Appraiser Competency-The Simple Version

Appraiser competency is often the topic that arises when an appraised value for green features is not equal to or higher than the contract price. It seems some believe the measure of competency is in the appraised value meeting the requirements to “make the deal”.  Many would agree the issue of appraiser competency needs to be discussed and simply outlined with appraisal management companies (AMCs) and lenders especially where green features are concerned.

Why have green features brought appraiser competency to the forefront? Simple, building science has changed dramatically over the last 10 years.  If appraisers are not attuned to the changes in building science, they will have difficulty identifying the changes and understanding the benefits of the building science or high performance features.

The same problem exists with real estate agents that will have difficulty selling a property for top dollar if they do not know what makes the property different and how to articulate their benefits. REALTORS® have a competency statement in the Code of Ethics and Standards of Practice of the National Association of REALTORS® under Article 11.

Further compounding the high performance market is the lending world that also has limited knowledge of the new building science and their benefits. Appraisers around the country report they are often challenged by underwriters or AMC reviewers when they make adjustments in the sales comparison approach for energy efficiency or solar photovoltaic systems.  The push back from these groups is the result of limited high performance knowledge from the underwriters and reviewers, insufficient support for the adjustment, insufficient description of the features in the appraisal report, an adjustment that is not often made raising a red flag, and the lending world’s leaning toward conservative values to avoid another crash.

Did you know that if an appraiser assigns no value or a ZERO to a particular item, that implies it has been analyzed and requires as much support as a $20,000 adjustment? That is a hard fact to address for underwriters, reviewers, and appraisers.

The secondary market guidelines require lenders and those making appraiser decisions for them (AMCs) to choose appraisers that are competent in the property type and geographical location. The links to the secondary mortgage market competency guidelines for lenders are found in a new builder resource brochure, “Appraised Value and Energy Efficiency: Getting it Right”.   The brochure was developed to assist builders in understanding their rights in the appraisal and lending process.  The brochure addresses the energy efficiency changes in the 2006-2015 International Energy Conservation Code (IECC).  The code increased the energy efficiency between 2006 and 2015 some 31%.  High performance or green houses will exceed this code if they are truly high performance.  This brochure is a new tool the entire real estate community could use in understanding the lending and appraisal process.

The lender or AMC should have some general guidelines on choosing appraisers and once they have made their choice, the appraiser should examine themselves and make the final competency decision. I have yet to have a lender or AMC provide an appraiser application that asks the question regarding appraisal course work in high performance or green properties.  Nor have I been asked if I have experience in valuing high performance properties.  Lenders and AMCs are required to have appraiser panels with more than one appraiser.  They are charged with hiring the appraiser with competency in the property type and geographical area, NOT the next one on the rotation list, NOT the cheapest, NOT the most conservative, and NOT the fastest.

Appraiser competency falls into the following general categories:

  1. Coursework in property type (Courses are typically 4-8 hours with exams that test the student’s understanding of the material.) addressing the following list that is not all inclusive:
    • High performance and green identified
    • Valuation of high performance features
    • Identifying green features and renewable energy sources
    • Understanding the new building science and energy modeling reports and their relevance to value
    • Resources and databases available to assist in documenting and supporting appraisal conclusions
  2. Self-study of the property type
    • Reading articles on building science and valuation of high performance
    • Working with a builder and energy rater to understand the building science
    • Watching quality videos online of construction techniques
  3. Seminars – (Seminars are 2-8 hours and do not require exams to test the student’s understanding of the material presented.)
  4. Webinars or presentations on the topic – (May be online or live and often sponsored by appraiser education organizations, Department of Energy, National Association of REALTORS®, or various organizations specializing in the building and valuation industry)
  5. Experience in valuing high performance properties
  6. Working with other appraisers that have taken the courses, passed the exams, and have experience in high performance.

If lenders and AMCs implemented items 1, 5, and 6 in the appraiser panel profile or database, they would have a greater chance of hiring the competent appraiser. This is why choosing the lender carefully is important.  The borrower should be asking the lender to describe their appraiser panel database and how they make their selection.

It is too late and too costly to wait until the appraisal is completed to realize there is a problem with appraiser competency. Upon completion of the report you may find the appraisal report ignores the high performance features completely (no listing of them and no analysis), the completed AI Residential Green and Energy Efficient Addendum is not included, and the energy modeling reports were not included or discussed. This is the first sign of errors that should be addressed in challenging the appraisal results.

When the report is insufficient in detailing and analyzing the high performance features, the borrower must be their own advocate to challenge the appraisal. Just because you do not like the value is not a reason to challenge or call an appraiser incompetent.  Lenders cannot hire a second or third appraiser just because you do not like the value.  They must have sufficient reason to believe the appraisal is insufficient and the issues cannot be resolved with the original appraiser.  If a second appraiser is hired, it usually means the borrower is paying for two appraisals.

