The Appraisal Institute finds green home improvements can pay off

The Appraisal Institute finds green home improvements can pay off

The Appraisal Institute, the nation’s largest professional association of real estate appraisers, today encouraged home sellers to consider making energy-efficient improvements to their properties and urged potential buyers to seek homes with those features.

“The latest research shows that green and energy-efficient home improvements have the potential to pay dividends for buyers and sellers,” said Appraisal Institute president James L. Murrett, MAI, SRA. “However, it depends on the improvements made. Some green renovations, such as adding Energy Star appliances and extra insulation, are likely to pay the homeowner back in lowered utility bills relatively quickly.”

Additionally, by purchasing an energy-efficient product or renewable energy system for a home, the owner may be eligible for a federal tax credit based on EPA-established guidelines.

Three recent studies confirm that green homes sell for more than non-green properties:

“Green Homes Sales Prices in Northern California,” published in January 2018 by Sandra Adomatis, SRA, LEED Green Associate; and Denis A. DeSaix, MAI, SRA, analyzed sales data from 2015-17 in the San Francisco Bay Area and found a 2.19% average sale price premium for green features.

“Appraisers Analysis of Pearl National Home Certification Sales Premiums,” published in October 2017 by Sandra K. Adomatis, SRA, LEED Green Associate; Donald S. Boucher, SRA; Woody R. Fincham, SRA, AI-RRS; and Betsy K. Hughes, SRA, AI-RRS, evaluated sales data from 2016-17 primarily in Virginia and found an average (mean) premium of 5% in the market area where Pearl has established a presence and where agents are effectively marketing the certification. For Pearl-certified homes in all market areas, the average (mean) premium was just over 2%.

“The Value of LEED Homes in the Austin-Round Rock Real Estate Market,” published in July 2017 by Greg Hallman, reviewed sales data from 2008-16 and found that a house with a green designation sells for more than one without, and a property with a LEED certification sells for 8% more.

Murrett explained that homebuyers and sellers need to understand the difference between a truly green home and a property with green features. According to the Appraisal Institute book “Residential Green Valuation Tools” by Sandra K. Adomatis, SRA, LEED Green Associate, in order for a property to be green it must contain all six elements of green building: site; water efficiency; energy efficiency; indoor air quality; materials; and operations and maintenance.

Murrett encouraged sellers to keep all new construction documents for the real estate agent, potential buyers and appraisers. He further advocated that the sales agent and potential buyer choose a lender that has knowledge of high-performance homes and will make the right choice for an appraiser.

The green building trend is expected to continue growing in the coming years. The National Association of Home Builders in April 2018 released survey results that showed the number of single-family builders with more than 90% of their projects dedicated to green building is expected to increase from 19% in 2017 to 31% in 2022. Single-family remodelers anticipate a nearly two-fold jump from 12% to 23% during that timeframe.

“Builders and homeowners should collect and share with appraisers data about cost and benefits of green building materials and energy-efficient features to establish historical data regarding return on investment of green construction,” Murrett said.
To assist buyers, sellers, appraisers, lenders, real estate agents and builders, the Appraisal Institute in 2011 released “The Residential Green and Energy Efficient Addendum” which has gained ever-increasing acceptance as a tool to communicate the high-performance features of a home. The most recent version of the addendum, published in May 2017, is available in PDF format at no charge on the Appraisal Institute’s website. Individuals who should complete the addendum include the builder, energy or green rater, architect, solar installer, or a combination of these professionals. Appraisers can complete the addendum if they have all the necessary documentation and adequate knowledge of the project.

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