At a time when home prices seem to be fluctuating by the day, the question of what a home is worth and how that value is determined has become a fiery debate, with appraisals at the eye of the storm. While appraisers have been condemned for inflating home prices during the boom, many builders believe that the pendulum has now swung too far in the opposite direction as appraisers hand out price tags for much less than builders or homeowners were expecting. Add in energy-efficient and green features and the equation gets even worse, builders report.

And builders aren’t the only ones complaining. "Banks are hiring subpar appraisers," says Ken Chitester, director of communications at the Chicago-based Appraisal Institute. The problem, he says, harks back to 2009, when the federal government responded to the inflated values of the boom by stipulating that firewalls must be placed between a lender and an appraiser. That led to the rise of appraisal management companies (AMCs), which act as middle men for appraisers, generally on a contract basis.

The trouble comes in, Chitester says, when AMCs take a large cut of appraisal fees, keeping prices down by forcing the appraisers to take a smaller cut than experienced appraisers used to be accustomed to. "You don’t get on the list if you don’t accept bargain bottom fees and conform to very fast turn-around times," which encourages use of the least experienced appraisers, he says. When more experienced appraisers are used, he argues, the lower rates pressure them to skimp on quality. "If you were making more money, you have to make up in quantity what you were making in higher charges."

Appraisers certainly aren’t the only ones frustrated at the current condition of things.

"I’ve got black eyes and bruised knuckles," quips Ben Spofford, owner of Aurora, Ohio-based Benjamin Builders, when asked about his experience dealing with appraisers. "A local builder really has to put up a fight."

A main point of contention Spofford and other builders cite is appraisers’ use of foreclosures as comparable properties. That comparison may be legitimate, Spofford says, "but it has to be apples to apples. That repossessed property has to be in pristine condition to be equivalent. A listed foreclosure at a comparable square footage may still need a lot of work."

But the equation is somewhat more complicated, says Betty Graham, senior vice president of operations at Fairway Independent Mortgage Corp., a national mortgage financing firm that also deals in appraisals. While agreeing that new construction requires new-construction comps whenever possible, Graham argues that if foreclosures are a prominent feature in a given market, they affect home values for the entire neighborhood, new or used.

In an effort to avoid the foreclosures-as-comparables mess, many builders are aiming for niches that foreclosures don’t fit. "When you’re building on family land or larger parcels or custom stuff, the [appraisal] battle can be won, but it won’t be if you don’t fight for it," says Chad Ray, owner of Olde Heritage Builders in Zebulon, N.C. "But if you’ve got five foreclosures and three short sales [comparable to your property], I don’t have the answer. How do you win that battle?"

Another differentiator, of course, is green and energy-efficient features. But while helping fight off some comparables, the nature of these features also makes them some of the hardest to have recognized on an appraiser’s checklist.

"Anything you can’t put a dollar figure on is undervalued," says Ray. "We’re adding 2% to 3% of the cost of the home to include Energy Star features. Our HERS scores are between 52 and 56, and our homes are 45% more energy efficient. There’s numbers there. We can say we’re adding $60 a month on mortgage bills but we’re saving the customer $120 a month on energy bills, so they’ll recognize that. But things like indoor air quality, lower carbon footprints, lower maintenance costs—you can’t put a dollar sign on it, so they’re just not seeing it. But when a family with an asthmatic child moves into our home and they breath better, they sleep better, and they have fewer sick days, you ask those families what’s more important, and they’ll say those features are far more important than saving $70 on a heating bill."

"It’s a really, really tough topic," Graham acknowledges, adding that at the end of the day, it will depend on what a local market will pay for. "In some [places] such as  California, where green features are really important to buyers, people will pay more for it." But in areas such as the Midwest, she says, buyers won’t want to pay more for it, so appraisers won’t consider it added value.

In order to combat the ambiguity problem, Jay Hankla, general manager at Shaddock Homes, which builds energy-efficient homes in the Dallas-Fort Worth area, believes monetary values should be assigned to given standards. "If you’re Energy Star 3.0 compliant, you should get an automatic $10,000 or $15,000 added to your house," he says.

Until that day comes, however, builders seem to be focusing on educating their appraisers in an effort to help them see the value of the features they’ve included, pointing out when homes will cost less to operate and maintain.

The best thing builders can do, Chitester says, is provide appraisers with any and all data they have on their home and its expected performance. "Things like ratings information, blueprints, specifications of a property’s conservation features—whatever you can get your hands on," he says. "Appraisers are very interested in working with builders and others to collect green building data."

And at the end of the day, Ray says, it behooves the builders to take responsibility to ensure that the appraiser is qualified. "It’s your right and your duty to ask for a competent appraiser who has been trained in the value of green homes. If the bank doesn’t assign you one, ask for a different appraiser until you get one."

According to Paul Grutsis, an appraiser based in San Bernardino, Calif., a builder can help make his or her case by finding sales similar to the home being estimated that will help to support a given price. To ensure that such comps are available, one builder, who asked to remain nameless, has taken to paying multiple listing service agents to list his company’s new homes so that when appraisers are looking for appropriate comparables they can find them.

"We spend a lot of time educating an appraiser as to the costs of what it took to build," Spofford says. "We’ll go through room by room if we have to. I mean, am I not entitled to a profit?"

But appraisers argue that building costs and value don’t necessarily match up. Chitester points to the Cost vs. Value Report conducted every year by Builder’s sister publication, Remodeling, as a resource to find out what features are valued in different markets around the country. "Cost and value," he says, "are not the same."

Claire Easley is a senior editor at Builder.

Learn more about markets featured in this article: Dallas, TX, Greenville, SC.