Appraised Value and Energy Efficiency: Getting It Right

Appraised Value and Energy Efficiency: Getting It Right Presenter: Sandra Adomatis January 16-17, 2018 and January 23-24, 2018 Sandra K. Adomatis, SRA, LEED Green Assoc. Author Educator Real Estate Appraiser REALTOR National Speaker CEO of Adomatis Appraisal Service 2018 Sandra K. Adomatis, SRA, LEED Green 2 1

Course description Do you ever feel like the appraiser just did not Get It Right because the added comfort, better air quality, and energy savings from an energy retrofit or new construction weren t valued as part of the appraisal? Does your sales team have the tools and knowledge to prepare the homeowner for the loan application and appraisal process? Is appraised value part of the discussion with your client before starting the project? You play an important role in educating the homeowner about the appraised value process for an energy efficient home and their bill of rights. In this session, we will use a case study to learn the steps an appraiser takes on an energy efficient home to uncover landmines that undermine value. This session will give you power tips to increase business with less stress. Learning objectives IDENTIFY landmines in the appraisal that may undermine the value of an energy efficient home. DEFINE documents that influence appraised value. LIST the reasons an appraiser may not have accurately valued an energy efficient home. DESCRIBE the Borrower s Bill of Rights to make sure your client s energy efficient home is accurately valued. 2

American Institute of Architects Seventhwave is a Registered Provider with The American Institute of Architects Continuing Education Systems (AIA/CES). Credit(s) earned on completion of this program will be reported to AIA/CES for AIA members. Certificates of Completion for both AIA members and non- AIA members are available upon request. This program is registered with AIA/CES for continuing professional education. As such, it does not include content that may be deemed or construed to be an approval or endorsement by the AIA of any material of construction or any method or manner of handling, using, distributing, or dealing in any material or product. Questions related to specific materials, methods, and services will be addressed at the conclusion of this presentation. Provider #: G175 Course #: IAB1809 This concludes The American Institute of Architects Continuing Education Systems Course www.seventhwave.org/education/events 3

Poll Question What is your profession? 1.) Retrofit contractor 2.) Energy or Green Rater 3.) BPI 4.) Builder 5.) Real estate agent or appraiser 6.) Lender 2018 Sandra K. Adomatis, SRA, LEED Green 7 Self Assessment Questions (T&F) 1. Lenders do not allow appraisers to give value to energy efficiency? F 2. Appraisers should never communicate with the builder? F 3. Builders and agents are not allowed to give appraisers comparables? F 4. Appraised value is based on a price square foot? F 2018 Sandra K. Adomatis, SRA, LEED Green 8 4

Poll Question Do you think a house that has energy efficient upgrades should sell for more? 2018 Sandra K. Adomatis, SRA, LEED Green 9 Why did my appraisal on an energy efficient home come in so low? No value for energy features? 2018 Sandra K. Adomatis, SRA, LEED Green 10 5

Appraiser suffers from the L syndrome. 1. Lack of knowledge of energy efficiency 2. Lack of documentation of energy efficiency 3. Lack of data to support an opinion 4. Lender does not allow energy adjustment 2018 Sandra K. Adomatis, SRA, LEED Green 11 Lack of knowledge Appraiser Lender Agent Rater AMC Builder Owner 12 6

Documenting Energy Efficiency 13 Poll Question Name the tool or electronics you must have to do your job? 14 7

A carpenter with tools no wood 15 Projected HERS before Appraisal 2018 Sandra K. Adomatis, SRA, LEED Green 16 8

Appraisers can search RESNET http://www.resnet.us/public-access-to-resnet-national-registry 2018 Sandra K. Adomatis, SRA, LEED Green 17 How does your house measure? State AVG HERS 2013 AVG HERS 2014 AVG HERS 2015 AVG HERS 2016 % of Permits w/hers 2013 % of Permits w/her S 2014 % of Permits w/hers 2015 % of Permits w/hers 2016 DC 66 65 67 59 38.7% 38.9% 65.1% 100.3% MA 58 62 56 55 68.7% 72.8% 83.1% 99.4% UT 57 60 61 62 8.1% 9.4% 10.9% 98.2% IN 68 67 66 65 72.8% 68.9% 74.6% 63.5% IA 61 60 59 56 54.1% 58.3% 66.2% 61.1% MD 60 59 57 55 59.1% 54.5% 53.8% 58.7% CO 60 59 57 55 45.0% 49.0% 51.2% 57.5% CT 56 53 55 53 31.5% 29.7% 49.1% 51.6% AZ 61 62 63 63 16.6% 57.0% 49.7% 51.3% MN 54 57 53 51 11.1% 56.8% 38.3% 47.7% DE 59 57 55 53 46.9% 38.3% 55.2% 44.1% NV 65 62 62 62 30.1% 48.6% 48.6% 43.7% OH 60 59 60 60 57.6% 47.8% 52.2% 43.3% OK 63 62 62 61 36.4% 34.2% 37.0% 43.1% 2018 Sandra K. Adomatis, SRA, LEED Green 18 9

