Tag Archives: Energy Efficient Addendum

Financing the Energy Efficient Home – Saga Part 4

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frustrationHonestly, I am at the end of my “playing nice” rope.  Appraisal saga continues.  As noted before – we had some issues in the comps – specifically the Energy Efficiency line item for comparison vs other new homes that do not appear to have any energy efficiency features AT ALL.

We’re 3 weeks into trying to determine the process to ask for a review of the appraisal and no one seems to know how to do this.  Seriously.

The Appraiser said she couldn’t speak to us, since the bank was ‘the customer’.  The bank then tries to speak with her (after a vacation, and another week of issues where the Appraiser can’t meet / teleconference) and then are told that any questions need to be addressed through the 3rd party quality control group and that direct contact is against their guidelines.

Is there any reason this little tidbit couldn’t have been shared 3 weeks ago?

I don’t mind “the process”.  I don’t mind that I have to use a 3rd party to ask questions and have them ensure that we’re not trying to unduly influence the appraiser and to make sure that any changes are in line with facts / data, etc.  In fact, I LIKE process.  I am usually a pretty orderly person.  What drives me absolutely batshit crazy is the total lack of urgency on anything.  ANYTHING.

We’ve now submitted our concerns and supporting documentation (including filling out the 5 pages addendum ourselves) and we’re waiting for a revision.  And as far as I know, no one makes a commitment on the time this will take to turn this work around, etc.  THAT is what drives me nuts.  This is not particularly complex.  It does not involve questioning the comps themselves, or even multiple line items – just ONE FACET of the entire appraisal.  The facet that we specifically required that the Appraiser have experience / certification with assessing value to green / energy efficiency features.

Thankfully the bank is processing our approval with the “value” being blank (hopefully at an “up to but not to exceed” number, so we can plug it in and close as soon as we’re done with this exercise.  Because – we’ve continued to fund the project out of pocket.  And that we paid the Austrian window and door company almost the entire balance of a pretty large sum.  (It kinda freaked me out – but hey – it’s only money, right?)

lucyI would like to get back to the “fun” stuff.  Some more design decisions, envisioning how we’re going to finish the rooms – bathrooms, kitchen, etc.  And I would REALLY like to see some dirt moving.  I think that once that happens, I will know it’s real.  And it will be easier to engage with the rest of the suppliers, ask for best and final pricing, and nail down some details.  It’s hard to maintain focus on the project until this financials are done and WORK starts.  I know Tonic is eager to start too – and are feeling a little bit like Charlie Brown and the football.

I can’t believe how amazingly painful this has been and how time consuming.  Not the real amount of “work”, but the amount of dead time between any activity.  Painfully slow.  Excruciatingly slow.  It’s amazing that anyone builds anything and handles the construction financing.  It’s also pretty easy to see why so many leave this to the large production builders who take care of all this and pump out maximum square footage / code built / neighborhoods of “pick plan A, B or C” houses.

Next Financing post will be the end of the saga (until I freak out over budgets…)  I promise.  But until then – I think I’ll get myself back in the groove and blog about how we got here and why we’re making the decisions we are – not technical like the other half – but more emotional.  (and unfiltered!)  Thanks for reading.

Financing the Energy Efficient Home – Saga Part 3

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How can you get your Green Home the credit it deserves?

The Appraisal Balancing Act

I had sooooo hoped this would be the final Part to this saga.  But that would appear not to be the case.  Let’s recap…

The Appraisal process, at best loose science and conjecture, at worst complete black arts, has always been cloaked in secrecy and rather subjective.  Toss in a Modernist home (more valuable per square foot – as buyers will pay more), and a LEED Platinum home that is almost Net Zero, NOT in a neighborhood and on acreage – oh and with nonstandard construction techniques and you have a “complex appraisal”.  Which I now understand this to mean that it 1) takes longer and 2) costs more.

Add the layer of the appraisal “clearinghouse” to improve the ethical dealings of banks, appraisers, mortgage brokers, builders and real estate agents and it seems to be very well designed to not hold anyone accountable for the accuracy of validity of the data in the appraisal.  (Can you tell I am less than thrilled here?)

