Appraisal Tips: Getting the Value Out of Green Homes

This article first appeared in the PB June 2012 issue of Pro Builder.

Getting a new home appraised can be a difficult and frustrating process for many builders. Ideally, the value assessed by the appraiser will at least equal, if not exceed, the builder’s total construction costs. Many builders, however — especially those producing green homes — are finding this not to be true.

The main problem with appraisals on the whole, according to Joan Trice, publisher of the Appraisal Buzz newsletter, is an excess of housing inventory created by the financial crisis. “Until all that inventory is absorbed,” she says, “people aren’t going to pay cost. That’s why there’s a gap between what builders are building and what people are paying and where market value lies.”

Green homes and features, on the other hand, are suffering from the opposite problem. While they are becoming more popular in the home-building industry, the sample size is still too small for appraisers to compare. As a result, many green homes are getting appraised for significantly less than hoped.

Justin Slack, an appraiser with HomeStreet Bank in Seattle, says it boils down to lack of data. “There’s no centralized database from the utility companies to provide data on, let’s say, the average utility consumption of a house,” he says. “It’s hard to compare apples to apples.”

The question then becomes how to get that “fair” value for green homes. We talked to a few green builders who have had success with appraisals to see what they’re doing differently.

Home Builder Appraisal Strategies That Work

Befriend Appraisers

Betenbough Homes — which only builds green homes — recently expanded from its home market in Lubbock, Texas, into nearby Midland and Odessa. President Rick Betenbough says they had some initial trouble with low appraisals in the new markets, so they invited every appraiser in the area to a luncheon.

“Our purpose there was to show them our homes and talk to them about our process,” he says. “We also explained how we price things and talked about the fact that we’re green and what that means.” With the concept and the technology still relatively new, Betenbough argues that people don’t fully understand everything that “green” embodies.

Betenbough has no problem with taking the direct approach. “We’re not asking them to do anything special or cut us any slack,” he says. “We just want to meet them and tell them exactly what we’re doing and what the value is for the buyer.”

Trice agrees, saying the sooner the appraiser can get started the better. “Before you ever break ground,” she says, “you should be hiring an appraiser.” Using this practice, every decision throughout construction can be based on maximizing end value.

“Spend the $400 or $500 for the appraisal on the front end rather than deal with a $50,000 to $75,000 problem on the back end,” says Trice. In fact, many builders recommend taking it a step further by working to build lasting relationships with your appraisers. This gives them a chance to learn about you and your processes.

Help Appraisers—Be an Open Book

Ideal Homes in Oklahoma City found success through the MLS listings. “Now there’s a place for the HERS score and to list all the energy-efficient features in the home,” says owner Vernon McKown. “And that came from having a dialogue with the appraisers.”

Trice says that easier access to relevant data would go a long way toward evening out the appraisal situation. “I have heard some success stories with MLS starting to identify those features,” she says. “The opportunity for the appraiser to get it right — when they have access to good data — is much better than when they’re appraising in a vacuum.”

Slack adds, however, that it’s not just having all of the information — appraisers need the right information to make an informed decision.

Change the Rhetoric Around Green Home Appraisals

The consensus seems to be, then, that being proactive helps to ensure the best value for a green appraisal. “Once a judge has come out with a ruling,” says McKown, “getting him to change the ruling is much more complicated than trying to proactively influence it.”

In the end, Betenbough believes it all comes down to communication. “Appraisers are not the enemy,” he says. “Their job is to protect the marketplace. Consistency is the thing that’s most important.”

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