You hold the solution to three L syndromes. 19 Existing conditions before retrofit Appraiser never sees this information 20 10

Poll Question In one word, define the conditions the owner identified? 21 Existing conditions before retrofit Comfort 22 11

Identify landmines in the appraisal that may undermine the value of an energy efficient home and comfort. 23 Appraisal Concerns Inaccurate information on the property appraised or sales used as comparables Inappropriate sales data Omission of analysis, description, or explanation of energy or green features. 24 12

Because appraiser never saw your report they see this. Typical old house built in 1800s. High heating bills Drafty 25 Because they never saw your report, their comparables look like this. Old house built in late 1800s or early 1900s. High utility bills Older neighborhood 26 13

The Comparables are 27 Measurable savings require documentation Appraisers can t value what they can t measure. We need your reports. 28 14

The chart is meaningful to valuation and comparable selection. 31 If only the appraiser could see this! 32 16

Payback period Payback $15,897/$754 = 21 years Return on Investment $754/$15,897= 4.7% Transparency 33 Previous chart gave data for 2 approaches to valuing energy. Cost Approach Improvement Cost $15,897 Income Approach Sales Comparison Paired Data $7,250 Energy Savings at $754 yr Present $9,545 Value of energy saved at 4% for 18 years 34 17

Present Value of Savings Saving $754 a year for 18 years or a total savings ($13,572) is worth $9,545 in today s dollars. 2017 Sandra K. Adomatis, SRA, LEED Green 35 A look at the cash flow with financing in place. 36 18

Improvements to air leaks Meaningful data 37 Improvements to air leaks 38 19

This section highlights improvements deserving special attention in choosing comparables. 39 HVAC is a big investment OIL FURNACE New Propane Furnace 40 20

Appraiser with the report and knowledge will choose more comparable properties 41 Good Data Produces Results 42 21

Sales Comparison Approach Features Subject MLS Sale 1 MLS Sale 2 MLS Sale 3 Sale Date Today 04/XX 02/XX 03/XX Living Area 1,114 1,250 900 980 Room Count 5/2/1 5/2/1.5 5/2/1 5/2/1 Basement Full Full Full Full Energy Eff. Retrofit Retrofit Retrofit Retrofit Sale Price $145,000 $155,000 $139,000 $142,000 Days on Market 32 48 29 60 43 This Report Includes: Existing conditions current situation and general summary Improvement costs and savings details about improvement costs and savings Improvements Summary Resources AI Res. Green & E.E. Addendum Appraised Value and Energy Efficiency: Getting It Right Sticker in Electrical Box 44 22

Document on site http://www.youtube.com/watch?v=mcm6e4rhpn4 45 The Lender Solution Appraised Value and Energy Efficiency: Getting It Right 46 23

Borrower s Bill of Rights 47 Builders Must Prepare Borrower Dream Builder 2018 Sandra K. Adomatis, SRA, LEED Green 48 24

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This sample letter must be given to borrower along with documents for the lender. 53 Let Let s review this brochure Appraised Value and Energy Efficiency: Getting It Right Power Tips to the Bill of Rights Request Ask Provide Request a copy of the appraisal and document errors Ask the lender if they have a Reconsideration of Value Form? If not, we ll document errors and omissions in our own format. Provide lender with an Energy Rating Report the full report Submit Once all data is completed, submit it directly to the lender do not contact the appraiser. The lender will work with appraiser to revise or order 2nd appraisal from another appraiser. 2017 Sandra K. Adomatis, SRA, LEED Green 54 27

Lender 55 Instructions for Reconsideration 56 28

The Map to Success Education Populated Fields Appraisal Data Value Premiums Consumer Real Estate Community Lender Central Database Auto populates MLS The lender guidelines 57 Documents that are a MUST 58 29

Resources 59 Appraisal Institute Green Registry Find an appraiser w/education completed 60 30

http://www.myappraisalinstitute.org/findappraiser/green_sustainability_residential.aspx 2018 Sandra K. Adomatis, SRA, LEED Green 61 How many appraisers are in Iowa? State or Territory # Cert. General # Cert. Residential Total Active RE Appraisers Iowa 618 459 1077 https://www.asc.gov/national Registry/ActiveAppraisers.aspx 2018 Sandra K. Adomatis, SRA, LEED Green 62 31

Key Take Aways Projected HERS Report for appraiser Full Energy Report Document on site Meet Appraiser on Site Complete AI Res. Green & EE Addendum 63 Sandra K. Adomatis, SRA, LEED Green says. Adomatis@Hotmail.com Twitter: @Sadomatis 64 32