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?
In the world of residential valuation, a green-built, energy-efficient, or high-performance new home or retrofit is essentially invisible to the consumer if the MLS doesn’t support green fields (i.e., fields in the MLS data form that enable the listing agent to define the green features). Without green fields, if a potential buyer is interested in a home that’s resource efficient or has superior indoor air quality, for example, brokers searching the MLS on their behalf can’t identify this property type. Likewise, an appraiser undertaking a green home assignment isn’t able to identify comparables, isolate possible premiums being paid by consumers for green features, or identify local market information such as market share, days on market, and price per square foot.
As market awareness of and demand for green homes grows, what is an MLS’s responsibility to its members to provide green fields—and what liability issues should be of concern? According to studies by the Institute for Market Transformation, a nonprofit organization that promotes energy efficiency, energy benchmarking of commercial properties has revealed a simple truth: When information is disclosed to the market, the market has the opportunity to react to that information. Market reaction can be reward or punishment—that’s the nature of a free market. But either way the consumer benefits from the competition as a result of disclosure. The ability then to identify market reaction lies at the heart of both real estate investments and valuation.