NAHB’s Nation’s Building News reported that builders attending the NAHB National Green Building Conference last May said that they sold sustainably build homes considerably faster than the traditionally built new homes. Conference attendees agreed that energy efficiency remains the most salient aspect of the industry’s move to sustainability, and is the one benefit that’s most easily recognized by consumers. But the widespread problem of low appraisals has been frustrating for green builders because most appraisers are unable to recognize the value that green features add to the home. Nor has the prospect of sharp reductions in monthly utility bills gained much attention from the lending community.
Only a few of the green builders said that an appraiser had ever solicited information on the energy features of one of their homes or that one of their customers had ever been offered an energy efficient mortgage (EEM) or energy improvement mortgage (EIM).
A point of discussion was that builders have the misperception that they are not even allowed to talk to appraiser these days. But they were told, as long as they are not unduly trying to influence the valuation, the can voice their concerns through the lender and Appraisal Management Company. Builders were briefed on Fannie Mae guidelines specifically advising lenders not to assume that an appraiser is competent, and therefore of their right to ask for an appraiser that has appraised a green home or has knowledge in energy efficiency. As part of the third-party verification process, they were encouraged to obtain a residential energy report form from the HERS (Home Energy Rating Systems) rater to provide copies to the lender and appraiser, as documentation that the home is qualified for an EEM or EIM.
One of the instructors was hopeful that one day Fannie Mae’s Uniform Residential Appraisal From (Form 1004) will have a box at the top for information such as the HERS rating and its certification. In the version of the form that exists today, towards the bottom of the front page there is one line provided for additional green features, such as energy-efficient items. Moving away from appraisals based on comparable sales made nearby and recently and instead using a cost approach would be another move to open the door to green building. Finding suitable comps has been difficult enough for traditionally constructed homes in a down market, but even more problematic for innovative homes with features that are not commonplace. “Marshall &Swift Green Building Costs” was a recommended resource that builders can hand out or refer to appraiser and lender to make them more knowledgeable about the value of green. The publication includes the costs of the most common green items for new construction and retrofits, including labor and other factors. About 1,500 items were recently added to the list.
Multiple Listing Services have begun to include information on green features, and a Green MLS Tool Kit is now available to educate Realtors® about gathering data on green homes so that true comparables will be possible. While this is a positive step, it is estimated 20 to 40 of the 850 MLS’ in the U.S. have started tracking green so far. Also, a disproportionate number of new green homes are not listed because they are a custom built.
Mortgages recognizing energy savings remain mostly an idea whose potential has been largely unrealized. For example, Federal Housing Administration’s 203(k) enable cost-effective energy-saving measures to be financed as part of the mortgage and enables the buyer to qualify for a larger loan amount by considering the monthly savings on energy and allowing higher qualifying ratios. The actual amounts are based on the HERS report.
Another ongoing challenge is that the concept of green housing is, not well understood by the general public, conference panelists said, and a significant share of prospective buyers are actually turned off by it. In general, the majority of home buyers are reluctant to pay more for certain items unless they can be shown how these will pay for themselves through lower operating and maintenance costs over a reasonable period of time. Green builders were advised to market the specific benefits of their homes rather than selling green, and to avoid providing too much technical information, which can quickly go over heads of buyers and discourage them.
Article courtesy of: Greater DFW Metroplex Building Savvy Magazine: Vol 4 2010 page 12
The biggest challenge is appraisers are trained to give the most value to square footage and hardly any to upgrades or features. Once appraisers realize the signficance in the value of the green mods, they will certainly add value to the propertys appraisal, but that could take years before we see any benefit from this. Hopefully one day (soon) Fannie Mae’s Uniform Residential Appraisal From (Form 1004) will have a box at the top for information such as the HERS rating and its certification as suggested by the instructor in the article. I don’t think it will happen until the market corrects itself across the US and until Fannie Mae gets back on their feet as they have other challenges in front of them they have prioritized and unfortunately are probably not looking at this head on until there is more demand from it. The best way to get Fannie Mae to listen is for all of us to let them know our thoughts here http://www.fanniemae.com/contact/email.jhtml?p=Contact+Us You can leave a comment or suggestion. If you have a few minutes today and see the benefit in this, I encourage you let your voice be heard.