The best advice to a borrower or someone seeking a value of a high performance property is to provide all the information necessary to allow the appraiser to understand what is behind the walls and what makes the house high performance. The list may include, a completed AI Residential Green and Energy Efficient Addendum, full HERS Report, certification from a green or energy organization, plans and specifications, and renewable energy specifics and energy production. Do not expect the appraiser to have x-ray eyes and know what is behind your walls.  Existing homes that are energy efficient should have one or two years of utility bills that could be provided to the appraiser to assist them in understanding the efficiency of the structure.

The challenges and methods for valuing these homes is illustrated in the published study, “What is Green Worth? Unveiling High-Performance Home Premiums in Washington, D.C.”  A couple case studies in this study had solar photovoltaic systems valued using PV Value®, an income approach and cost approach to value.  This tool is used in Appraisal Institute’s “Residential and Commercial Valuation of Solar” course.  It is important for appraisers to understand the income approach and cost approach methods and how to properly use the tool to result in a credible value opinion.  Simply allowing the defaults to flow into the inputs will not result in a credible value opinion.  Appraisers need full details of the system they are appraising.   An appraiser driven study of owned-residential solar photovoltaic systems covering six states was published in 2015, “Appraising into the Sun: Six-State Solar Home Paired-Sales Analysis”,  and may be helpful in understanding how appraisers use the data to develop value of solar systems.

The issue of appraiser and real estate agent competency is one that can be overcome but will take time. Being aware of the lending process and the “borrower’s bill of rights”, as I call it, is the first step to resolve the issue.  If you do not make your lender aware of the property type upon application and do not choose your lender carefully, you may not like the result.



Posted in AI Residential Green and Energy Efficient Addendum, Appraiser competency, appraisers, Energy Efficiency, Green Mortgages, High Performance Valuation, Real Estate Agent Competency, Solar PV, Uncategorized | Tagged , , ,

A Rock’in Green Energy Event

Source: A Rock’in Green Energy Event

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A Rock’in Green Energy Event

What do you get when you advertise Powerhouse Speakers/Instructors, Trending Topics, Panel Discussions & More? You get 225 real estate agents, appraisers, lenders, energy raters, lenders, and builders in a room. The VT Green Real Estate Symposium in Fairlee,VT was an event that topped any conference I’ve seen lately. Isaac Chavez, Chief Executive Officer for Vermont Realtors®; Jeff Gephart, President of Vermontwise Energy Services of Rochester; VT and Helen Hossley, Education Director for Vermont Realtors; Meg Willeke, and Liz Tewksbury of New England Real Estate Network, (the MLS serving VT and NH) did a super job promoting this event resulting in 225 participants filling a ballroom. They weren’t just there to gain continuing education credits, they were full of energy and eager to learn. It was a day filled with 2-hour sessions that earned continuing education for appraisers and real estate agents.

The day started with Laura Stukel’s keynote message, “Getting-To-The-Heart–of-the-Transaction”, inspiring agents and appraisers to become proactive in learning how “Home is a Verb”, a slogan used by Garbett Homes in Salt Lake City, UT. Laura is actively involved nationally in connecting the dots to create a better data flow of residential energy sales, energy data, and green rating features. She is a national figure representing the real estate agents in green and energy efficiency housing. Her voice is heard often in Washington, D.C. She is passionate about the topic and speaks with enthusiasm. Laura rocked the room of 225 attendees with humor and knowledge.

Laura showed a chart on research she did for a buyer considering 5 properties. She charted the mortgage and utility costs for each house that clearly showed the buyer a transparent picture of ownership costs. She even researched the travel time and cost to the buyer’s work, an important data point buyers should consider. Now that agent works for her client! Laura is truly at the heart of the transaction and green market nationally.

Craig Foley is Chief of Energy Solutions for RE/MAX Leading Edge and Co-Founder of inCharge Energy. He is another national speaker representing real estate agents and he is moving the needle in his market on energy and green housing knowledge. Craig gave two, 2-hour sessions, “Realty’s New Reality” on documenting the energy transaction. A checklist of home energy efficient attributes for real estate professionals was provided along with information on how to use the AI Residential Green and Energy Efficient Addendum. A number of energy retrofit case studies brought home his points on the benefits of energy efficient and the monthly budget, occupant comforts, and custom satisfaction. We could all learn from the folks that shared their story on energy retrofits.

Kerry Langley, Loan Originator for PrimeLending, brought a lively and entertaining session on financing the green or energy efficient house. He calls himself a numbers person that has cleverly put the dollars and cents to why a green or energy efficient house is the wiser choice costing the buyer much less starting day one and over the life of the loan. Kerry illustrates the facts with common sense and humor that keeps his audience engaged and excited to learn how to articulate the case for homebuyers. He sends a clear message for the appraisers on how to run the numbers on cost to build energy efficient homes versus the code-built house that might cost you more per month for the same size house. It just makes dollars and sense to look at total monthly cost, not just the price tag.

