More and more homes are being built as “green” or “high-performance” properties. But what exactly qualifies a home as truly green, and how are these new features recognized in the marketplace? Real estate professionals and appraisers are getting some answers and guidance by way of the U.S. Department of Energy according to a report from the National Association of Realtors (NAR).
“Simply put, a green or high-performance home is one designed to use less energy or water or improve indoor air quality,” NAR said. “However, just because a home has new windows or low-flow water features doesn’t make it automatically ‘green’ or ‘high-performance.’ Such descriptors are usually reserved for properties that have a combination of a wide variety of features.”
NAR went on to say that the spectrum of energy-efficient characteristics a home may possess can make the appraisal process complicated. A number of rating and certification systems have emerged in recent years that can help identify these types of properties.
“However, ratings can’t catch everything; most residential properties currently have green or high-performance elements that haven’t been documented by such programs and therefore may be difficult to identify. This makes a real estate professional’s communication with an appraiser even more vital in such transactions,” the report said.
Recently, The Appraisal Foundation’s Appraisal Practices Board (APB) issued guidance to help. Two advisories that real estate pros might find helpful to review are Valuation of Green and High Performance Property: Background and Core Competency and Valuation of Green and High Performance Property: One to Four-Unit Residential.
For homes with green or high-performance features, appraisers need to answer more than just whether they are green or high-performance homes. They want to understand the features that make it green or efficient. They also need to know how green the property is relative to what buyers in this particular marketplace are expecting.
“One major challenge for appraisers in this situation is the lack of verifiable data about energy efficiency,” NAR said. “Although the fundamental appraisal process is no different for a green home, many MLSs and other data sources were designed a long time ago, before there was a way to convey accurate or complete information regarding a home’s energy-efficient features.
“However, because green homes have become more prominent in recent years, many MLSs are updating their systems to ensure this type of information is being captured and accurately reported. Appraisers all around the country are working with agents and brokers in an attempt to identify the type and extent of data that will help facilitate smooth transactions,” the report went on to say.
This is why the actual terms “green” and “high performance” are not the most important concern. It’s important that appraisers can recognize and account for everything properly to develop credible opinions about value.