Another great commentary from Dave Towne, the appraiser who keeps up on what is happening!! His comments are below this summary of a letter sent by the Appraisal Institute.
Excerpts from AI comments, contained in their Letter about the proposed letter:
Appraisal Institute Lauds FHA for Green Valuation Proposal
The Appraisal Institute and the American Society of Farm Managers and Rural Appraisers on Sept. 2 lauded the Federal Housing Administration’s proposal to allow appraisers to utilize residual techniques – such as cost and income approaches – to analyze market reaction to green and energy-efficiency improvements in the absence of comparable sales.
Under the draft handbook, appraisers would be required to analyze and report the local market acceptance of special energy-related building components and equipment, including solar energy components, high-energy efficiency housing features and components such as geothermal systems and wind powered components. The draft explains that in the absence of sufficient data to perform a paired sales analysis, the appraiser must consider the cost or income approach to calculate an appropriate adjustment.
Direct link to original FHA document:
http://portal.hud.gov/hudportal/documents/huddoc?id=SFH_POLI_APPR_PROP.pdf See page 68. Dated August 27, 2014.
NOTE: this is proposed, not final. If you read the full document, I could not tell what is existing and what is proposed. The comment period has closed.
Dave Towne’s email comments, sent to those who subscribe to his emails.
On the surface, this appears to be fair … primarily for the property owner/borrower who has applied for a FHA mortgage loan guarantee.
This appraiser agrees that appraisers who do these kind of assignments must have the appropriate competency, training and experience. Appraisers are going to have to take specialized ‘green home’ appraising CE courses as one aspect of increasing their knowledge.
But the back end unintended consequence of this proposal is how much in additional fee will the appraiser be allowed to charge for providing an ‘approach’ documentation that is Not Required to be completed by USPAP? The ‘requirement’ to include a CA or IA becomes an additional assignment condition, added to an already more complicated FHA Scope of Work for FHA assignments.
Secondly, these ‘approaches’ rely on accurate documentation for various component costs and analysis of the income stream resulting from the use of various ‘energy efficient attachments’ to the dwelling … something the average home owner/purchaser/borrower may not have access to or knowledge of. Yet this proposed REQUIREMENT places the appraiser squarely in the middle of the bulls eye.
Third, adding this level of detail extends the time requirement for report completion. For these kinds of assignments, a cheap fee and the desire of a “48 hour turn time” after inspection probably won’t be realistic. Everybody connected to this kind of assignment is going to have to realize that the appraiser will need to be properly compensated and is going to need many more hours or days between assignment acceptance and report submittal … and they are just going to have to live with that reality. (Appraisers are also going to have to learn to say ‘NO’ and negotiate fees and DD’s when it is appropriate.)
If this just becomes another layer-upon-layer of Scope Creep with no ability to recoup time spent with an appropriate additional fee for the REQUIRED added reporting documentation, then FHA may find itself hurting for appraisers willing to commit to this kind of assignment. (Re-read the sentence above.)
Dave Towne, AGA, MAA
My comments: I have never seen any adjustment indicated in my market for energy saving residential improvements except maybe once for a new infill completely “green” home. Of course, I live in the “mild climate” San Francisco Bay Area ;> This has been going on for a long time, without requiring dollar adjustments. The old Fannie Mae URARs had grid adjustment lines for energy efficient improvements.
Proponents of “green” have not been able to sell their wares in a competitive market that I can see. Thus, this seems to put the appraiser in the pinch to prove market value where it may not exist. I have a solar array on my home and see the benefits, but I have not seen a general movement towards “green” purchases. I will try to keep an open mind, but this feels subversive.