Missing the Green can Leave Everyone Seeing Red

Woody Fincham
Woody Fincham, Founder and President of Accurity Fincham and Associates

This article was originally published in the Fall 2019 Edition of Appraisal Buzz Magazine.

Real estate practices, both valuation and brokerage, are professions that are open season for lawsuits. Let’s face it, consumers can be very litigious in many situations. Reducing liability is something we should all try to do in our professional work. Housing is an integral element of the overall economy and it is our collective job to try and protect it. That is why it is so important that appraisers increase our competence. Pricing and valuing homes can sometimes be tricky, so it remains important that we understand our markets. One area that receives a lot of feedback from agents, builders, and even consumers; dealing with high-performance homes, or green homes. We are starting to see data that supports how green homes are being both under-listed and undervalued.

Support for my Claim

Ken Harney, the real estate columnist for The Washington Post, wrote a piece last fall about high-performance homes and why it is important to work with experienced green professionals. He wrote:

“Adomatis (an appraiser specializing in green appraising who interviewed real estate agents on the topic), told me that in interviews, some agents who listed certified green properties in California admitted they ‘had no clue what they were selling.’ A few even said, ‘I don’t know what makes a house green.’ That’s a direct violation of the code of ethics of the National Association of Realtors (NAR), which prohibits members from marketing types of property that are ‘outside their field of competence’ and training. The NAR offers members in-depth courses on green-home marketing and has urged MLS’s across the country to include ‘green fields’ in their listings.”

At the 2019 Builders Show in Las Vegas, panelists said, “Some green homes may be mis-valued, a costly mistake to homeowners who may be leaving thousands of dollars behind.” This was reported by REALTOR ® Magazine in February of 2019. The article went on to state: “The panelists at Tuesday’s session said real estate professionals should provide supporting information—such as the addendum and MLS marketing information—to the lender when an appraisal is to be done. The additional information can help justify to the lender that you need an appraiser trained in green features to value the property.”

In 2017, I was part of a team of experts, led by Sandra Adomatis, SRA, that did a study on the Pearl home certifications. We found in this study that the certification could add 5% in value. That’s a big number in some cases, and one that requires some marketing to achieve. We found that in some cases, agents were not marketing homes that had the certifications, thus the potential buyer pool was unaware of the features. We noted in the study that listings that conspicuously placed the green certifications in front of the listing, while also marketing the features, saw the best return. From the study: “This is a potentially big oversight if missed. I would think that many agents would want to cover all their bases and inquire when taking on a listing if the home has any green certifications or features. There are readily available databases that will tell you. Resnet has a database where agents and appraisers can locate Home Energy Rating System (HERS) rated homes.” That is why when you see much of my writing that I write about Pearl and Resnet so often, they have these databases. I would challenge that any certification program without a searchable database is not worth using. How else are agents and appraisers going to track quantifiable data?

What can Agents Do?

What happens when you find out the home has a viable energy certification? You must make sure the consumers are aware, and that comes from careful and transparent marketing. This could mean placing feature signage throughout a listing that highlights the “green” features or using an infographic to educate the consumer. Taking it a step further, include language in your contracts that a competent appraiser must be able to understand to do the work. This means the lenders will have to locate and utilize an appraiser that has experience doing it. With Fannie Mae, FHA, USDA, and Freddie Mac, this means that the appraiser has done this kind of work before. While the agents cannot be involved in selecting the actual appraiser, limitations can be placed to eliminate the use of unqualified appraisers. I have seen this and have been chosen for assignments in the past because I am one of a few appraisers in my market area that is competent in green appraising. The National Association of Home Builders published a blog discussing the issue of high-performance homes and appraisals. They suggest that agents add similar language to the contract that will compel the lender to hire competent appraisers. It states:

“This Home is being built/renovated/updated to nationally recognized standards above prevailing code. It is designed and constructed with unique features and materials and with high-efficient equipment and in accordance with high efficiency standards. The Lender shall choose an Appraiser educated and knowledgeable in this type of valuation of these specialized Homes, preferably an appraiser who holds a professional appraisal designation that requires advanced education on such issues as the valuation of sustainable buildings (e.g. MAI or SRA designations from the Appraisal Institute). The appraiser shall provide verification of green valuation education of 14 hours or more from a qualified educational provider and knowledge to be permitted to conduct the appraisal for this project.”

Appraisers

I wrote a blog for appraisers last year that deals with what appraisers can do to help themselves become competent. This specialty practice now has a strong demand that shrewd business practitioners should take advantage of. Appraisers seem to not be grasping at the opportunities they have available. The classes and materials out there are not extremely expensive. Get in front of your local builders and agents and help educate them. There is money to be made out there ethically.

Lenders and Appraisal Management Companies

The lenders and Appraisal Management Companies (AMC) should be making sure the appraisers retained are qualified, however borrowers will often not mention or know the home under contract needs such expert valuation services. I sometimes get on-site for a lender and must call them and explain that the subject home has a large solar array and is a platinum Pearl home. It is not the lenders fault that the borrower failed to communicate the information to them. Looking forward, I do hope that the lenders are asking about high-performance features during the application process.

If you are a lender or work with an AMC, there is a great resource through the Appraisal Institute (AI) that anyone may take advantage of. You can locate appraisers that are trained in the valuation of green homes through their online registry. This is such a great resource that the AI allows non-AI members to be included on the registry. There truly is a responsibility on the lenders side that extends to the AMCs to locate and utilize competent appraisers. I have yet to find one lender or AMC that qualifies appraisers based on high-performance homes. Some do ask if I do them, but they never ask for sample reports which demonstrate competency (something required by the secondary market and agencies).

In the end, high-performance homes offer a unique and complex assignment type for both agents and appraisers. The only way to competently accept this work is to get educated and get some experience to do the work. For agents who can advocate for their clients, it is important that you communicate what you are selling to the consumers, to the lenders, and finally to the appraisers when they come out to do their inspections. That is a lot of responsibility, remember to be mindful of it.

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About Woody Fincham

Woody Fincham
Woody Fincham- Woody Fincham, SRA, AI-RRS, RAA, Member of RAC is the founder and President of Accurity Fincham and Associates, a Virginia based valuation and consulting firm. He is also a member of the national leadership for Accurity Valuation. Woody specializes in high-value residential homes, conservation easements, high-performance homes, review and consulting as well as both lender-based and non-lender-based work. He has been a featured panelist at the Association of Appraiser Regulatory Officials (AARO) and presented at the Appraisal Institute annual conference. He has also been a non-member participant in the Collateral Risk Network (CRN) and is one of the national instructors for the Appraisal Institute on residential topics.

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