THE APPRAISAL INDUSTRY NOT UP TO SPEED:
One of the major challenges to obtaining a mortgage these days is obtaining an appraisal supporting the purchase price. In general, Appraisers are not trained in “green” and from what I have been able to glean from my industry friends, there are no industry standards or places on the appraisal forms for checking or indicating the home is “green” and assigning a value to those improvements. It is my understanding that an appraiser can increase the quality of the construction from “average” to “above average”, etc which has nothing to do with anything.
The second issue with the appraisal industry, as it relates to appraisals on “green” homes, is similar to the building departments / inspectors. Appraisers are trained to appraise homes that are more or less built to code (at the date of construction) and they do not know the value / cost of green improvements and may not have access to the tools to get the proper information. In the appraisers defense, they are generally only getting paid $200-$400 for an average appraisal and they are under tremendous scrutiny. As a result, they are not very motivated to do anything that would be questioned because it could easily cost them a banks appraisal business.
Even if they wanted to support the value, they might not be able to and stay with all the guidelines. What I have been told is that, if I build for example, a five bedroom home and the are market comps to support a higher price by say $20,000, that does no mean the home will appraise for $20,000 more. The actual number of five bedrooms homes sold and the projected demand for five bedrooms affects the appraisers valuation. It could actually happen that the appraiser could comp a five bedroom for less than a four bedroom based on what they are seeing in terms of the number of sold comps, demand, listings, etc. I have always struggled to understand this issue, but I believe the same problem is true for “green” building. If there is no definable market for “green” (e.g. in most markets), the appraiser is handicapped. In essence, the “green” improvements may have no resale / market value and therefore cannot be supported in the appraisal value.
We do provide detailed specifications and drawings to the lender we hope gets to the appraiser, which would at least alert the appraiser to the fact the home is “green” and will undergo significant construction techniques and improvements.
The latest news, on June 02, 2010, the Appraisal Institute released a new book teaching appraisers how to appraise ”green” homes. I have also noticed they are beginning to offer seminars too. This is all very good, but there is much work to be done. Until there are standards for appraisers with FHA, Fannie and Freddie appraisal forms and guidance for appraisers to follow, appraising ”green” homes will remain a hit an miss situation.