Rick and Joann Sandoval live in a green Ferrari – a souped-up, high-performance home loaded with 21st century, energy-efficient and green-home features. But when it came time to refinance their house and capture value from those features, the Sandovals were going nowhere fast.
Rick works for a green-home builder, and he got a lot of the work on the house at cost in reward for his years of service. The Sandovals took out a $510,000 construction loan to pay for the place, at 4-1/2 percent interest. They wanted to refinance the loan to a conventional mortgage last year so Vectra Bank dispatched an appraiser to re-appraise the property. That first appraisal came in at a disappointing $535,000, well below what the Sandovals felt the house was worth.
Rick and Joann are hardly real estate newbies, with 40 years’ combined work experience in construction and title insurance between them. They came to us for help in May, and we used a common but underused tool called a HERS rating to capture a significant bump in their appraisal value.
HERS ratings – “Home Energy Rating Scores” – assign a nifty “miles-per-gallon” number to homes where a “100” is built to code, and lower numbers are better - like in golf. More importantly, HERS ratings measure the energy-saving features of a home and assign a projected energy cost and projected energy savings, holding the house up against comparable ones.
In June, I spent the better part of a day performing a HERS rating in the Sandovals’ 3,600-square-foot home in the hot Berkeley neighborhood of north Denver. The house has everything you’d expect (and that the Sandovals love) – big, open-concept living areas, beautiful finishes, great location and nice appliances. Including a monthly solar panel lease payment of $40, their total utility bills are about $90 per month, and this with kids and extended family in and out a LOT.
When I was there, I measured insulation levels, appliance and light efficiencies, windows and overhang depths, and how leaky the house is. I factored the solar electric output into the rating. I spent hours in our office generating the report, and BOOM! – the HERS number came in at an impressive 44. That means that the house uses 56 percent less energy than a code-built home, and even less than most of the houses in the neighborhood.
The rating also showed $2,572 in annual energy savings, resulting in a 20-year savings of $51,440 That is flat, “today’s value” calculation – no fancy stuff like future value of money or fuel escalators thrown in (rising fuel costs over time). Money today. HERS ratings are hard-coded into federal mortgage underwriting guidelines, and that figure can be used to impact the value of a home similarly to how energy costs impact commercial property values.
My partner and the managing broker of our sister real estate company, Tracye Herrington, met the second appraiser, and walked him through the documentation. He was not a trained and tested “green” appraiser,and his appraisal came in at an underwhelming $580,000.
When we dissected that appraisal, the appraiser had listed comparable green homes, but there was nothing in those homes’ for-sale listings that even mentioned “green” or “energy-efficient” features. Tracye called the three listing agents about the properties, and nope – there wasn’t a green feature in any of them. The appraiser had identified a fourth property (worth $450,000) as green and added a similar HERS bump for its features, and that lower comparable dragged the Sandovals’ appraisal figure down.
We felt the documented value of similar properties alone should’ve lifted the Sandovals’ value to $600,000, and the HERS savings another $50,000. So Tracye appealed the report to Vectra Bank’s appraisal and underwriting committee, and the bankers agreed that the second appraisal didn’t accurately reflect comparable properties. They adjusted the value on the final appraisal $50,000 up per the HERS rating, resulting in a final valuation of $650,000.
“The appraisal was changed because the bank had never seen that input [HERS calculation], and they’d been in the business 25 years. The bank underwriter appraisal review recognized absolutely that that was not correct,” says Rick. “When the bank committee audited the appraisal, they changed it based on that input.”
Rick says that to get the results he and Joannn got, you have to surround yourself with focused pros. “Having the right experts in products, financing, real estate advising and energy efficiency adds value when you need that representation. If you don’t have them, you don’t get the value.”
- Melissa Baldridge
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We have a “Green Valuation Service” to help homeowners and real estate professionals snap together the pieces for higher property valuation with green, energy-efficient features. CONTACT US TODAY for details.
 Twenty (20) years is considered the life of the energy-efficiency improvement sand upgrades to the house, and a typical life for return-on-investment (ROI) calculations.
 In 1995, the Mortgage Bankers’ Association and several state energy offices developed the HERS rating for these purposes – to standardize energy cost predictions. Around 2002, the Federal National Mortgage Association (“Fannie Mae”) and RESNET (Residential Energy Services Network, the overseeing body for HERS ratings) developed a form for an energy savings calculation and a present value calculation.
 According to Fannie Mae guidelines, appraisers must be competent to value“complex” properties. For green property valuation, that’s 14 hours of training (minimum) and passing two tests. CLICK HERE for more information.