A high performance home, like the beautiful home in Hattiesburg i recently verified to the NAHB green building standard is one that takes advantage of energy efficient sustainable construction. The definition of a green built sustainable home varies widely.

The fifth edition of The Dictionary of Real Estate Appraisal defines sustainability as the practice of developing new structures and renovating existing structures using equipment, materials, and techniques that help achieve long-term balance between extraction and renewal and between environmental inputs and outputs, causing no overall net environmental burden or deficit.

In 2007 the National Association of Home Builders (NAHB) and the International Code Council (ICC) partnered to form and establish a much-needed and nationally-recognizable standard definition of what is meant by “Green Building.”

A consensus committee was formed to develop this standard in compliance with the requirements of the American National Standards Institute (ANSI). The resulting ANSI approved ICC-700-2008 National Green Building Standard defines green building for single and multifamily homes, residential remodeling projects and site development projects while still allowing for the flexibility required for regionally-appropriate best green practices.

NAHB Green Building Standard is made up of 6 chapters:

1. Land Use
2. Resource Efficiency
3. Energy efficiency
4. Water efficiency
5. Indoor Air Quality
6. Home Owner Education

The USGBC’s LEED program, the EPA ENERGY STAR, and over 100 other green programs exist in the US today. There is no  doubt that learning all the nuances of these programs is a challenge to the appraiser.  So let’s look at a couple of steps that an appraiser can take to gather data in an effort to not only define green but to properly give it value.

If the green home you’re asked to value is part of a third-party rating, like the NAHB program, there will be a paper trail to document the analysis needed to produce the appraisal data. So ask for the following:

1. Any scoring sheet of the green building program
2. A home energy rating or HERS report
3. Fannie Mae Energy Report
4. Documentation of any incentives
   1. An IRS tax credit
   2. Utility rebate
   3. Real estate tax discount
   4. Lower interest rate mortgage
      1. i.      EEM – Sponsored by FHA, VA, Fannie Mae and Freddie Mac as well as some conventional lenders, it credits a home energy efficiency in the mortgage itself and stretches the debt to income qualifying ratio allowing the home owner to qualify for a larger mortgage amount.

Another challenge to the appraiser might be describing improvements. Begin with the site and pay attention to shading, landscaping materials and water use techniques. Include language that describes the use of solar panels, low VOC paints, recycled glass counters, structural insulated panel (SIP) outside walls and energy efficient heating and cooling systems.

When comes to comparables don’t be fooled by the home with an energy efficient kitchen. That’s a far cry from a home with a green certification. Green built homes are also built “above code”, meaning that you’ll need to pay closer attention to the quality of construction line in the URAR. Actually there are three lines that need special care. Those lines are:

1. Quality of construction
2. Heating and cooling
3. Energy efficient items

If you’ve not made an adjustment in those area a comment should be made as to why they’ve been left off. Items that are not covered in quantity may be addressed in quality. Again, look for incentives, monthly energy savings, and lower maintenance items as good talking points in your analysis.

Appraiser should also remember that some loan underwriters may indicate that Fannie Mae does not allow adjustments for energy efficient features, but that is not the case. You may be called upon to support the energy adjustment, which can be done by multiplying the energy savings by the gross rent multiplier.This is a common capitalization technique and a way to place emphasis on energy efficiency contribution.

Fannie Mae’s Selling Guide includes the following:

“Special energy-savings items must be recognized in the appraisal process. Appraisers must compare energy-efficient features of the subject property to those of comparable properties in the “sales comparison analysis” grid to ensure that the overall contribution of these items is reflected in the market value of the subject property.”

Finding value in a new market can be a challenge but should not be considered impossible. Soon everyone will realize the importance of and recognize the value in building energy efficient.