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A tool for properly appraising Zero Net Homes

We often talk about how Zero Energy Homes and Zero Ready Homes have a higher value for the owners and occupants. Thanks to advanced technologies, they are more durable, more energy efficient, more comfortable and healthier than standard homes, all while being less expensive to own. Sometimes it is a challenge to get appraisers and lenders to properly value the benefits and technologies of Zero Energy Homes.

The Green Energy Efficient Appraisal Addendum allows builders and realtors to more effectively communicate to appraisers and lenders all the information needed for an equitable appraisal of Zero Energy Homes. When buyers apply for a loan, the lender (or bank) wants to make sure that the home is worth the sale price. An appraiser then verifies the value of the home and gives the information to the lender. Since Zero Energy homes have additional value that is not always evident to an appraiser without green building training, this appraisal form addendum ensures that the added value of a Zero Energy Home is properly valued by appraisers.

The Green Energy Efficient Appraisal Addendum is an updated addendum to the standard home appraisal form used by appraisers to verify the value of a home. The addendum provides the opportunity to supply additional green or energy efficient information about the home, such as:

  • Screen Shot 2014-12-02 at 2.36.58 PMThird party certifications
  • Insulation type and R-Value
  • Building envelope tightness
  • Water efficiency systems
  • Window types and quality
  • Day lighting implementation
  • Appliances and their energy usage
  • Heating, cooling and ventilation type and efficiency
  • Indoor air quality
  • Home Energy Rating System (HERS)
  • Utility costs
  • Energy audit results
  • Solar energy system
  • Location and site
  • Incentives

The form also has a glossary and additional resources related to green building features. A builder (in the case of a brand new home), realtor or borrower can talk to the lender to be sure that the lender’s appraiser uses this Green Energy Efficient Addendum. The realtor and the builder, if possible, should be present when the appraiser values the home to explain the value of the energy upgrades in the home, and to assist the appraiser in filling out the form. It is important to properly manage the appraisal process to fully utilize the Green Energy Efficient Addendum. Below are some tips on how to best do this:

  • The addendum should be filled out by the builder, architect or energy advisor (whoever is most knowledgable); and it should be given to the buyer to give to the loan officer or lender. The loan officer or lender should then give it to the green appraiser. The buyer, builder or realtor should have an extra copy to give to the appraiser when they actually come to the home
  • The rules require that the Green Energy Efficient Addendum must be given to an appraiser who is trained to understand it. You can insist on getting a trained green appraiser and you can prescreen potential appraisers by asking about his or her green training. Try to find an appraiser that has between 14 and 28 hours of classroom green training.
  • Provide the appraiser with other energy efficient comparables in your area along with the Addendum.
  • Provide the appraiser with a list of the added costs for all the energy efficient and sustainable upgrades in the home and show him or her the price premium over a code built home.
  • Show the appraiser the actual energy savings (cash flow analysis) and the overall total cost of ownership of the home, in comparison to a similar code built home.
  • If you don’t like the appraisal report, you can challenge it. Compile and write up all errors of fact, including comparable sales data and missed value. Take this written challenge to the lender, not the appraiser.

An alternative is the Earth Advantage High Performance Home Valuation Addendum. This form, typically completed by the builder, highlights the extra cost incurred to them to build a high performance home. Appraisers are able to use the data provided to add that additional real dollar value to the home’s appraisal. This form can be used by any builder.

The Appraisal Institute and the Institute for Market Transformation have also published a guide on getting fair value for green building features. This guide along with the new Green Energy Efficient Addendum will make it much easier for builders and real estate agents to ensure that the Zero Energy Home they are selling receives a fair value appraisal, so that the buyers’ mortgage will be approved. The Appraisal Institute (AI) is nation’s largest professional association of real estate appraisers. AI has also incorporated several programs to assist appraisers in assessing the value of energy efficient features when appraising a home. They provide over 200 courses about green and energy efficient features through their “Valuation of Sustainable Buildings Professional Development Program to educate appraisers about the growing green building sector. Once AI members have taken the courses, they are listed on a registry specific to either residential or commercial buildings. The book, Residential Green Valuation Tools, by Sandra Adomatis, is another excellent guide for appraisers to learn about methods and resources for valuing green homes. [videojs poster=”” youtube=”http://www.youtube.com/watch?v=o9mBR_cEPS4″]