AI Residential Green & Energy Efficient Addendum

Three WWWs to completing the Appraisal Institute’s Residential Green and Energy Efficient Addendum

The Residential Green and Energy Efficient Addendum is a form used to standardize the reporting of high performance house features from green certifications to incentives offered. The Addendum can be downloaded in a PDF format from the Appraisal Institute’s Website. It is seems there is much confusion on who should be completing the Addendum, why they should complete it and what they should do with it once completed. The following will provide some answers to the three “Ws”.

Who should complete the Addendum? Since the Addendum is a checklist or organized documentation of the high-performance house features, it only seems logical that the person with the most knowledge of the features be the one to complete. This list would include the builder, homeowner, third party certifier, agent, or appraiser. The person completing the Addendum should include their name, title, and date completed in the appropriate section. When the appraiser receives the Addendum, the appraiser should review the document and agree or disagree with the information provided based on a property inspection and supporting documents. The appraiser may choose to complete their own Addendum based on additional information they gathered when researching or inspecting the subject property. For instance, if the Addendum shows the property is an ENERGY STAR® Home when it is not but does have ENERGY STAR® appliances and windows, the appraiser would revise the Addendum to remove the ENERGY STAR® Home checkbox.

Why should the Addendum be completed? The Addendum details energy and green description features. It assists the appraiser and sales agent in identifying comparable sales to assist in listing or valuing the property. The current residential appraisal form 1004 used by mortgage lending clients does not address high-performance features. Therefore, they are often omitted or placed in a narrative paragraph in the text addendum that is often overlooked.

The Addendum has numerous uses that include an owner’s list of high-performance features (a brag list), supplement to a listing, communication tool for builders, special alert to the lender or appraisal management company, and appraisal Addendum.

Consider the mortgage underwriter that works with a checklist of items to review on the appraisal form with limited time to review the report. If the high performance features are not standardized, they are often overlooked. When the features are not prominent in the report using standardized language, the underwriter might reject premiums or adjustments for high performance features. Underwriters often work under production quotas and a report that is not concisely written with some degree of standardization results in a rejection of adjustments for high performance features. Alternatively, it might result in a call to the appraiser to provide further documentation to allow the underwriter to understand the features and basis for the support. Think how much easier it is to read and understand a document when it is organized and uses checkboxes to describe features. If the appraiser includes the Addendum with the 1004, it quickly alerts the underwriter that this is not the standard property and deserves a closer review.

What should be done with the Addendum once it is completed? Provide the completed Addendum to the lender, appraiser, owner, and sales agent to be used in the appraisal ordering and appraisal development process or in marketing the property. When the lender or appraisal management company receives the Addendum, they realize it will take an appraiser with competency in this area not the next appraiser on the rotation list. This is important to the lender and ordering department because lenders that fall under the Government Sponsored Enterprises (GSEs) have a higher standard than USPAP. They require appraiser competency prior to accepting the assignment. This means the appraiser chosen to do the assignment should have taken appropriate high-performance valuation educational classes and has experience in this property type prior to accepting an appraisal assignment of a high-performance house. Therefore, this Addendum can be a great tool for them to use in identifying high-performance properties.

Attach the Addendum to the MLS. It becomes a great tool for appraisers and buyers to gain knowledge of what is behind the walls of the house and special construction features that result in a house that performs higher than a code-built house. When the Addendum is attached to the MLS, the appraisers will review the Addendum in selecting comparable sales for the property they are appraising. If an appraiser had a completed Addendum on every high-performance house used as comparable sales, it would leave little question on the comparability of the data. It would also result in a more accurate valuation of the property.

Builders nationwide are using the Addendum to complement their specifications and communicate to the appraiser that this house is high performing. Retrofit contractors are completing the form on existing housing and presenting it to homeowners and the lender when a mortgage is involved. Homeowners living in high performance houses are completing the Addendum and using it for marketing the details of the property and for the appraiser when they refinance. Addendum success stories are being touted everyday.

Download a copy of the “AI Residential Green and Energy Efficient Addendum” and make it a part of your property file. Homeowners should keep a copy of the Addendum with the important papers such as the survey, deed, mortgage instrument, and insurance policy. The Addendum provides a history of the special features that may come in handy for years to come. If you make additions or do a retrofit on an existing home, use the Addendum at the time of the improvements to record the details. You might be glad you did when it comes time to refinance or sell the property.

If you have any questions on the Addendum, you may contact me at adomatis@hotmail.com.