As the real estate market has declined, so have appraisal values. Appraisers, once seemingly over-eager to ratchet up home values for everyone's benefit but the homeowner, have apparently put it in reverse, hurting builders more than any other group.
NAHB, the National Association of Home Builders, has been pressing the industry to make a change.
And it's not without merit.
Landlords and banks all factor the actual cost of ownership when making decisions. For landlords, monthly rent plus utilities and other obligations may have a higher threshold, but the landlord is responsible for repairs and maintenance. This lessens the net burden on the tenant.
For owners, banks must take into account the cost of ownership relative to the actual age/condition of the home to be purchased. For green homes, whether Energy Star, LEED, or Earthcraft, the cost of ownership is markedly reduced due to lower operating costs.
Why?
The most obvious example is the utility bill. The goal of building a sustainable, energy-efficient home is to reduce that home's energy consumption while making occupants more comfortable and healthy. Many ratings systems mandate percentage reductions in usage of 30% and higher, above industry standards. It only stands to reason that the prospective owner's cash-flow will benefit, making a "green" home more affordable than its standardized counterpart.
And lenders need to take notice.
According to NAHB sources, the following tips should prove helpful when seeking to obtain more-accurate appraisals:
Helpful Advice on Obtaining More Accurate Appraisals
-Don't hold back on providing relevant information to appraisers.
For example, builders should provide the appraiser with all appropriate comps, market and absorption data, specifications of the property, materials in the property and why they were chosen, buyers’ reactions to products selected, and sales information.
-Demand that lenders use qualified, designated appraisers who are experienced in their local area, and who understand new construction and green building values.
Appraiser selection criteria are based solely on lender guidelines, and NAHB recommends that a builder’s first concern should be the lender and its process of selecting appraisers.
-Keep a record of the data you give to the appraiser.
When appraisers don’t use the information, builders should tell lenders they need to find out why.
-Try to “understand the appraiser’s challenges.”
If an appraiser is coming into a market where there are no sales, the builder needs to recognize that fact and talk about value.
-Develop a solid professional relationship with the appraiser rather than relying on the bank's ties to that person.
RESOURCES:
Webinar - “Builders Guide to Appraisals” Over an hour of discussion from NAHB's panel including mid- and small-size builders.
NAHB Publication A 2-page resource with more tips.
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