I spoke on green and energy efficient valuation, challenges, and secondary mortgage market guidelines. It became clear that many agents did not expect my sessions to be very lively. One agent commented that before the session she thought the session would be the longest two hours of the day but was pleasantly surprised at how quickly the time went. Many questions regarding appraiser choices, lender guidelines, and data they are allowed to give an appraiser were of great interest to the crowd. The myth is alive and well that appraisers cannot talk to real estate agents, homeowners, builders, or lenders. I use the term “Borrower Bill of Rights” in explaining the lenders’ responsibility to the borrower in hiring appraisers with geographical and property-type competency.

The second two-hour session of the day, I gave more details on the secondary mortgage market appraisal guidelines and ways, agents can work with appraisers to sail through a transaction and avoid the pitfalls. Some information regarding the myths of the Dodd-Frank Bill were revealed to the surprise of many in the room.

VT and NH sessions on the specifics of their building code provided current data on the changes in the building and energy codes. VT is rated by the American Council for an Energy-Efficient Economy (ACEE) the 3rd most energy efficient state in the U.S. Both states’ building codes are definitely moving the housing market forward to a less costly house by reducing the energy usage.

If your organization is looking to draw the crowds to learn about energy and green real estate matters, this is a great model for you. The event organizers were rewarded for their efforts with a full house that left motivated to move the needle toward a greener and more energy efficient market in Vermont and New Hampshire. Kudos to the organizers of this event! It was an honour to be a part of this exciting day.

If you are trying to pull an event together to change the market, this is the model for you!

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AMCs Dominate Solar Appraisal Class

Jan Green and Thomas Cochran of the U.S. Green Building Council of the Phoenix, AZ Chapter spearheaded the offering of a green valuation course in Tempe, AZ this month. Together they sought sponsors from the local market to offset the appraiser’s course cost. The sponsors included Arizona Solar Solutions, AXIS Appraisal Management Company, Arizona Building Officials, General Electric, and Salt River Project (SRP). Jan and Thomas, along with committee members, were successful in drawing a full class. The profile of the appraisers in the room is interesting and an encouragement to many. Of the 43 appraisers in attendance, 32 were employees of an Appraisal Management Company (AMC) or panel appraisers from three different appraisal management companies. Appraisers attending represented California, Nevada, and Arizona. The participants not with AMCs were encouraged knowing that AMCs were interested in learning how to value solar PV. If the AMCs understand the methodology, they are better equipped to review reports and to judge appraiser competency.

The course is titled Residential and Commercial Valuation of Solar and provides appraisers with an understanding of how solar photovoltaic works and methodology on valuing the systems. The first day was an overview of the solar industry, review of electric kWh cost, how solar photovoltaic systems provide energy, and important things to consider when making the inspection or valuing a property with a system. The second day appraisers brought their IPads or laptops to work case studies using PV Value Tool. PV Value Tool is a web-based discounted cash flow program that is easy to use and specifically addresses the solar photovoltaic system.

In markets with limited sales data to value solar photovoltaic systems, appraisers must be able to support their valuation conclusions with proven methodology to meet the secondary mortgage market guidelines. If an appraiser concludes the system does not contribute value, it requires as much support as assigning value to the system. Over the past three years, appraisers were often met with push back from the underwriters when value was assigned without having at least one sale with a solar photovoltaic system or a paired sales analysis to support the system’s value. However, the secondary mortgage market guidelines are not that restrictive. They allow other acceptable and proven methods when sales are not available. Some appraisers report underwriters insisted the value be removed if they did not have a sale. Appraisers must follow the Uniform Standards of Professional Appraisal Practice (USPAP) and if they follow the underwriter’s request to remove value that they have proven, the appraiser must make the appraisal subject to a hypothetical condition to meet USPAP. If the appraisal is subject to a hypothetical condition, it may fail to sell on the secondary mortgage market. However, if the appraiser does not invoke this condition and blindly follows the underwriter’s request, they are not in compliance with USPAP. It is a catch 22 for the appraiser that feels they may not receive more work if they do not comply with the underwriter’s request.

Having the AMCs represented in this course is a step in the right direction for appraisers working for AMCs. The AMCs not only place the appraisal orders for lenders but also do a review of the appraisal and answer questions for the lender’s underwriter. If the AMCs are familiar with valuing solar photovoltaic systems and the tools appraisers are using, they are better prepared to answer underwriting questions without going back to the appraiser. Having first hand knowledge of the PV Value Tool allows these AMCs to provide valuable input to the lender side and guidance for other appraisers on their panel.

