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Appraisal institute to officially recognize green features

Can I get an Amen?

I’ll even settle for a WOOT from all you agnostics. Recently, the Appraisal Institute released this statement about the creation of an optional green features evaluation addendum to Fannie Mae Form 1004 which is the appraisal form used by appraisers for Fannie, Freddie, and FHA. As noted in the release, the contributory value of green features have not up to this point been a “part of the equation,” so this is a huge boon for the green building industry.

What this means is that while there are premiums offered to homes with  granite counter tops, upgraded flooring, or other luxury features,  upgrades such as geo-thermal or high R- value  insulation have not been given consideration.  This has created a challenge for the green building industry because while there is demand in the market for green and energy efficient features,  there are some additional costs to the builder to incorporate them without reliable way to price accordingly.

From my personal experience, this has had the greatest impact on the more modestly priced markets where margins are more narrow.  For example, I am working with a builder who would very much like to create 800-1000 sq ft LEED platinum homes priced 200k or under. These would be in an urban location where walkability and mass transit are readily available but lot premiums are also high.  While the sq ft is not large, the design would incorporate a flexible floor plan with multi use spaces, expansive outdoor living space, and ultra efficient and alternative building materials.   The builder is concerned about appraisal because while we can find comps for the price per sq ft we are targeting, his building plan will not include some of the luxury finishes.  Instead, the upgrades will be in the form of a superior construction process which have not been given due credit.

Features included

The Addendum includes features such as insulation, windows, HVAC, energy efficiency, water savings, HERS ratings, Green Builder Certifications, with space to evaluate annual utility savings.  It also has space to evaluate some energy efficient retrofits as well as annual energy costs or savings as result of work completed.  I also LOVE that they can consider access to public transit,walk score, passive day lighting, rain catchment, local and federal monetary incentives in their evaluation.    The only things that I see that are missing are some of the cool alternative structural components such as insulated concrete form and Structured Insulated Panels.  While these are very efficient building materials, they take a home to the next level in terms of weather durability, termite resistance, and maintenance.

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I’m sure it will take some time for Appraisers to adopt this form (it will be more work for them) but it certainly is tangible progress.    For builders who want to do spec projects that are a little more cutting edge, it gives them some guidance in what an appraiser will be allowed to consider.    Realtors’ with a green certified project or green retrofit,  can be using this form as a guide to what data should be collected up for the appraiser if they want credit for the features.   As a building science geek, I hope this will be a catalyst for builders to go further than basic energy efficiency with some reassurance that consumers will be able to obtain a loan to purchase their projects.

Written By

Anna Altic – Village Real Estate Services. I’ve called Nashville home for the last 15 years and have been practicing (practice being the key word here) real estate for just over 6 years. In the fall of 2007, I went to a local German Festival that had a home tour, including a LEED certified property, and I instantly became enamored with the idea of eco friendly living (ok, so I’d had a little beer and the dual flush toilet rocked my world). I have since devoted much of my time and energies in to studying and espousing the benefits of better building technology within our local residential market and my proudest accomplishment thus far has been successfully leading the initiative to get over 25 green features added to our MLS search fields.

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