Thursday, March 28, 2024 | The Latest Buzz for the Appraisal Industry

Green is Good

How can appraisers leverage “green homes” into earning green for their own pockets?  The simple answer is to get as competent as  possible.

  • Take as many classes as you can to receive a better understanding.
  • Read various books and articles.
  • Associate with an appraiser that is competent in this property classification.

The point of this article is to give a 10,000-foot fly-over of considerations that should be made when looking at this niche in residential valuation.

Valuing high performance homes has become an important part of my personal practice and one that the firm I work for, Valucentric, is ramping up to service across our multi-state footprint. Living in Charlottesville, VA I get to work in a beautiful part of the country and see some amazing real estate. With the presence of the University of Virginia, there are many people that look at adding green features.  These enhancements range from simple improvements to high-end retrofits and new homes construction that includes home certifications such as LEED, HERS and Pearl. It is not just about a return on investment with many of these homeowners, it is a way of life.

Many consumers are choosing to live a “green” lifestyle. These consumers are realizing that a “green” home is not just energy efficient, but are also more comfortable than traditional homes. The homes heat and cool more efficiently, contain fewer toxic materials, and many have higher quality indoor air levels.

The biggest hurdle for many appraisers is becoming competent in this property type. Green features can easily change a simple assignment into a complex one. Solar PV systems, for example, are complex systems that require extended due diligence to identify and analyze potential benefits. The same can be said for any home that has earned one of the several high-performance home certifications. I see and hear many appraisers say that their market does not recognize any premiums for green features, and while this may be true, I doubt many have really studied it at any significant level. It is rare that I do not see some marketability enhancement with properly installed features and certifications. Before I started really looking, I was one of the naysayers. Once I learned what to look for and how to look for it, I started viewing the market in a whole new way.

Resources for Appraisers

There are some great books, articles, and courses that can help increase  knowledge on high performance homes (the preferred term over green). I  will mention various classes, books, and articles that I am aware of, which is not the most comprehensive, but I hope that they serve some benefit to those looking for more information.

Classes

I have completed the following Appraisal Institute classes, and because of this I appear on the Valuation of Sustainable Buildings: Residential Registry. This is a good way to get linked up with clients that are looking for an appraiser that is competent in this kind of work.

  1. Introduction to Green Buildings

This  introductory class is a great way to start learning about green homes. It is a one-day class that gets the participant up to speed on competency, how to analyze and report green features, and learning the six-elements of green.

  1. Case Studies in Appraising Green Residential Buildings

After the introductory class, this offering takes the participant through various case studies that apply the theories discussed in the classroom.

  1. Residential & Commercial Valuation of Solar

This last course takes the students through Solar Photovoltaic (PV) systems.  It is a two-day class that is full of information to assist in these systems and how they affect property value.

There are other providers of education for green buildings, but I feel the Appraisal Institute is by far the most recognized name in green residential valuation.

Books

In addition to education for the Valuation for Green Buildings, here are a few books that are worthwhile in reading through:

  1. Residential Green Valuation Tools

Sandra Adomatis, SRA, LEED GA wrote this book, which is an easy-to-read, yet comprehensive look at green valuation. Sandra is one of the most recognized green residential valuation experts.

  1. An Introduction to Green Homes

This book was written by Alan Simmons, SRPA, LEED AP. It is also a great resource.

Articles/Studies

The following are several articles that may be of interest:

  1. Valuing High Performance Houses, by Sandra Adomatis, SRA

This is an Appraisal Journal Article that appeared in the Spring 2010 issue

  1. Valuation of Solar Photovoltaic Systems Using a Discounted Cash Flow Approach, by Geoffrey T. Klise, Jamie L. Johnson, and Sandra K. Adomatis, SRA

This is an Appraisal Journal Article that appeared in the Fall 2013 issue

  1. An Analysis of Solar Home Paired Sales across Six States, by Sandra K. Adomatis, SRA, and Ben Hoen

This is an Appraisal Journal Article that appeared in the Winter 2016 issue

  1. It’s Not Cheap Being Green, but Eco-Friendly Homes Do Not Always Cost More, published by Reator.com

You can find this article here

  1. Appraisers Analysis of Pearl National Home Certifications Sale Premiums, by Sandra Adomatis, SRA with Don Boucher, SRA and Woody Fincham, SRA, AI-RRS

This is a published study, from appraisers, of a home certification premium in the market .  You can find the article here.

Credentials

There are a few credentials that now exist that can be beneficial to appraisers.  Outside of earning the placement of the Appraisal Institute’s registry as mentioned above, here are a few more places where good credentials can be found.

  1. LEED Green Associate (GA)

This credential is one of the most prestigious for any real estate professional to earn.

  1. Accredited Green Appraiser (AGA)

This credential comes from earth advantage.  It is a one-day program that is a good introductory course.

  1. NAR Green Designation

The National Association of realtors also offers a class with agents in mind, and is a good class for valuation professionals as well.

What do you do after you complete the education? 

Once you have obtained knowledge from classes and publications, it becomes important to get practical experience. Affiliating with another appraiser that has boots-on-the-ground experience is important. I have helped a few colleagues do this. They have  hired me to work with them to obtain demonstrated competency in their work. Whether helping them with one of their own projects, or allowing them to assist me, it is a meaningful step towards understanding the valuation process.

Remember, USPAP requires an appraiser to have demonstrated competency to accept and complete any type of work (property type, location, etc.). Finding someone local or regional to work with in order to obtain that competency is the best way to accomplish this step.

Once you get to this point, leveraging green to earn green is the name of the game. I have found success with a few different methods. Reaching out to local agents that specialize in green homes is a great first step.  You can also do Lunch and learns, on various panels with the local Realtor board, etc. Once you have the tools, then you must market yourself to those that can get you hired. Working with other appraisers that need my assistance to write a credible green valuation has also been a successful endeavor.

In Conclusion

As you can see, there are many options available, and these are just a sampling. This is a niche of valuation that is only growing. As technology advances, so does the market for high performance real estate. It is important that appraisers spend time and resources to become familiar with the latest trends. It is not good enough to just  state that something does or doesn’t have any value. If it exists it may have value (of some kind), the big question is: can you determine what that value really is by reading the market?

If you would like to submit an article to the Appraisal Buzz, please contact us comments@appraisalbuzz.com.

Brent Bowen

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