Too often, the value of green features of higher-performing homes have been either underestimated or overlooked during the appraisal and lending processes. As a result, builders who are committed to green practices and third-party performance standards are not properly differentiated in the marketplace. Likewise, homeowners may not have benefited from appraisals and resale pricing that reflected the value of a home’s green features and the reduced operating costs associated with these investments.
Over the past year, however, strides have been made by federal agencies and third-party organizations to ensure appraisers and lenders are equipped to recognize and value green home features—a major win for both home builders and buyers. Some recent examples include:
• April 2013: The Appraisal Institute released the Residential Green & Energy Efficient Appraisal Addendum, developed by appraisers as a tool to help ensure home appraisals reflect home performance. This form recognizes the green certification level achieved by the home, as well as other green features, completed energy audits, and/or local energy incentives available to homeowners.
• March 2014: HUD hosted the “Green Appraisal Mortgage Appraisal Roundtable” at the White House. The roundtable was an important forum for assessing barriers to accurate and reliable valuation of green homes. Home Innovation Research Labs was honored to participate in the roundtable to discuss the challenges of assigning a value to energy savings.
• August 2014: The FHA released a draft version of its Single-Family Housing Policy Handbook, which outlines appraiser responsibilities and compliance actions. This handbook represents a big win for those who build and sell high-performance green homes as it recognizes lender-accepted appraisal methods that better enable green home features to be recognized and valued during the appraisal process.
Home Innovation submitted comments on the draft handbook in September. Overall, the comments praised FHA for recognizing the need to address the value of higher-performing, energy-efficient homes. Home Innovation also acknowledged that work still needs to be done. For example, FHA’s guidance for appraisers is specific to energy efficiency and does not recognize other beneficial green features, such as durability or water efficiency, that would impact a home buyer’s operating costs and the home’s long-term value.
This is just a sample of recent activity in this arena, and Home Innovation is optimistic gains will continue to be made. There are still issues to tackle, but these types of events reflect that government and industry leaders are focused on this topic. More information can be found at www.homeinnovation.com/green-home-appraisal.