The purpose of this series of articles is help appraisers and agents see why communication is so important. For agents it can be important for ethical market and for appraises it can be a major property productivity analysis item.
As residential real estate professionals we keep getting smacked over the head with the term “green” homes. What does green really mean? It certainly is not the color of the home or the carpet. Most of the time, agents or consumers use the word green to describe some features within a home that show some form of energy efficiency. This can range from having one single energy star branded appliance to a home that produces all the energy it will need without using power company generated energy that is purchased. The difference between these two examples can be stark, and as a result the market will perceive each home differently. Meaning they’ll both have different marketability. Right out of the gate I want to do away with a term that all of us should lose: green. I prefer the use of the term: high-performance home (HPH).
The word green is a misused word when dealing with HPHs. There is a term used often among real estate professionals, “green washing” which means that a home may have a few “green” features and is then marketed as a “green home”. Sellers and agents, not realizing what they are doing, may try to communicate that a home is very green when in fact it may only have a few features to merit such description. That is why concise and meaningful language is needed for this type of, and all, real estate valuation.
HPHs are becoming a normal thing in my market area and many other markets as well. Technology and building science continue to evolve and the costs to implement the technology is coming down. I want to create some introductory and easy to grab onto suggestions for real estate professionals to understand that this is a language that we all need to understand and use effectively. The most pragmatic reason from a business perspective is that clear communication can reduce professional liability. And remember, communication is a two-way street. We must clearly convey ideas and information, so the receiver can clearly receive the ideas and information.
For appraisers it can be a difficult job sorting through the data out there about what is and is not valuable. One of the biggest issues that appraisers have is with the basic researchers’ tool when it comes to HPHs: the multiple listing services (MLS). Most MLS systems are not set up in an appraiser friendly manner. Take my own MLS for an example. The first image shows the searchable fields for inputs that agents can use when creating a listing. The second is just one of those fields expanded to show the options, in this case heat is used. Most fields have a similar number of options.
So that gives us 13 fields with somewhere around 10-15 options for each field. Let’s say there are 10 options for each field, that is a total of 130 possible indications of HPH property characteristics. Seems impressive right? Guess how many of these features show up on a standard full list sheet report?
If the MLS user does not create customized fields on the output report and unless the listing agent puts HPH related details in the comments section, then these features are lost to a researcher.
Communication is a key element in any type of valuation assignment. Per normal, it falls on the appraiser to ask the questions and understand what we really need to look for in order to do our jobs properly. It falls on the agent to ask the correct questions of the sellers to make sure the features of the home are accurately conveyed to consumers and appraisers. The biggest take away that I can give agent sis to reference a study that I helped prepare in 2017 for a HPH certification. It was obvious after we compiled our research that even the “greenest” home we looked at would not sell at a premium if it were not marketed as an HPH. Agents that spent time highlighting the comfort and efficiency of the home saw a better return when the home was purchased.
One of the common things that I hear around the country when I talk to other appraisers is that the market doesn’t recognize “green” yet. Maybe it does, and appraisers miss it because they do not realize that the MLS is a flawed data set that requires the researcher to take additional steps to complete the proper due diligence. It would be great if all MLS systems would be open to adopting a uniform way to report such things, until that happens agents must be thoughtful in how the homes are listed and appraisers must spend time learning how to research these homes.
I appraise homes regularly that are not marketed on the MLS in a way that a quick read of a listing sheet will allow one to get any insight as to whether a home has HPH features or not. It isn’t until I am on site and I see things that prompt me to ask questions. Or I see a feature sheet on a counter that delves into the HPH features. I have seen this on net-zero homes, LEED certified homes, Pearl Certified homes, and homes with HERS scores. Many appraisers will blame the agents for not communicating effectively and while there is truth to this, in the end, it falls squarely on our shoulders to do an effective property productivity analysis. Appraisers must ask the right questions.
One resource that is of note, concerning HERS rated homes, is the Appraisal Institute member accessible database. HERS rated homes are a common home certification that is seen on a national level. This is a searchable database that allows one to look for homes that have HERS scores. This offers the appraiser quantifiable information that can be used to help develop adjustments and gain insight to sales premiums. Below is an example of the information that can be found for a HERS rated home in that database.
In conclusion, the real meat of this article is to remind agents and appraisers the importance of clear communication. Appraisers cannot value properly if they are not aware of all the features a property may have. It is paramount that an effort is made from both the agent’s perspective and from the appraiser’s perspective. Agents should always communicate all features they think are important; a feature sheet is always a good idea. Appraisers should trust their instincts and ask the right questions. If something seems unclear, ask about it.