Knowing Green Can Save You Green

liability-shutterstock217936357

Liability Headaches

Real estate practice, both valuation and brokerage, are professions that are open season for law suits.  Let’s face it, consumers can be very litigious in many situations.  Reducing liability is something we should all try to do in our professional work.  But outside of decreasing liability, what agents do, as well as appraisers, is work with an important element of the economy.  Housing is an integral element of the overall economy and it is our collective jobs to try and protect it.  That is why it is so important that we all get as competent as we can.

Pricing and valuing homes is sometimes tricky, and it is important that we all understand our markets.  One area that I get lots of feedback from agents and builders, and even consumers, is dealing with high-performance, or green homes. We are starting to see data that supports homes are being both under-listed and undervalued.

Support for My Claim

Ken Harney, the real estate columnist for The Washington Post wrote a piece last fall about high-performance homes and why it is important to work with experienced green professionals.  He wrote:

“Adomatis (An appraiser interviewing agents), told me that in interviews, some agents who listed certified green properties in California admitted they “had no clue what they were selling.” A few even said, “I don’t know what makes a house green.”

That’s a direct violation of the code of ethics of the National Association of Realtors, which prohibits members from marketing types of property that are “outside their field of competence” and training. The association offers members in-depth courses on green-home marketing and has urged MLS’s across the country to include “green fields” in their listings.”

In 2017, I was part of a team of experts, led by Sandra Adomatis, SRA, that did a study on the Pearl home certifications.  We found in that study that the certification could add 5% in value.  That’s a big number in some cases, and one that requires some marketing to achieve.  We found that in some cases that agents were not marketing homes that had the certifications, thus the potential buyer pool was unaware of the features.

We noted in the study that listings that conspicuously placed the green certifications up front in the listing and marketed the features saw the best return. From the study:

“MLS marketing practices in promoting Pearl-certified home features varied and may account for some of the pairs that show little or no sales price premium found. For instance, in Silver Spring, MD, and Great Falls, VA, the pairs with the highest negative results were sales where Pearl Certificates and documents were not included in the MLS listing as attachments or as jpg files in the photograph gallery.”

This is a potentially big oversight if missed.  I would think that many agents would want to cover all their bases and inquire when taking on a listing if the home has any green certifications or features.  There are readily available databases that will tell you.  Resnet has a data base where agents and appraisers can locate HERS rated homes.  Pearl Has one as well located here.  It may be a good idea to search these and other databases prior to accepting a listing.  In truth, all home certification programs should have a searchable database, but many do not.  That is why when you see much of my writing that I write about Pearl and Resnet so often, they have these databases.  I would challenge that any certification program without a searchable database is not worth using. How else are agents and appraisers going to track quantifiable data?

What Can Agents Do?

What happens when you find out the home has a viable energy certification?  You must make sure the consumers are aware, and that comes from careful and transparent marketing.  This could mean placing feature signage throughout a listing that highlight the features. Having a well laid out feature sheet that includes the features an infographic or two dealing with the high-performance features.

Taking it a step further, it would not be a terrible idea to also include language in your contracts that a competent appraiser must be retained to do the work.  This means the lenders will have to locate and utilize an appraiser that has experience doing it.  With Fannie Mare, FHA, USDA and Freddie Mac this means that the appraiser has demonstrated competency, or rather has done this kind of work before.  While the agents cannot be involved in selecting the actual appraiser used, limitations can be placed on not using unqualified appraisers.  I have seen this and have been chosen for assignments in the past because I am one of a few appraisers in my market area that do the work.

The National Association of Home Builders published a blog discussing the issue of high-performance homes and appraisals.  It states:

There are several reasons for this, but ultimately the issue is that too many green appraisal jobs are going to appraisers who simply aren’t trained to recognize the features and adjust valuations accordingly. This is unfortunate, because it hinders growth in high-performance homes. Builders and owners are simply less likely to invest in features they aren’t sure they can recapture when they sell.

The blog goes on to showcase a builder who requires that a qualified appraiser be used

Appraisers

Homes with solar panel valuation are complex valuation assignments and so are homes with green certifications.  The biggest problem sellers run into with appraisers on these homes is that the appraisers with no experience will sometimes write off the features as having no value.  The appraisers will make comment like, “I cannot find any homes with solar panels; thus, the market recognizes no value.” This is not true in many cases. Perspectives like these can create a unique liability for that appraiser as well, because that is simply not sound valuation theory or logical.

When an appraiser catches an assignment like this, there is lots of involved research to undergo.  One of the simplest ways to debunk the lack of comps argument with solar panels is to ask, “Have you spoken with all the local solar panel companies and asked about all of the installs over the last 12 to 24 months?”   The premise to this question is that installs do show demand.  I will agree that it’s difficult to ascertain a supportable market value when you have no sales, but there are other methods to use.  The Appraisal Institute (AI) teaches a class on using a discounted cash flow analysis to support value.  One can also capitalize the savings gained, among other things.

I wrote a blog for appraisers last year that deals with appraisers can do to help themselves become competent.  The demand is strong out there for this specialty practice but there are not many appraisers doing the work.  I have a strong suspicion that is because the lenders and appraisal management companies are not trying to hire appraisers that do the work.  If they were, I feel like more appraisers would be grasping at the opportunity.

Lenders and Appraisal Management Companies (AMC)

The lenders and Appraisal Management Companies should be making sure the appraisers retained are qualified, but borrowers will often not mention or have any clue the home under contract needs such expert valuation services. I sometimes get on site for a lender and must call them and explain that the subject home has a large solar array and is a platinum Pearl home.  It is not the lenders fault that the borrower failed to communicate the information to them.  But I do hope that the lenders are asking about high-performance features during the application process.

If you are a lender or work with an AMC there is a great resource through the Appraisal Institute (AI).  You can locate appraisers that are trained in the valuation of green homes through their registry.  This is such a great resource that the AI allows non-AI members to be included on the registry. There truly is a responsibility on the lenders that extends to the AMCs to locate and utilize competent appraisers.  I have yet to find one lender or AMC that qualifies appraisers based on high-performance homes. Some do ask if I do them, but they never ask for sample reports which show demonstrated competency (something required by the secondary market and agencies).

When you sign up with a lender or AMC, they always want sample reports, but I have never been asked for a high-performance home sample report.  They usually want a sample of an FHA report, a condo report and some type of complex assignment.  Some lenders that do lots of new construction even ask for a new construction sample. That no clients are asking for high-performance home reports is concerning.

Conclusion

In the end, high-performance homes offer a unique and complex assignment type for both agents and appraisers.  The only way to competently accept this work is to get educated and get some experience to do the work.  For agents, who can advocate for their clients, it is important that you communicate what you are selling to the consumers, to the lenders and finally to the appraisers when they come out to do their inspections.  That is a lot of responsibility, be mindful of it.

Published by wfincham

Residential appraiser in the Charlottesville and Shenandoah Valley specializing in high-value homes and properties that include equestrian use, hobby farms, High-performance homes (HERS, LEED, Pearl, Earthcraft), large acreage and any residential style property.

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