Knowing Green Can Save You Green

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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.

The Six Elements of Green Part 2 The First Two Elements

Now that we have talked about how important communication is between agents and the consumers and the agents and the appraisers, let’s get into the meat and potatoes, as they say. As an appraiser, one must be able to understand and identify high performance home (HPH) features.  As I eluded to in the first part of this series, green washing can be a real a problem in this space.  It is easy to add a few “green” features and have an agent advertise a home as being an HPH.

HPH or “green” homes are not just about saving energy.  To accomplish a truly HPH one must look at the “building as a whole” entity and not just the systems.  Another way to look at it is a “cradle-to the grave” approach, or from design phase of the home through the razing of it and returning to a site. What many appraisers and consumers don’t see immediately with HPH is how much more comfortable they are to live in.

The US Environmental Protection Agency describes green building below:

green building. The practice of creating structures and using processes that are environmentally responsible and resource-efficient throughout a building’s life-cycle from siting to design, construction, operation, maintenance, renovation, and deconstruction. This practice expands and complements the classical building design concerns of economy, utility, durability, and comfort. Green building is also known as sustainable or high-performance building.

So, what goes into looking at an HPH? I am glad that you asked.  Well, there are six elements[i]

  1. Site
  2. Water efficiency
  3. Energy efficiency
  4. Indoor air quality
  5. Materials
  6. Operations and maintenance

We are going to dig into the first two elements in this article.

 

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Site

When I am contacted by builders or borrowers that want to maximize their values from creating an HPH, I spend some time discussing site orientation.  It is important.  Obviously the homesite will have a huge influence on the home.  The site will dictate what can be built. Location of the site within a market is a big deal.  Every site has pluses and minuses and from the concept of location, it can mean a long commute to the store or a short walk.

One of the tools that I use on my appraisals, and one that is available in many multiple listing systems (MLS) is walkscore.com. This metric will give you an idea of how “walkable” a location.  It takes into consideration distance to important market locations such as the downtown area of an MSA or shopping and retail areas.  The more “walkable” the property and the surrounding neighborhood are, the higher the score.

Site is not just about market area location, it is also about several other factors.  An important one is site orientation.  How a site is orientated, meaning how does it lie when considering north, south, east and west orientation can impact the building in significant ways.  Considering where the southern exposure of a home lies will affect the way solar energy interacts with the property.

Orientation, done correctly, can take advantage of passive solar technology. It can also minimize the amount of light that impacts the home through windows.  Solar radiation really does affect the indoor temperature, which mean sit can require more heating or cooling to accommodate too much or too little solar radiation. Orientation can also impact the availability of optimal solar PV system placement.  If done right, the site will allow better incorporation to the southern exposure for solar panels.

Drainage of the site is also an important consideration.  In areas that allow for cistern storage of rainwater this can help reduce the amount of water needed to water the lawn or other vegetation on the site.  Having less impervious surfaces that allow natural absorption and usage of water can enhance the “greenness” of the site.

Normally, educated builders and consumers will recognize the importance of site orientation and location right away.  It is important for appraisers to recognize it as well. Sometimes homeowners insist on placing the home in an odd orientation to maximize views.  Depending on what market you are in a mountain view or bay-view premium may trump a truly beneficial southern exposure vantage.  When both performance and view combat one another in a consumer’s mind, the appraiser must be aware and able to measure impact of the issue to the overall value of the home. With proper planning, there are usually acceptable compromises that can be incorporate din the design phase of the home.

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Water Efficiency

This element directly impacts the consumer’s monthly budget and because of that, it can be measured directly.  This element is more than low-volume toilets and installing low-flow faucet aerators.  It, like all things, require careful planning.  It also includes lessening the amount of water needed to water plants.  This can include rain barrels, cisterns, and the like.  There is also advantages to utilizing gray water; this is the waste water from the kitchen, tubs, washers, etc.  Everything except water that has been exposed to sewage.  As mentioned in the site planning portion, some local governments prohibit the use of rainwater. So as part of site planning, it may be necessary to choose to live someplace other than a rainwater restrictive location.

Some of the things that homeowners can do include the flowing items.  With retrofitting, one of the big water savers is finding and fixing any leaks.  Upgrading appliances to more efficient models.  This includes dishwashers and clothes washers.  Installing low flow faucets and toilets are another big water saver.  Utilizing the correct plants for your locality is a game changer as well.  The correct plants include using native species and other species that grow and live best in the climate where you are located.  This prevents the need to do extra watering.

