Appraisers' Free Forum

**Goodpasture** · Posted: Sat Jun 28, 2008 10:07 pm Post subject: Appraising Green

I am thinking about doing research on green appraising. As more and more conservation/alternate energy issues come up and as more and more "fixes" to those issues are created, green responses are going to be part of market value. If you were going to evaluate a "green" feature, how would you approach it?

Apparently the Green Building Standards have points that are awarded for elements of "green" and a building can achieve one of four "awards:" Bronze, Silver, Gold and Emerald.

From the Standards draft:

**Rhonda Brown** · Posted: Sat Jun 28, 2008 10:44 pm Post subject:

AI has a new course:

http://www.appraisalinstitute.org/education/seminar_descrb/Default.aspx?sem_nbr=800&key_type=S

An Introduction to Valuing Green Buildings

It sounds interesting. Wish they would offer it in MS ... I won't hold my breath.
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**Steve Owen** · Posted: Mon Jun 30, 2008 9:02 am Post subject: Re: Appraising Green

**Goodpasture** · Posted: Mon Jun 30, 2008 10:50 am Post subject:

Is adherence to traditional principles more important than developing an accurate estimate of value?

Can you, for example, look at the utility costs of operating a property and do a comparison between the energy savings between the green and the conventional?

On occasion we get houses that have no gas bills. For pipeline easements, or as part of ground rent they get free natural gas. This represents a substantial savings in energy costs and should certainly be reflected in the value of the house. Identical properties where the savings in the cost of energy equals 10% of the monthly payment would make that property worth something........how much it is worth is what we are talking about. As time goes on and the cost of energy continues to rise and the effects of global warming become more apparent, reducing the carbon footprint is going to become a major concern.

Lets say a solar heating panel saves you $25 a month for the months of October through March. That is $125 a year. If the life expectancy of that solar panel is 10 years, you have a lifetime savings of $1,250. What is the present value of that $1,250? If you have 10 or 12 items that generate similar savings, you have a very real contribution to value. Particularly in a time where the cost of a BTU doubles every year.

Saying it is not market driven or that there is no paired sales to develop a value seems a bit short sighted. Simply because MLS does not have a searchable field for such things, does not mean there is no influence in value.
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**Steve Owen** · Posted: Mon Jun 30, 2008 11:34 am Post subject:

**Steve Owen** · Posted: Mon Jun 30, 2008 2:06 pm Post subject:

Greg, I was just in the Shawnee Wal-Mart Neighborhood Grocery a while ago. What I saw was kind of interesting and on this topic. I don't know if it has always been this way in this store or if it's a retrofit, but I had not noticed it before.

The frozen foods area has typical looking upright cases with glass windows. However, when I walked down that aisle, I was the only one there. I noticed that the lights in each case were lighting up as I walked past. Now, this would not be very efficient if they were fluorescent. There was a famous study by the Air Force about Thirty-five years ago, where they concluded that it was cheaper to leave all the lights on all the time rather than to have people coming in and out turning them off and on.

Anyway, the cases appear to be lighted by some time of LED and there is a small sensor on each door, near the top, that looks like a body heat sensor. I believe we are going to see a lot of innovations to save energy. I don't know how much it will affect appraising the property, though.

A few years ago, one of the questions was how handicap accessibility affected property value. The simple answer is to compare an accessible property to another accessible property and then you don't have to worry too much about it.
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**Steve Owen** · Posted: Tue Jul 01, 2008 10:34 am Post subject:

Now here is something that would definitely have to be considered by any commercial appraiser.

http://www.joplinglobe.com/editorial/local_story_182205925.html

If this becomes law, then there is a quantifiable advantage... lower taxes.
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I haven't a particle of confidence in a man who has no redeeming petty vices.
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**Steve Owen** · Posted: Tue Jul 01, 2008 12:01 pm Post subject:

Some more info...

http://www.enn.com/pollution/article/37518

Obviously, some places are different than others... know your market.