While you can’t select a specific appraiser (again – that ethics thing), you can have certain requirements for an appraiser.  In our case, we felt it was imperative that the appraiser had SOME training and familiarity with “green” or sustainably built homes.  Once again – there’s no one certification or accreditation available from the professional association – but there is the 5 page Energy Efficient Addendum that can be used to augment the appraisal and help apply value to each energy efficiency feature.

We got our appraisal back after providing the appraiser a copy of our preliminary Energy Star report / HERS Index (33 without photovoltaic, and -7 with PV) and also our detailed preliminary LEED classification with all the detail from our LEED AP consultant.  All this information would allow the appraiser – remember the “green appraiser” – to fill out the 5 page addendum and accurately attribute value to the energy efficiency.

One page - valuation of your entire project.

One page – Should this be a valuation of your entire project?

If you are not familiar with the manner in which the appraiser goes about valuing a property – I’ll net it out.  The appraiser takes comparable properties (comps), and through a series of comparisons to your project / home / plan, normalizes the other homes to have them more closely match your home through a series of additions or subtractions.  For example – our house has a pool in the plan.  One of the comps did not.  So, the appraiser “added” $25k to the sales price of the comp to try to account for the missing pool – i.e. since a pool would raise the price and since we have one – this is the normalization.  Since it’s rare to have a 100% equivalent property sell within a year  – it’s important to pick the right comps.  And yes – some of the attributes that drive additions or subtractions are subjective, you hope that the overall process is sound.

Or not.

There is one line entitled “Energy Efficiency” in the one page that is really the meat of the final assessment (as far as we were concerned).   This is where we were expecting to have the appraiser utilize the 5 page addendum so that the amount they could attribute to our project (assuming they could not find a comp that was also Energy Star / Green / highly energy efficient, etc) would be reasonable.  We didn’t expect it would really cover the costs of the investment we are truly making.  After all – this investment will pay us back over the entire life of the home with, potentially, having zero or VERY LOW energy bills, and very little maintenance.  So – yes- we’re going to pay more because ultimately, we’re going to get more.  I am okay with that.  What I am NOT okay with is how the appraiser populated the energy efficiency line item.

  1. Comp 1 – new construction.  Labeled as “Good” in Energy Efficiency.  $0 added to the comp sales price.  Upon further investigation from the home’s MLS listing, there is no mention of ANY green or energy efficient feature.  There is nothing to indicate this home was built to any standard higher than the local / state building code.
  2. Comp 2 – 12 year old Modernist home.  Labeled “Average” in Energy Efficiency.  $75k added to comp sales price.  No updating was done to this home and I happen to know this home had monthly utility bills of well over $1000.
  3. Comp 3 – 5 year old single story Modernist home.  Labeled “Average” in Energy Efficiency.  $75K added to comp sales price.  This home also averaged utility bills in the $1000 per month range.

Flipping through the appraisal – the Energy Efficiency Addendum WAS included.  5 Pages. The appraiser filled out one question checked one box for LEED certification.  That’s it. Nothing on R values.  Nothing on my window u values, r values, triple paned, krypton filled lusciousness (grin).  Nothing on solar photovoltaic and the potential to EARN MONEY or have $0 energy bills.  Nothing in the State and Federal rebates for which the house will be eligible. Zip.  Zero. Zilch.  Again – even though this was provided in the LEED checklist and the LEED AP contact was made available.

So – what do you do?  I realize that appraisals are somewhat subjective – after all – you have to take “similar” comps and make educated guesses on how to adjust these disparities.  But – essentially what was done here is that the appraiser gave us no credit for anything – ANYTHING – that we have done that is over the crappy state building code.  Yes- the home is more energy efficient than one built 10 years ago – but it’s also a TON more efficient that a ‘base’ home built today.