Valuation Thoughts

The recognition of site attributes is not overly difficult but can be troubling for appraisers that have never seen or know about some of things that we have discussed thus far. Water efficiency technology may be easier to see if components are properly labeled. When you are not sure, ask questions.  The homeowners may be familiar with these types of improvements, as well as the agent or builder.  The best that an appraiser can hope for is that the homeowner and/or agent are up to speed as to what is present in the site and home.  Homeowners that built the home will most likely be pretty I enthusiastic to share, where as a homeowner that is the second, third or more homeowner after the build or retrofit may not be as aware of the features present.

What are some proactive ways to get more competent?  Take some classes. The Appraisal Institute offers three classes in sustainable residential properties. The AI also offers a list of appraisers that completed the program at Appraisal Institute’s Residential Registry for Sustainable Buildings.  Earth Advantage  also offers a three-day class on sustainable homes.  They also maintain a designation called the Accredited Green Appraiser (AGA). You can also affiliate with an appraiser that has experience in these types of homes.

We will get into some valuation methods in a later part of this series.  There are several tools in the tool box for appraisers that will prove familiar to most of us.  We will also discuss the very important Appraisal Institute Residential Green and Energy Efficient Addendum Form.  Another important topic we will discuss are the various home certifications out there in the markets.  Knowing what these are is extremely helpful.

[i] Residential Green Valuation Tools by Sandra Adomatis, SRA LEED GA

 

The Six Elements of Green Part 1 Speaking the Language

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.

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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.

carr 1

CAAR MMLS

caar 2

CAAR MMLS

 

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?

 

None.

 

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.

 

 

hers

RESNET

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.

The Queen of Green

July 6, 2018

 

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Courtesy of Sandra Adomatis

Sandra K. Adomatis, SRA, LEED Green Associate, NAR GREEN Designee has been a meaningful member of the valuation profession for many years.  I first met Sandy when I was taking the last class and demonstration alternative for my SRA designation.  Sandy was the facilitator for that week.  I was immediately impressed with her knowledge, astuteness and love for valuation.  There was no doubt that she loves the profession and believes in doing it the right way.  She is a great instructor, one of the best there is in my opinion.

Sandy has been a thought leader in the profession, most notable in sustainable residential technology.  She is the foremost authority in valuing residential solar PV systems and has been crucial in assisting the Appraisal Institute in developing the Residential Green and Energy Efficient Addendum.  She has also authored a book, Residential Green Valuation Tools, which is a must have for any valuer’s library. She is also a developer and course writer for several classes including the green series.  I have had the pleasure to work with her on a team that she led that focused on extracting a premium for PEARL home certifications which was published in a report here.

On a personal note, there are few valuation professionals that I hold in a higher esteem.  I am thankful to her for being a mentor to me, and for helping me along in my career.  Just to share one quick story about what a good person that she is:

My wife and I have a son that has some special needs.  Sandy met my two youngest children (twins, a boy and a girl) and my wife when she came to Charlottesville to teach the green classes a few years ago.  My twins have since nicknamed her “Sandy Starfish”. Our son has been in a facility moist of this year to help with some of his issues and when Sandy found out she started sending him correspondence by mail.  That meant the world to him, and to my wife and me.

So that is the setup for a Valuer’s Dozen that I am most proud to publish.  Ladies and gentlemen, the Queen of Green, Sand Adomatis:

 

VN:  How long have you been in the profession?

SA: I started appraising in 1981 after two years working for a builder, 1 year for a retrofit contractor, and 1 year managing an appraisal business.

 

VN: What is your favorite thing about the profession?

SA: Appraising is a puzzle that offers a new picture and challenge with each assignment.  As a certified general appraiser working many years with my MAI husband, I had the privilege of inspecting a wide variety of properties from nudist camp, farms, adult toy store, railroad right-of-way, 16,000 sq ft houses on the Gulf to 800 square foot cookie cutters.  How many people can say their job is that diverse?  Not only have I learned much about appraising methodology but have also met many interesting people and learned lots about businesses.

 

VN: Who are your mentors and idols within the profession?

SA: My biggest mentor is my husband, Richard Adomatis, MAI.  He has been retired for more than 25 years but has a great mind and has not forgotten the business.  I can still discuss an appraisal problem today and get direction or suggestions that lead me in the right direction.

I don’t have any idols in the profession, but I have several people I truly respect and admire.  They are all Appraisal Institute members and to name a few – Maggie Hambleton, SRA; Tim Runde, MAI; Kathy Coon, SRA; Scott Robinson, MAI, SRA; Donald Boucher, SRA; and even you Woody.

