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Appraisers get guidelines for setting the value of energy-saving home improvements

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Here’s some good news for homeowners who have gone green and installed energy-saving features but haven’t been sure whether appraisers will credit them with higher valuations: Thanks to a new industry-issued appraisal addendum, the odds have improved that they’ll get the market value they’re due.

The Appraisal Institute, the country’s largest and most influential association in its field, published the long-awaited addendum Sept. 29. It’s designed to be attached to any standard appraisal report covering a property with significant green features. Owners, sellers, buyers, refinancers and real estate agents don’t have to wait for an appraiser to use it. They can download it at no cost and ask that it be made part of the appraisal submitted to the lender.

The addendum won’t guarantee that the appraiser will raise your property value by the tens of thousands of dollars you spent on your solar panel array, high-efficiency windows or geothermal system. But it should guarantee at a minimum that he or she will take notice of those energy improvements and seek a value adjustment consistent with your local market conditions.

The three-page form is a response to growing concerns that although the Obama administration and many state governments and utilities are pushing homeowners to invest in energy-conserving components, standard appraisal forms — including those used by financing giants Fannie Mae and Freddie Mac — are not set up to give adequate recognition to those often costly improvements.

The inevitable result: Owners are frustrated at what they consider low-ball valuations. Refinancers can’t get the loan amounts they seek because the appraisal report doesn’t factor in the monthly utility savings they’re getting from their solar panels. Appraisers, for their part, say that local real estate listing documents often don’t detail all the energy-efficiency improvements or they get the facts wrong.

For example, appraisers complain that some real estate listings claim that the house is an “Energy Star Home” when there’s nothing more than a few Energy Star appliances installed in the kitchen. The Energy Star Home designation is a much higher standard: It requires qualifying under a comprehensive set of criteria for the building envelope, lighting, windows, water heating and high-efficiency appliances, among others.

The institute’s addendum covers a gamut of improvements and ratings and goes well beyond energy efficiency. Though it has basic sections covering insulation, windows, lighting, heating, air conditioning and solar, it also covers sustainability features such as the presence of water-saving or reclamation systems, landscaping that lowers water use or energy use, and the presence — or lack — of public transportation nearby that might help lower fuel use.

Of special significance to owners who have had their houses audited or rated for green features and energy efficiency, the addendum asks for detailed information on the rating or auditing entity, the dates of the rating, average utility costs in the area and the entity’s estimate of the monthly savings that can be tied to the improvements.

Any certifications such as LEED (Leadership in Energy and Environmental Design) must be attached to the report, along with information on any changes made to the property since the certification. If the house has solar installations, the addendum asks for such details as the age of the panels, the energy production in kilowatt-hours for each array, plus other information relating to the actual energy savings attributable to the solar features.

Appraisers using the new addendum should now be better equipped to identify accurate, recent comparable sales in the area — a key step in coming up with a valuation, according to Joseph C. Magdziarz, president of the institute. In other words, if you have a highly efficient, audited house with extensive energy-saving features as demonstrated by the addendum, an appraiser should consider the prices of houses that sold recently with and without such features for indications of your house’s true market value.

Appraisers who have training in green valuations can also convert the documented monthly savings on utility bills into a specific value adjustment appropriate for the local market. Sandra K. Adomatis, an appraiser in Punta Gorda, Fla., who teaches green appraisal courses and is a nationally recognized expert, said the higher the utility charges in a jurisdiction, generally the higher the value gain from solar panels and other energy-saving installations. For instance, in a relatively high-utility-cost state such as California, she said, the value increment from a given set of improvements might be double that of the same improvements in a relatively low-cost state such as Florida.

The addendum is available online at bit.ly/nW3DU9.

Kenneth Harney’s e-mail address is kenharney@earthlink.net.

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