Because of all the regulation – the bank cannot “contest” this.  I guess I have to.  And I also realize that this is going to be coming dangerously close to me telling someone that is a professional how to do his / her job.  But seriously – this is a person who has touted their education and familiarity with green homes, building techniques and valuating these features!  I am also sure that any changes to this appraisal will have to be accompanied by an explanation – and then ‘certified’ by the third party that acts as a clearinghouse AND quality control point to reduce industry corruption – so it may raise scrutiny.  (and it’s extra work – but – when you charge extra for a ‘complex appraisal’ – I expect you to actually DO SOMETHING)  However, I am going to present this as an ‘error’ and not something that I am essentially arguing a subjective “I don’t think you valued my project high enough” – but instead – focusing on specific things that simply don’t add up.

I’ll let you know how that works out.

We’re close – we’re really close – and I think we can make it work at the present value if we HAD TO – but it sure would be nice to be given SOME credit.  Perhaps rating out home “Excellent” compared to the new code built home that was rated “Good” in that same category, and then, filling out the addendum to justify both the “Excellent” rating and the increase valuation. Novel idea.  The appraiser did include a bunch of copy / paste words about increased market value of green homes, and green homes spending less days on the market (DOM) that standard homes, and then, of course, didn’t pay any attention to them.

And then – if we can get the appraisal saga done – according to the bank – we can close a loan in 2 weeks.  WHOO – freaking – HOO!

 

Financing the Energy Efficient Home – Saga Part 2

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How can you get your Green Home the credit it deserves?

How can you get Green Home credit?

So – what’s next?

After doing a bunch of internet research, and trying to learn as much as I can about the appraisal process by pouring over old appraisals, we’re trying again.

One site, Green Building Advisor, had a wealth of knowledge about this process with one blog, especially helpful – not only in the content, but also in the comments.  This guy seemed to be having the same issues I had.  More research, more info, more education.  Appraisers are generally reeling from the mortgage / banking mess as well, as banks try to look for a convenient scapegoat for “over valuing” homes.  Granted, there were some appraisers that may have been unethical, but the vast majority of them are only comparing homes to other sales – so once the avalanche over snowballing prices starts, they just need to keep up with the numbers.

Appraisers are all about “comps“.  Comparable properties that are close enough to your property that they can, through a series of additions and deductions for features and specifications, determine a “value“.  Realize that in new construction this is a complete crapshoot.  Add in a “green” home and you have entered into the world of a complex appraisal, and this requires someone with some specialized training.

The governing professional organization of appraisers is the Appraisal Institute.  And, because of the growing issue with “green” valuations, they have developed an addendum to the standard form that is amazingly thorough in outlining the features of a green home.  Everything from your thermal envelope, to blower door tests, to indoor air quality.  In order for an appraiser to fully utilize this form, they NEED to have specialized training.  Too many appraisers just crunch the numbers with little understanding of the real differences in systems and other features, instead putting “typical” in the area on the main 2 page comp sheet.  To be blunt, they need to be able to understand that HERS is not the opposite of his…

ai-residential-green-energy-effecient-addendum

Another vestige of the housing mess, is that banks can no longer have a direct relationship with the appraisals.  In order to remove cronyism and the ability to target a “certain” appraiser, banks now need to use clearinghouses that assign appraisers from a pool so that you never know who you will get and, supposedly, this adds integrity into the process. Couple this with the fact that the homeowner is likely kept as far away from this process as possible, when you are doing a house this cutting edge, you are relying on the mortgage person to convey this to the appraiser.

The good news is that you CAN require some training when you submit the request to the clearinghouse, you CAN insist that the 820.04 addendum be used, and you CAN approve the appraiser that the pool assigns.  I guess since you are writing the check, they give you SOME input.

SO – because of the help and the research on the Green Building Advisor site, we’re trying this again.  We’re providing our preliminary HERS rating, and our expected LEED Platinum status, as well as a ton of other documentation.  I am meeting with the appraiser at the property Tuesday (due to the fact you cannot just drive by and access the property).  Hopefully, having an educated appraiser will help us get to where we need to be and we can start this project in July still.

Stay tuned for Part 3 – I hope it’s labeled SUCCESS!