which might help lower fuel usage

For any homes that have been audited or rated for green features and energy efficiency, the new addendum asks for detailed information regarding the rating or auditing authority, dates of such reporting, average local utility costs and estimated monthly savings.  Generally higher utility charges in an area will translate to higher value gain from energy-saving installations.

If there are any relevant certifications, the new addendum requires that they be submitted with the report, along with details about any changes made to the property by the owners since the time of certification.

According to the LA Times, “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…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.”

You’ll find the new addendum on the Appraisal Institute’s website.

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