Brokers, appraisers struggle to value green homes

Despite buyer demand, MLS systems and appraisal firms lack tools to measure environmentally friendly resale properties

When it comes to energy efficiency and “green” features in homes, there’s a chasm-sized disconnect in the marketplace among consumers, real estate appraisers and the nation’s realty sales system. On the one hand, prospective buyers routinely tell researchers that they place a high priority on energy-saving and environmentally friendly components in houses. The presence of high-efficiency systems in a home makes shoppers more interested in buying because they’ll save money in the long run.

On the other hand, the vast majority of multiple listing do not yet include so-called “green fields” in their data search forms to facilitate consumer shopping for homes with high-performance features. Plus, most real estate appraisers do not yet have training in the valuation of green homes and often do not — or cannot — factor in the economic values of expensive but money-saving components such as solar photovoltaic panels.

Two new research studies document consumers’ strong appetites for energy efficiency and green features. A National Association of Home Builders survey of 3,682 actual and prospective purchasers found that 94 percent of respondents rated Energy Star appliances as among their top several “most wanted” items out of 120 they could choose from. Ninety-one percent said the same for new houses that came with Energy Star certifications on the total structure.

Energy Star is a federally backed set of energy-saving performance standards for a wide range of products including appliances, lighting, windows, doors, electronics, heating and cooling systems all the way up to and including newly built homes. The study also found that buyers would be willing to pay an additional average of $7,095 in the upfront cost of a house if that investment saved them $1,000 a year in utility expenses.

Meanwhile, a survey of buyers and sellers conducted by the National Association of Realtors found that 87 percent rated energy efficiency in heating and cooling as “very” or “somewhat” important to their choice of a home. Seventy-one percent said the same for energy-efficient appliances. The newer the house, the more important were energy-saving and green components.

Now here’s the disconnect: While most new homes come with energy certifications and ratings, the overwhelming majority of resale homes do not. For shoppers and purchasers who prefer to save on energy outlays, there’s often little information in the formal listings search data on MLS systems to highlight houses with extensive green components.

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Of the 860 MLS’ nationwide, according to industry estimates, only about 210 have gone green — that is, included distinct sections of their standard listing formats for high-performance and sustainable features. Though there is an industry effort under way to “green the MLS” by including green fields as standard sections in MLS listings, adoption has been slow.

The lack of green fields, in turn, not only hampers buyers. Appraisers who search for “comps” — recently sold comparable houses — often are unable to readily distinguish those with significant energy efficiency investments from ordinary energy-guzzling homes. Worse yet, say industry critics such as Sandra K. Adomatis of Punta Gorda, Fla., most appraisers have no specific training in valuing high-performance or green features and tend to ignore them or undervalue them in their appraisal reports to lenders. This hurts sellers and buyers alike.

To help bridge the information gap, the country’s largest appraisal professional group, the Appraisal Institute, recently released an updated “green addendum” that realty agents and sellers can use to call attention to the energy saving features of homes, especially in areas where the local MLS provides no separate green fields. Appraisers can attach the addendum to their standard appraisal reports as a way to justify additional value assigned to the house because of the cost-saving improvements.

Of special note, given the fast-growing popularity of solar panels and arrays, is a special section within the addendum that provides the appraiser access to an online tool — a “PV value” calculator developed by Sandia Labs and Energy Sense Finance — that estimates the incremental value the photovoltaic installation adds to the property based on a discounted cash flow model.

Bottom line for sellers with significant energy conservation investments: Make sure your realty agent gets them highlighted in the MLS listing. And make sure that the appraiser who is sent to value your property uses the green addendum and has adequate training to do the job. Otherwise the money you spent may not get the fair treatment it deserves in the valuation.

Kenneth R. Harney is a syndicated real estate columnist

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