I'd love to get a regional breakdown of this! Because I don't believe that this is true, at least in the Triangle. Let me know what you think!
In an unscientific, voluntary national poll, appraisers were asked if they had appraised "high-performance" homes, and if so, whether they felt that those homes carried a premium value in their market.
First, over 50% had never appraised one and 10% had no idea what a high-performance home was (that's "green/EnergyStar" for neophytes). Given the emergence of green in the Triangle (nearing 20% of new construction according to MLS), I'm not sure that reflects our local appraiser population; however, there are probably a significant number who have not encountered such homes.
Secondly, of the approximately 40% who had performed these appraisals, 30% (or three-quarters of this group) did not believe a high-performance home carried a market premium, despite the significant and demonstrated operating costs from energy savings and reduced maintenance. I find this disturbing, because I believe it reflects an obsolete view of valuation criteria.
It appears that, since no requirements have been defined for valuing these new construction methods, most appraisers are ignoring some very material factors. We certainly do need guidance in this area, but we can justify some basic approaches to valuation, such as capitalizing the projected savings.
I believe it is time for appraisers to step up to this challenge and recognize the true value of high-performance homes. The value is real, not cosmetic fluff, and should be considered in the appraisal. Buyers (and their lenders) should insist on the use of appraisers experienced with high-performance homes and/or suitable analytic methods so that their mortgages are not jeopardized by inadequate valuations.
If you're in the market for a HI-PERFORMANCE home, you expect:
Energy savings of 50% or more are possible, when compared to a home built before 2005. The technologies (and building codes) are vastly superior to those of just a few years ago; more and more buyers are now demanding energy efficiency in their new homes. And it's not just specialty homes anymore - high-performance homes are available in virtually every price range!
SAVINGS
The HERS (Home Energy Rating System) rating is the standard measure of energy efficiency. Determined by a third party inspector, this value is derived by physical inspection and testing. A value of 100 is the standard - this is equivalent to a basic home built to the 2006 International Energy Conservation Code. Lower scores indicate greater efficiency (lower energy consumption); to qualify for an EnergyStar certification, the HERS rating must be 85 or lower, indicating at least 15% greater efficiency than a basic 2006 home. Older homes may have HERS ratings of 125 or greater.
Assuming that energy costs are proportional to energy efficiency (the HERS rating), monthly savings can be determined using the ratio of your future and current HERS ratings. For example, if you are currently living in an older home with a HERS rating of 125, and you buy an EnergyStar certified home with a rating of 85, your cost ratio is 0.68 (85 / 125), meaning your new energy bills would be approximately 68% of your current energy bill. If you currently have monthly energy bills of $200 you could save an estimated $64, or $768 a year.
VALUE
How much additional value is there in this high-performance home? What if you could capitalize the savings and incorporate them into your mortgage? As an appraiser I make adjustments for energy efficiency, capitalizing these savings to determine the incremental value. That monthly savings of $64 a month, applied to a 5% mortgage, would allow you to add almost $12,000 to your purchase. I make adjustments on this basis for each of the comparable properties used in your appraisal.
There are also various Energy Efficient Mortgage and tax incentive programs, allowing your lender to modify loan requirements based on factors such as the HERS rating. You may be able to add energy improvements to the loan, modify qualifying ratios, or incorporate credits as part of the mortgage.
As I've discussed in earlier blogs, there are six key systems defining a certified GreenBuilt home. In no particular order, these are:
While it is certainly possible to add green features to any home, it is the development of comprehensive high-performance systems which mark a certified home. The certification hierarchy begins with Energy Efficiency, which is rated by third party verifiers conducting a series of tests to determine the Home Energy Rating System (HERS) score.
Currently the HERS benchmark score of 100 is met by a home built to the definitions in the 2006 International Energy Conservation Code. Any home with a HERS rating above 100 is using more energy (is less efficient), while those below 100 use less energy (are more efficient). The basic requirement for an EnergyStar Qualified home is a HERS score of 85. This means that an EnergyStar Qualified home uses only 85 percent (or less) of the energy of one built to the 2006 code. Older homes of typical construction may have HERS ratings of 125 or more; high-performance homes may be under 60.
Other certification systems (National Green Building Standard, LEED) require EnergyStar qualification as a starting point. The remaining five systems all must still reach minimum scores to qualify for various levels of certification (Bronze, Silver, Gold, Emerald).
The chart below illustrates the relationship of the certification systems, HERS ratings, and value to the homeowner.
GREEN Insulation Retrofit
At each monthly meeting of the Green Home Builders of the Triangle (GHBT), a brief presentation is made to address a specific topic. This month featured "Insulation Retrofit Options", presented by Alan Spruyt of Trinity Design/Build.
New construction allows the builder to address the entire envelope of the structure, from attic to basement/crawl space. Retrofitting insulation into an existing home is much more problematic, particularly in historic buildings. While insulation can be fairly easily installed in attics and basements, the walls represent a much more serious challenge. In addition, while important, wall insulation does not contribute as much as other areas to overall energy savings, meaning that costs may exceed the potential benefits
The basic options are outlined below.
Option 1. Gut interior wallboard, insulate, and refinishOption 2. Gut exterior siding, insulate, and refinishThese options have very high demolition and reconstruction costs, making them prohibitive if the sole purpose is insulation. If combined with other rehabilitation work which also require gutting the walls (electrical, structural, etc.), then the incremental cost may become realistic.
