Summary: Lack of time, information, and resource has made it difficult for appraisers to factor green building into their valuations. Now, the Northwest Energy Efficiency Alliance has released a means for appraisers to gatherincremental green cost data locally. The National Association of Appraisers calls NEEA’s Cost Data Addendum as “a significant step forward in providing data to residential appraisers about local incremental costs to install energy-efficiency and green features.”
While residential appraising still relies heavily on the market or sales comparison approach, green building and particularly energy efficiency is now recognized in some areas as a new market influencer. With this, appraisers need verifiable and credible secondary evidence to support an adjustment to the primary approach. Where can appraisers go for this secondary evidence?
Despite the efforts by the Appraisal Institute to standardize reporting of green characteristics with their Residential Green and Energy Efficient Addendum, appraisers at the local level are still left relying on some combination of national replacement costs (Marshall & Swift’s Residential Cost Handbook Green Addendum), builder interviews, and manufacturer product information to gather cost data.
Builder and manufacturer interviews on green features and strategies are time-consuming and invariably incomplete. Typically, the appraiser is expected to know in-depth high performance building strategies and national replacement cost data. That’s particularly problematic given the hit to appraisers’ fees from appraisal management companies and the AMCs’ demands for shorter turnaround times.
Appraisers have lacked reliable data to support builders’ claims of higher property worth based solely on the cost of the energy-efficiency and sustainability measures. The cost of green building improvements rarely if ever equates to market value. Indeed, builders who’ve dropped out of home certification programs or elected not to build more sustainably commonly cite their inability to recoup the cost of incorporating green and advanced building practices.
In 2012, the Northwest Energy Efficiency Alliance (NEEA) released the Cost Data Addendum (CDA) for High Performance Homes to support residential appraisal industry efforts to recognize value for high performance homes by providing a means of gathering credible local incremental green cost data.
CDA Version 2, released in February 2013, added tables for estimating the energy and water savings for homes that incorporate high-performance measures. Both the original addendum and V.2 is completed by the builder and informs the appraiser of improvements that elevate the home’s performance beyond state and local codes. V.2 also provides the incremental cost of those improvements with the Gross Living Area (GLA), details rebates and incentives, and estimates utility savings associated with the improvements.
So what can appraisers do with this cost data information when provided? As they build their knowledge base of green building features and systems, the CDA ensures they won’t overlook these green features and strategies (after all, none of us know what we don’t know). In addition, the data provides appraisers with measurable initial (first) cost impacts as well as information on the ongoing operational cost impacts due to a particular green feature or strategy.
The CDA, if used properly, could lead to significant changes in green valuation by providing credible and supported cost and savings data on green characteristics, many of which are essentially invisible to an appraiser on a typical inspection.
The National Association of Appraisers’ executive board has endorsed the addendum, stating: “The NAA supports, in principle, NEEA’s new Cost Data Addendum for High Performance Homes as a significant step forward in providing data to residential appraisers about local incremental costs to install energy-efficiency and green features.” Take the CDA alongside the Appraisal Institute’s addendum—which focuses on standardizing the reporting of green features to lenders—and it seems appraisers are beginning to have significant tools available to assist them in the complex world of green valuation.
To familiarize builders with the Cost Data Addendum, SEEC LLC gives webinars explaining how to use it. Watch SEEC’s calendar of events for updates. You can also find a PDF of the most recent webinar’s presentation on SEEC’s resources page.
Download V.2 of the Cost Data Addendum for High Performance Homes.