This year, the Appraisal Institute updated its Residential Green and Energy Efficient Addendum to allow appraisers to better describe and identify green features in a home using standardized evaluation criteria.
Like the original form issued in 2011, the updated version is an optional addendum to Fannie Mae Form 1004, purportedly the most widely used form for mortgage lenders in the appraisal process.
The updated version adds new energy fields and replaces space allocated for solar photovoltaic energy sources with space for describing solar water heating systems, which are more common. There is also a reference section and a glossary for ensuring all parties involved, appraisers, homeowners and lenders, have the same understanding of the green features and their value.
Prior to the addendum, the value of green features was rarely factored into the home’s appraisal.
“The Appraisal Institute updated its addendum to make it easier for appraisers, lenders and consumers to use and understand,” said Appraisal Institute President Richard L. Borges II, MAI, SRA. “The form also will make it easier for appraisers to determine whether recent home sales should be used as comparable sales and provide assistance for Realtors in populating MLS data fields with accurate green information.”
The updated addendum reflects input from the U.S. Green Building Council and the National Association of Home Builders.
“We agree with the Appraisal Institute’s claim that this addendum is proactive and will be effective not only in crediting the home with energy-saving features but also in educating the public,” said Mike Berry with Apex Technology and a member of the NEFBA E-Council. “We encourage new homebuyers to request it upfront from their builder so it’s available to the lender, who in turn can select a qualified appraiser who is capable of completing the form.”
When selling a home, the addendum allows sellers to document the home’s features that exceed code requirements. When potential buyers compare code-built to those with energy-efficient and green features, they can then consider the lower costs of maintaining the house as an added benefit.
Most states require licensure or certification competency for practicing appraisers. Beyond that, experience in appraising this type of property in your market is important.
In areas where green construction is relatively new, an appraiser’s experience may be limited. The addendum helps bring the appraiser up to speed about the specifics of energy-efficient construction.
“The addendum also provides a degree of standardization in collecting and evaluating data, something not typically included in a routine appraisal report,” said Dan Copeland, JEA and a member of the E-Council. “The update has more energy fields, solar water heating description, resources for completion, glossary of terms with links, and an explanation of the addendum’s limitations.”
While the addendum is not required by government lenders such as Fannie Mae and Freddie Mac, it does enhance the reporting process. It also allows the appraiser to choose comparable sales more accurately and for the homeowner to receive full value for these added features.
“Educating the public is crucial,” Berry said. “And, every home buyer has the right to ask for the appraiser to use the Residential Green and Energy Efficient Addendum to ensure the home is valued accurately and fully in keeping with its added green benefits. When selling a home, encourage disclosure of the addendum as part of the listing information. It’s a matter of educating the public in order to move forward and move the housing industry forward.”