Option 3. Inject insulationThis is a technically-sound process, but can be costly (foam) or risky (moisture-absorbing celluose). Again, costs may exceed benefits.
Option 4. Do nothingAs it turns out, studies show that insulating the walls is less significant in creating energy savings than the other major components of the thermal envelope (roof, crawl, and windows). Even without insulating walls, upgrading the other components along with the HVAC system yields energy savings in excess of 50%, without incurring the high overhead associated with gutting walls.
RESNET was a great opportunity to meet with EnergyStar/green builders and learn more about their concerns and issues. We also got to share our experiences with appraising green construction.
Let's just say there has been a great deal of frustration for everyone. And there also seems to be consensus that we need to deal with things on two fronts:
These efforts also need to be approached in a manner which provides consistency. Current practices make it difficult to make comparisons among different properties, a critical element for appraisers. Sam Rashkin of EPA is lining up a series of meetings with different constituencies to outline some proposals to advance the state of things.
Finally, there remains a huge gap in awareness. Far too many realtors, lenders, and appraisers still consider this a "fad", and choosing to ignore the growing green trend, particularly in the Triangle market.
Are they right? What do you think, and what directions do you think we need to take? Take just a minute and let's discuss this. Your feedback is appreciated.
Sorry - I did not realize the space limitations at this convention. Quick Turn will be attending as the appraiser representatives.
Your voice can still be heard. Give me a call, or post to this blog, to let me know about your issues and concerns. This is OUR opportunity to hear and be heard.
And stay tuned to this blog. I will post the conversation for everyone to follow. Hopefully, this opens a new dialog in the green building space!
It's coming February 22-24 at the Hilton North Raleigh! RESNET (the Residential Energy Services NETwork) , a national association of green builders, suppliers, and evaluators, is holding their 2010 RESNET Building Performance Conference that week. "The RESNET Building Performance Conference is the premier national forum on home energy ratings, residential energy efficiency financing, and building performance business development."
Guess what? They are concerned with involving appraisers more in the whole green building movement - a song I've been singing for some time now. There will be a roundtable discussion on Monday evening, February 22, from 7-9 pm with the Appraisal Work Group for ENERGY STAR Qualified Homes. Interested? Give us a call at Quick Turn; let's see how we can coordinate our own response to this opportunity!
Let's make this evening the beginning of a whole new arena for appraisers!
Recycling waste water doesn't sound too appetizing, but we're not talking about toilet waste. And we're not thinking of reusing it for washing/drinking!
Gray water is simply drain water from everything EXCEPT toilets (sinks, showers/tubs, washing machines, etc.) Okay, but if you're not drinking or washing with it, what can you do? The green solution is to use it for toilet flushing!
Think about it - each flush is 1.6 gallons of water (or just under a gallon for dual flush). Unless you are actively conserving by NOT flushing, this would be in the range of 4-6 gallons a day per person (or more, depending on your habits), in the range of about 10% of daily use. Anything done to supplement the water supply for flushing will reduce the overall demand for treated water.
An estimate for the Green Home Builders of the Triangle Education Committee indicates that a Durham family of 4 could save 12,000 gallons a year.
Appraisers have encountered difficulty under new rules introduced since the mortgage meltdown. The Housing Valuation Code of Conduct (HVCC) now restricts direct communication between appraisers and lenders/processors. This has led to the creation of third-party intermediaries that manage the information flow. This is intended to eliminate undue influence, but often inhibits necessary communication.
Particularly for green properties, where there is a need for clear communication of features and detailed specifications, this can create a problematic situation. But fear not, there is NO RESTRICTION on my being able to obtain information from the other parties (builder, realtor, seller) - only the lender! So it becomes really important that I know who will have the details I will need to conduct a truly informed inspection.
Many people have pointed out that much of the real value of a green home is "invisible" - but not intangible. Having the right resources at hand is critical to achieving the proper value. As I have pointed out before, we have a real need to standardize how this information can be captured, recorded, and transferred. But in the meantime, I am more than happy to talk to you (unless you're the lender!)
Air quality, often the most-cited important feature of Green Built Certified Homes, is achieved through capturing, controlling, and diluting the source through filtration.
Healthy indoor air quality is important for energy efficiency and comfort, and is accomplished with a tight building envelope. Air filtration through walls, for example, contributes to energy loss and is also a source of mold when warmer conditioned air condenses as it reaches a cooler surface in the wall cavity.
A tight building shell does create the need for an intentional means of introducing fresh air into the living space. Introducing air into the home in a controlled manner has both an energy and IEQ advantage.
The first step involves calculating the building's heating and cooling BTU load requirements. Then the type and size of HVAC equipment is determined to meet that load. Finally, the supply and return ductwork is laid out and sized for the structure.
When installing gas furnaces or fireplaces use direct-vent equipment and/or install induced mechanical draft in a combustion closet to minimize the quantity of combustion-generated pollutants entering the home and the unnecessary loss of indoor air to support these devices.
Tip: Look for Energy Star certified HVAC units with high SEER, HSPF, and AFUE ratings to minimize utility expenses and reduce consumption of natural resources involved in energy generation.
INDOOR AIR QUALITY VERIFICATION BY THIRD PARTY INSPECTIONS
Inspectors verify:
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