This class profile was a step forward for the appraisal profession, the public, and the lending world. The ultimate goal is to have an appraisal class with underwriters dominating the class. All divisions of the real estate industry must work together to accomplish a competent industry for the public’s common good. The AMCs and appraisers in this course had good dialogue during this two-day event. It could have been even better with a few underwriters in the mix.

Jan Green and Thomas Cochran gave many hours of their time to make this happen. Last year they spearheaded the Introduction to Green Buildings and Case Studies in Appraising Residential Green Buildings Courses. These courses are quality education and require an exam at the end of each course. If an appraiser takes all three courses noted in this blog, they will be placed on the Appraisal Institute’s Green Residential Registry. The Green Registry is being used by clients to identify appraisers that have taken quality green valuation education. Education is a major step in meeting the competency requirement to value green features in a property.

Congratulations to Jan Green, Thomas Cochran, and their generous sponsors! Thanks to the AMCs, AAMS Appraisals, AXIS-AMC and AppraisalTek for attending and encouraging your appraisal panel to attend.

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Residential Green Valuation Tools

Residential Green Valuation Tools.

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Residential Green Valuation Tools

Ever wonder how appraisers develop value of houses with green or energy efficient features?  <a href=”; title=”Residential Green Valuation Tools”>Residential Green Valuation Tools </a>was published last month by the Appraisal Institute.  The 189-page book has 13 chapters that address the most often asked questions about the valuation process and green building.  As the author of the book, I found the challenge of writing this book a great learning and networking tool.  The topic became a passion for me six years ago. It is difficult to analyze something that you do not understand.  My challenge was to discover how the green rating building science compared to the building science of the standard building code.  Appraisers must understand this distinction because the typical energy efficient home often must be appraised using sales that are traditional code-built houses that do not possess the same degree of energy efficiency.  The book has tables, studies, short stories, and charts that simplify the concepts in a way that is more meaningful to the reader.  If we could articulate the benefits of a high performance house (an energy efficient and/or green house) in a simple way that buyers in the market could understand, the demand for them would dramatically increase.

The first chapter starts with the basics of defining green building and the six elements of green building.  With all the green wash in the market, the basics of what green building is must start the conversation.  This chapter is followed by identifying the challenges appraisers have in valuing green and energy efficient houses.  Understanding the challenges of valuing these homes will help the real estate professionals understand how they might assist in overcoming the challenges.

Appraisers have requirements to be competent prior to accepting an assignment for the secondary mortgage market such as Fannie Mae and Freddie Mac.  FHA also requires competency prior to accepting an assignment.  VA is the only one that does not require competency in the property type prior to accepting the assignment.  A chapter discusses the competency requirements with references that support the statements.  The lender is held responsible for hiring a competent appraiser even if they use an Appraisal Management Company (AMC).  Simply stated, competency is not accomplished using an appraiser rotation list.

A chapter is dedicated to illustrating the tools appraisers have in developing value for energy efficiency or other green features.  If the real estate professionals understood the tools appraisers can use and the data required to use the tools, it might give them ideas of how to make data more accessible.  Real estate agents and builders should spend some time in this section and consider what they have in their files that may not be reaching the appraiser.

Chapter 6 has an extensive description on how to complete the <a href=”; title=”AI Residential Green and Energy Efficient Addendum”>Appraisal Institute (AI) Residential Green and Energy Efficient Addendum </a>(ARGEEA).  The ARGEEA is a communication tool that enhances the typical appraisal form used by lenders, the 1004, that does not address the green features and only has two references to energy efficiency.  The ARGEEA is being more widely used in the market by builders, appraisers, real estate agents, homeowners, and retrofit contractors.  Those new to completing the form often have questions on how to complete the ARGEEA and this book will answer their questions by providing resources and illustrations on how to add meaningful statements about the data provided.

Steps to solving the problems many markets experience with this new building technology are identified.  Chapter 12 identifies steps to a more efficient transaction for a high performance property.  Emphasis on networking with all real estate professionals is key to success.  For too long the builders, appraisers, real estate agents, energy raters, and lenders have had little interaction. The public will become more knowledgeable about the energy efficient or high performance house once all the real estate partners have the ability to articulate the benefits.  Real estate agents are the best group to move the high performance message to the public. 

Last week, I lead two workshops in Oklahoma where builders, real estate agents, appraisers, and energy raters spent seven hours reviewing their market challenges for an energy efficient house.  One builder made the comment that he had never attended an event where so many different real estate groups came together.  He asked why these groups had never worked together before.  Every person in the room could identify something that they have in their files or ability to collect to assist in the data gathering problems appraisers face. 

The target audience for the book is appraisers, real estate agents, builders, energy raters, lenders, and home owners.  If you are facing difficulties in your market and need a resource to learn how you can make a difference, this book is for you. 


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How to Help Appraisers Fairly Value Home Energy Efficiency Improvements

How to Help Appraisers Fairly Value Home Energy Efficiency Improvements.

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