High Performance Appraisals

by Joel Barkman

As the economy begins to thaw the National Association of Home Builders (NAHB) is expecting modest growth for the home building industry in 2011. In spite of some of the promising signs, I am still warning my clients that the lending and appraising industries can be major obstacles for home builders and homeowners alike.

The homes that I build are done according to today's more stringent building codes as compared to older homes on the market. In fact, the homes that I have currently under construction are being built under very strict guidelines - making the homes 30 percent more efficient than the current code requires.

Energy efficient and many green products help to make homes more affordable to operate and maintain, and healthier to occupy as well - which in turn adds very real value.

I am personally very pleased to report that a new program from the Appraisal Institute, the professional association representing the appraisal industry, will educate appraisers on the intricacies of valuing high-performance residential and commercial buildings.

The "Valuation of Sustainable Buildings Professional Development Program," launched on Jan. 24, is aimed at helping appraisers understand the value of green building technologies.

"The appraisal community recognizes the importance of giving appropriate weight to green building in the valuation process," said Jerry Howard, chief executive officer of NAHB. "We are pleased to see the Appraisal Institute taking steps to educate appraisers across the country on this evolving aspect of residential construction."

Building on existing Appraisal Institute educational resources, the new program will provide professional appraisers with the most advanced guidance, case studies, methods and techniques on valuing high-performance buildings, according to the Appraisal Institute.

"There is a tremendous need for this type of education within the real estate sector," said Appraisal Institute President Joseph C. Magdziarz. "High-performance buildings represent a rapidly growing area of the real estate market, and reliable valuations are critical to banks' risk management and to developers' sound development practices. The Appraisal Institute is proud to continue its leading role in educating appraisers on such an important topic."

The new program consists of three courses. "Introduction to Green Buildings: Principles and Concepts" and "Case Studies in Appraising Residential Green Buildings" were unveiled on Jan. 24 and 25 in Chicago. "Case Studies in Appraising Commercial Green Buildings" will debut later this year. All three courses will be taught multiple times in numerous locations throughout the country.

Magdziarz noted that appraisers need to have all the information from underwriters, builders, real estate agents and home inspectors related to energy-efficient features in order to recognize them in their valuations and to make appropriate, market-based adjustments.

"As analysts of the real estate market, appraisers will look at the actions of buyers and sellers of real estate by analyzing data, conducting interviews and applying applicable approaches to value," Magdziarz said.

"A critical issue to the advancement of high-performance buildings is market recognition of the actual or perceived benefits of a green building," he said. "Do market participants view high-performance features as an enhancement to the market value of the property or as an over-enhancement? This is a critical question that will likely be unique to the particular property and local real estate market."

The Appraisal Institute has been an active participant in the three appraisal summits hosted by NAHB over the last 18 months. The half-day summits brought together a wide range of stakeholders, including NAHB; the National Association of Realtors®; the Appraisal Institute; the Appraisal Foundation; government sponsored enterprises Fannie Mae, Freddie Mac and the Federal Home Loan Banks; and financial regulators such as the Federal Reserve, FDIC and the Comptroller of the Currency.

"Appropriate valuation of green building technologies has been discussed during all three summit meetings," Howard said. "In many cases, appraisers are using distressed properties as comparables and they are not recognizing the value of green building, updated building codes and other things that bring real value to new homes. This educational program is an important step in the right direction."

Indeed, it seems as if the economy is beginning to trickle, and just as important, I welcome the flow of discussion between the building industry and my colleagues in the lending, appraising, and real-estate industries. After all, we have an important role in the community - building and maintaining the value of our homes.

Remember, education is not only a service, but a responsibility, because not all homes are created equal - just "Ask a Builder."

As always e-mail your questions or comments to joel@goldenrulebuilders.com or write to "Ask a Builder" at P.O. box 294, Catlett, VA 20119.

Barkman is president of the Fauquier Chapter of The Northern Virginia Building Industry Association.

Read Joel's column weekly in the