Green homes require special consideration during the appraisal and appraisal report review processes, given that they are typically unique to a subject neighborhood. These appraisals take more time and effort, as well as a certain kind of knowledge and skill—which you can secure with McKissock’s Certified Green Home Appraiser program. Here are five tips for appraising green homes that you can use as guidance.
1. Consider each home on a case-by-case basis
You must independently determine whether there is sufficient information available to develop a reliable opinion of market value for each individual property. That will depend on the extent of the differences between the green home and other types of houses in the neighborhood. It will also depend on the number of such properties that have already been sold in the neighborhood.
2. Assess the perceived value by buyers
Given the location, will people be willing to pay more for the home because of the advantages it offers? For example, because they will realize energy savings or because they feel strongly about protecting the environment? Is it functional and do the advantages outweigh the disadvantages? You must recognize obsolescence, and specifically whether the maintenance of the home will make it undesirable.
Free guide: Want more tips for appraising green homes? Download this free ebook to learn the ins and outs of this growing appraisal niche.
3. Dig deep for comparables
It is not necessary for one or more of the comparable sales to be of the same design and appeal as the property you are appraising. However, you’ll improve your appraisal accuracy if you use comparable sales that are the most similar to the green home. Luckily green homes are growing in popularity, but it largely depends on your location. For example, in some areas, you will find totally green communities. In others, you will struggle to locate comps.
If the property is the only green home in a neighborhood—or town even—you may need to expand your search. Go back further than six months and out of area to find comps. You may need to go to another neighborhood. Just be sure to state in your report that you found the comps in another competing market.
4. Account for future savings
Energy efficient improvements save homeowners—and potential buyers—money in the long run. As you compare green properties to non-green properties, make sure you are taking that into account, and placing a value on those savings. If you determine that adjustments are warranted based on the market reaction to green features, include them in your Sales Comparison Approach adjustment grid.
Special energy-saving items must be recognized in the appraisal process and noted on the appraisal report form. For example, when completing the appraisal report (Form 1004), special energy-efficient items are to be addressed in the Improvements section in the Additional features field. The nature of these items and their contribution to value will vary throughout the country because of climactic conditions, differences in utility costs, and overall market reaction to the cost of the feature.
Download the “Appraisal Institute Green and Energy Efficient Addendum” for help in in identifying and valuing green components of homes. Plus, view Fannie Mae’s guidance on “Appraising Properties with Solar Panels.”
5. Compare improvements to those in the neighborhood
Any improvements should conform to the neighborhood in terms of age, type, design, and materials used for their construction. If there is market resistance to a green home property because its improvements are not compatible with the neighborhood or with the requirements of the competitive market because of adequacy of plumbing, heating, or electrical services; design; quality; size; condition; or any other reason directly related to market demand, address the impact to the value and marketability of the subject property.
Get more tips for appraising green homes, and gain the knowledge and skills you’ll need to become a specialist in this profitable appraisal niche, with our Certified Green Home Appraiser (CGHA) program.
Did you know? McKissock’s Certified Green Home Appraiser program—and many other relevant career tools—are included with Unlimited Learning Membership.