 

 

VN: What are some of your passions inside the profession?

SA:My passion for the profession is to see more young people come into the profession with a desire to be the best they can be.  That means learning as much as you can and looking to be more than a mortgage lending appraiser.  There is so much work out there that pays well outside the mortgage lending world.

Appraisers that specialize in mortgage lending work have a challenge going forward with low fees, increasing regulations and guidelines, and automated valuation models that will take away the easy assignments.

My passion is to see more appraisers learn about the green features that are beginning to become code in many markets on the residential and commercial side.  I’ve been on this track of learning all I can about the buildings science and dedicating much of my time in sharing what I’ve learned.  Our professional is so slow to move in a direction that is not the norm and sometimes don’t see the train until it is upon them.  I’ve recently been engaged in working with appraisers in three states that are very green and learned that we still have lots of education needs to bring our profession up to speed.

 

VN: What are some passions of yours outside of the profession?

SA: My passion outside of the industry include photography and spending time with family.  Photography is a hobby and I enjoy doing photo shoots for high school graduates that do not have the funds to buy the expensive photographs from the school.   I’ve done prom pictures for some of these students as well.  Little kids are really a pleasure to photograph.  My children and grandchildren are getting older now, but they gave me lots of joy in photographing them as they played.  I did the formal event photographs for the Charlotte Harbor Yacht Club for about 10 years.  (My photography is all volunteer because I love it.)

 

VN: Where do you see the profession in 3 years?  5 years?  10 years?

SA: In 3 years I do not expect major changes in the profession.  In 5 year, we will begin to see more AVMs taking the simple assignments for the mortgage lending work.   We’ll begin to see more appraisers leaving the business due to age and loss of mortgage work if they have not prepared for other client types.

In 10 years, the databases will be incredibly different, larger, and yet still lacking important data needed to truly understand the more complicated property types.  This means appraisers with skills in complex assignments will always have a space in the real estate transaction.

 

VN: What is one thing about your personal business that you are most proud?

SA: My personal business has flourished over the last 25 years.  I’ve seen some appraisers in my market move to other areas or take government jobs because they could not survive during the lean years.  Fortunately, my mentor taught me to  diversify and have a variety of clients.  He also taught me to find a niche that no one else is filling and be the champion.  That is how I gained the title “Green Queen.”

 

VN: If you could change one thing about your business model what would it be?

SA: If I could change my business model it would be to have brought a couple trainees along 10 years ago.  I’ve worked with assistants that were very good and made a difference in the work I could handle.  As I move toward the winding down years of my career (last 10 years) I could see another 10 beyond that if I had a couple trained appraisers that were younger and dedicated.

 

VN:  What are some present goals for you and what you do are doing in the valuation space?

SA: I have a goal of writing another book in 2019.  I’ve got a start on it and hope to have one finished by end of next year.

My current work locally is appraising for estate, divorce, listing, or consulting clients.  I do some governmental work for right of way projects as well.  My consulting falls into the space of builders and real estate agents that need help in marketing, preparing for an appraisal or challenging an appraisal of a high performance (green) property.

Much of my time is spent writing courses, seminars, and teaching or speaking on high performance properties or features.  Some local appraisers hire me to do the solar PV valuations because they have not taken the classes and need the assistance.

 

VN:   If you could change one thing in valuation, what would it be?

SA: The image.   There are 77,000 licensed appraisers in the US and far too many do not present a professional image to the people they serve.  We are in a service business and we must take the time to do our work well and to serve the people we call our clients.  If we tell them we’ll have a report in 5 days, do it.  Why do appraisers think they only need to take the number of classes needed to get the required CE?  What does this say about our dedication to be the best we can be?

 

VN:  What advice would you give someone just getting in the profession?

SA: If you plan on making this profession a career, take quality education and work under an appraiser with a good reputation.  Take pride in your work and find a space where you can specialize and learn everything you can about it.

Network with other professionals and organizations that will add to your knowledge base, skills, and potential clients.  Attending meetings and educational offerings by right of way organizations, attorney education, and building science classes are just a few of the ways I’ve found were most helpful in gaining a presence in the space I wanted to serve.

 

VN: This last one is for you to discuss or talk about whatever you would like.

SA: I love my profession and I want to see everyone in this business love it like I do.  We need to work together to make it what we want it to be.  The low fees we accept can only be changed by appraisers.  Charge what you are worth.  I am not on sale today and I am not a .org.  Keep that in mind when the next client calls.

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I hope that you all enjoyed this one.  I am getting lots of great feedback on this series and I consider it a success already.  Please keep the suggestions coming.