Better guidance for appraising green buildings is steadily emerging

Builders, developers, and owners are constantly complaining that high-performance buildings rarely get their due from appraisers who, they say, don’t have good measures to compare one building’s energy savings over another’s, or how those savings affect the value of the building. 

The Appraisal Foundation, a nonprofit organization authorized by Congress to establish appraisal standards, is working methodically to alter this perceived image of cluelessness. Within the next few weeks, the Foundation is expected to issue the final draft of its guidance related to background and competency for appraisers valuing green buildings.

John Brenan, the Foundation’s director of appraisal issues, tells BD+C that states may elect to start adopting this guidance by early next year. And while the guidance would be voluntary, Brenan believes it may serve as a safe harbor for appraisers performing appraisals on green buildings.

The final guidance relating to the valuation of green buildings may offer methods and techniques to allow compliance with the Uniform Standards of Professional Appraisal Practice (USPAP).

That Board—which utilizes panels of experts, including those with green-building expertise—is one of three independent boards that comprise the Foundation, the other two being the Appraiser Qualifications Board and the Appraisal Standards Board.

The Foundation is also working on more specific guidance for appraisers to use when valuing the “greenness” of one- to four-unit residential buildings; and commercial, multifamily, and institutional properties. 

Brenan says these guidances would contain methods and techniques that show appraisers what to look for and how to compare a building’s green features, materials, and construction management with other buildings in a market.

He expects an initial “exposure draft” of these guidances could be available for public comment in the first quarter of 2015. “Our hope is that all three advisories are adopted by late 2015, so the Foundation would have a tool kit for appraisers and regulators to use.”

At press time, Brenan was unable to elaborate on the proposed methodologies. And he is quick to note that appraisers don’t set values; “they just mirror what’s going on in a market.”

He did note, however, that the guidance being developed includes how to compare properties that have sold with like green features, and how to recognize market-to-market differences. 

“One of the most interesting potential [guidances] would be to look at anticipated cost savings over an extended period of time,” he says. 

Brenan points out that there is never going to be a “plug-in formula” for green valuation that fits all buildings. “It is still completely market-driven, and markets are stratified. Just because you have green features doesn’t mean the appraisal will be apples to apples. It’s kind of a sliding scale.” 

That being said, Brenan readily acknowledges that there aren’t enough appraisers out there who are competent enough to assess how high performance should be factored into a home’s valuation. He’s speaking from experience. “I live in California, in a home that has a solar photovoltaic system, and the appraiser didn’t know what to do with it.  So that became a little educational experience.” 

Brenan says that anyone in the building, design, and construction sectors who wants to get involving in helping to develop these guidances can contact him directly at John@appraisalfoundation.org.