Changes to the Appraising of Green Buildings
With the June 2013 reintroduction of the SAVE – Sensible Accounting to Value Energy – Act to Congress appraisers face changes when appraising green buildings. The Appraisal Institute and the Institute for Market Transformation are now offering guidance for appraisers on evaluating green buildings.
What is a Green Building?
A green building is generally agreed to be one that was created in an environmentally responsible way that is resource-efficient throughout its entire life cycle. There are six main elements in a green building:
- Site – Location specific characteristics like the distance from transit and reduction of sprawl
- Water – Methods employed to conserve water and manage waste water
- Energy – Features that reduce the use of energy including passive solar design and indoor appliances with low energy use
- Materials – The use of salvaged, recycled and locally available building products
- Indoor Environment – Methods to enhance indoor air quality such as ventilation systems and the use of low emission building materials
- Maintenance and operation – The continuing upkeep of energy efficient buildings as well as the retrofitting of existing building that were not originally designed to be green
The SAVE Act
This SAVE act aims to improve the accuracy of mortgage underwriting for energy efficient homes used by federal mortgage agencies. The act would require expected energy cost savings to be factored in to determinations of value and affordability when lenders receive a qualified energy report. Over the course of a 30 year loan, utility bills usually cost more than real estate taxes or homeowners insurance. With the extra value afforded by energy savings, borrowers would see lower interest rates and be able to afford larger loans. If lenders do not receive an energy report conducted by an approved third-party inspector, a home’s energy use would not be taken into account.
Appraising Green Buildings
The need for the appraising of green buildings will continue to grow as more properties use these principals and legislation dictates that their efficiencies are taken into account in the mortgage loan process. When valuing green buildings, appraisers need to understand how these features affect a property’s market value. Systems like LEED (Leadership in Energy and Environmental Design) provide a set of widely accepted rating criteria which can be used to assess value.
Appraisers will need to identify similar markets and groups of green properties and determine how the characteristics of one property are related to others. The USGBC (US Green Building Council) offers a database of LEED certified and registered buildings that can be used as comparables. They will also need to gauge how prevalent sustainability in a the given market.
The Appraisal Institute is working in conjunction with the US Green Building Council to offer appraiser education for appraising green buildings. Find out more about Valuation of Commercial and Residential Sustainable Buildings at their website.Tweet