However, what do you want to bet that some buyers of new homes will disconnect them and install something else?
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I haven't a particle of confidence in a man who has no redeeming petty vices.
- Mark Twain, a Biography

**Goodpasture** · Posted: Tue Jul 01, 2008 1:19 pm Post subject:

Frankly I expect them to continue to be a force to consider. There are too many laws and incentives that have been enacted to ignore. I think the failure of an appraiser to look seriously at the contribution being green makes is going to come back and bite him sooner than later. I also think making more out of it than is warranted is a problem. We are going to have to establish some pretty solid methodology to determine contribution.

One of the articles mentioned a couple that moved their $40,000 system from California to Florida........so many questions about that. did the market not reflect any value for such hardware or did the falling prices in California make the contribution suspect? Was it cheaper to move the hardware than replace it? Was the contributory value less than the cost of moving it? Maybe the system was just not available in Florida. Be nice to interview the people just to see what their reasoning was.

But the fact that a state is passing laws requiring solar water heat is interesting. At what point will that concept end? How about off grid systems for electricity? Can that be mandated in the face of big energy? or will big energy jump on the bandwagon?

But our job is to determine actual value.....and I agree the income and cost are the sole indicators of value out there, but in using those, we can we can start establishing parameters of utility and value.

Like any new technology, cost and ROI have to be the measure. How would you consider the contribution of a unique feature that has cost, and some sort of appeal, but where there is NO paired sales? I would think a depreciated cost and an ROI would peg it pretty closely.

Thanks for the links, btw,
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You should wake up with a smile on your face.....that way you can get it over with early before you have to deal with the world

**Steve Owen** · Posted: Thu Jul 03, 2008 12:28 pm Post subject:

Here's some more for you, Greg.

http://www.livescience.com/technology/080702-solar-billboard.html
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I haven't a particle of confidence in a man who has no redeeming petty vices.
- Mark Twain, a Biography

**tel** · Posted: Thu Jul 03, 2008 5:58 pm Post subject:

Just rambling here with some disjointed thoughts. So please consider them in that light.

1. 5 houses in a neighborhood have green stuff. One cost $5K to add the green stuff, another 10K, another 15K, another 20K, and the last 40K. If you assume that the savings generated will be paid back over the next 20 years on each of the houses....it is only fair to state the significant differences. Just how are you going to find this cost/savings data? In my area there is minimal if any 'green' info in the MLS or country records.

2. Defining the 'differences' in the greening of a house is absolutly critical to the adjustment grid.

3. Are the homebuyers capable of determine the 'value' of a green system? Or do they buy the house because it has fresh paint & granite counters.

4. If you can not dig out the specifics of the 'greening' I don't see how you can make adjustments.

5. A house around the corner from me put in a geothermal system when the house was underconstruction. They could not heat and cool the house properly. Apparently the installer drastically undersized the amount of underground lines needed. How much is this 'greening' worth?

6. Will the 'high tech' type of greening drive away the typical buyer, because they do not grasp how the complex system & batteries, etc. work?

7. What about the cost & frequency of maintenance of the green system, will it have a bearing on the 'greening' contribution to value.

8. What is the life expectancy of the green system?

Me thinks there has to be a lot more of these 'green' homes out there before it is something appraisers can consider with any sense of accuracy.
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**Goodpasture** · Posted: Thu Jul 03, 2008 7:28 pm Post subject:

Looks to me like we need a course, first, in just what constitutes "greeg."

In looking for a textbook, I came across this one:

Green from the Ground Up

**Steve Owen** · Posted: Sat Jul 05, 2008 8:09 pm Post subject:

**tel** · Posted: Sun Jul 06, 2008 6:13 am Post subject:

Scenerio..............

Your subject has a 25 year old furnace (let's say it's an 80% efficiency type) and it still runs great.

You pick similar age, style, and size homes for your comps.

How many of them, if any, have a new 92% or higher efficiency furnace, which will save the owners a lot of bucks. How many of your comps are 'green"?/????
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Don't be a 2 bit appraiser or soon we will all be 1 bit appraisers. 4 bits or bust.

**Goodpasture** · Posted: Sun Jul 06, 2008 10:12 am Post subject: