Fixing “Green” Appraisal Issues at the Source

No one likes a pop quiz, especially when trick questions are involved. But that’s exactly what’s happening to owners and buyers of high-performance homes.  Consumers have been finding out the hard way that they have a right to a qualified high-performance home appraiser.  But they learn this after a final report been filed and all the invoices have been billed and payments made.

Home performance contractors and programs have an opportunity to fix this problem at the source and to educate consumers how to navigate through a more fair appraisal process.

It’s hard to argue against the fact that our mortgage industry needed a lot of fixes after the recent financing crisis. But the home performance industry is slowly waking up to the shock that an unfortunate by-product of these improvements has been significant, unintended problems specifically for owners/buyers of high-performance homes.

In 2009, the Home Valuation Code of Conduct (HVCC) introduced more independence in the appraisal process.  Gone are the days of picking an appraiser.  Now most lenders use a clearninghouse approach to select an appraiser from a pool. This pool approach which allows appraisers to be more objective in documenting the value of a home also means it has become harder to match appraisers who have knowledge and experience to high-performance home assignments.

But since HVCC was introduced, one thing that has been clearly reinforced is that now more than ever, consumers have a right, and appraisers have a duty to be competent for any assignment they accept.  HVCC has only strengthened attention on the minimum requirements appraisers must meet or exceed as defined in the Uniform Standards of Professional Appraisal Practice.  This includes requirements to be ethical and competent and to be able to define and fulfill an established scope of work.

The real challenge is that the first time a homeowner or buyer figures they have a right to a competent appraiser, and that an unqualified one assessed their property is after the final report is done. At that point a consumer’s only option is to pay for the whole process again.

For more information on today’s valuation process and how it impacts high-performance homes, see the appendix to CNT Energy’s visible value blueprint.

The National Association of Home Builders (NAHB) found that some of their members figured out an interesting solution to the conundrum that the consumer doesn’t know they’ve had the wrong appraiser assigned until it’s too late.  They recently published contract language that builders are starting to include in their sales contracts to trigger an attention on competency before the appraisal assignment begins.

Inspired by the NAHB example, the visible value blueprint recommends the following contract language:

“This Home is being built to nationally recognized standards above prevailing code with unique features, materials and high-efficient equipment. The Lender shall choose an Appraiser educated and knowledgeable in valuating this type of specialized Home, preferably an appraiser who holds a professional appraisal designation that requires advanced education on such issues as the valuation of sustainable buildings. The appraiser shall provide verification of this advanced education from a qualified educational provider to be permitted to conduct the appraisal for this project.”

While home performance contractors and programs typically work with homeowners who might be staying put, these clients might still need an appraisal for a refinance. Providing sample new construction contract language at the time home energy upgrade work is done could make the difference even on a refinance and trigger the right questions to ensure a competent appraiser is assigned.  Contractors and programs have a huge opportunity to educate the consumer and fix appraisal assignments at the source to make sure a fair valuation is done by a competent expert.

Posted in Green Financing/Valuation, Resources for Not-YET-Green Homes | Leave a comment

HERS Lawsuit – Time to “Worry About Yourself!”

For years, I’ve been working towards processes that link data on energy efficiency improvements to the real estate transaction.  And every step of the way I’ve been honest: that every improvement bridges the industries by easing the liability concerns of real estate agents, appraisers and other professionals.  You know this data best.  And we don’t want to touch this stuff it means we could get sued.  Bottom line is we want to point to you as the data source so buyers and sellers can find someone else to sue!

My warnings and your observations about the intense concerns over misleading or incorrect information about “green” properties has been mostly treated with eye-rolls and ridicule. It’s been an obstacle to progress. Quite frankly, the efficiency world thinks the real estate world is paranoid.

Well, it’s time to stop worrying about us and worry about yourself.

On September 3rd I learned about the first lawsuit (as far as I am aware) over misrepresentations of a “green” home.  The Colorado Springs Business Journal provided details in their article, “Home Not Effectively Green, Lawsuit Says.”  They report that the plaintiff claims her family was misled and purchased a home from a builder that was LEED-Registered rather than LEED-Certified as promoted. The homeowners also were told the home was “near net-zero” and were disappointed to find it received a HERS Index Score of 13.

If you are ready to squabble over the distinction between registered versus certified, or 0 versus 13, you’re missing the point completely!

The lesson here for builders, contractors, efficiency programs, third-party verifiers and others is that the days of “buyer beware” are long gone. The public relies on a transaction system built upon the sharing of honest and reliable information about the material facts of a property. The justice system holds the experts involved in any transaction to a high standard to uphold the truth.  REALTORS directly address honesty in their 100 year tradition of a Code of Ethics that every member retests on every four years.

Article 2
REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction.

Good news is that high-performance home data right from the source really does make the transaction better, and protects all parties in the transaction. More and more progress is being made to link data on efficiency scores, certifications and labels to MLS and other real estate transaction steps.

The more the efficiency industry understands the risks of a lawsuit and the absolutely non-negotiable requirement that data be credible and reliable, the better for all of us.  The industry has to be so sure of its data its willing to stand behind that data in a courtroom!

Stay tuned to see how the HERS lawsuit in Colorado shakes out.

And if you’re still thinking real estate is paranoid about lawsuits, check out this video as a reminder from a two-year-old to worry about yourself! (I couldn’t help myself!)

Image from abc.com

 

 

Posted in Green Real Estate Trends, Resources for Not-YET-Green Homes | Leave a comment

Time is Now to Make Efficiency Financing Work

Yesterday I had the honor to sit in on a high-energy meeting about making energy efficiency financing more broadly appealing and effective.  The FHA Green MLS Roundtable was one of three activities on Thursday to advance President Obama’s Climate Action Plan.

For me, the best part was sitting with some true rock stars of efficiency financing.  I’ve studied the legendary Kevin Nunn in California from afar!  He understands what makes home buyers tick and has crafted just the right way to position an Energy Efficiency Mortgage, and he’s invented a streamlined process to get to closing quickly and without any drama.  (His secret…besides a super-engineered process?  The pitch is doesn’t start with efficiency – but about protecting your home purchase against the most stressful and catastrophic failure a home owner has to plan for – the day the heat or air conditioning goes out!  Then he explains another bonus and positions the required HERS inspection exactly for what it is – buyer protection from a neutral expert that any upgrades are a wise investment.)  

In Pennsylvania and other markets around the country Peter Krajsa at AFC First has similarly figured out how to position the PowerSaver loan so that consumers who want to make efficiency improvements without refinancing are signing up to participate.

When talking about products like these as well as 203K Rehab loans, I was pleasantly surprised by the consistent feedback that came from each of three breakout groups.  The message was that these products work and stars like Kevin and Peter are finding an eager market.  But, there are lots of small and silly obstacles that prevent others from following in their footsteps.  Each of the three groups independently came up with just about the same list of short-term action steps that would dramatically increase the appeal of these loan products and drive volume.

The group also had some discussion about what happens to these homes after the loan paperwork is signed, namely how appraisal and underwriting for these homes could be streamlined and improved.  This is a key thing to figure out.  We can’t improve the product on the front-end and then shackle the value of the improvements consumers are then motivated to make.  Limitations on what appraisers can do and what underwriters will accept is creating that exact shackle today.  CNT Energy’s Value for High-Performance Homes campaign (which I manage) is all about creating a smooth sales transaction from the minute an upgraded is listed for sale through underwriting to closing.

The uniformity and simplicity of the feedback yesterday to me says loud and clear that the roundtable was much-needed and well overdue.  It also signals some innovations and improvements that are achievable in the short-term.

I don’t like to set goals and not achieve them.  My 2012 goal is still hanging out there – to close my first EEM sale.  I had written it off.  But now I’m feeling really optimistic that I’ll actually be able to deliver this year!

 

Posted in Green Financing/Valuation, Market Transformation, More/About Me | Leave a comment

Chicagoland’s First GreenBuilt Home Tour – July 20-21st

Don’t miss  the inaugural GreenBuilt Home Tour, sponsored by the U.S. Green Building Council – Illinois Chapter and the Chicago Tribune.  Choose among 16 exceptional, award-winning, and nationally-recognized sustainable homes in Chicagoland!

A few of my favorite architects and some good friends are showcased on this tour, including:

  • Passive House – River Forest (Tom Basset-Dilley, Architect, Brandon Weiss, Builder)
  • Lewandowski Residence – LaGrange (DigRightIn Landscaping, Jeff Swano)
  • Project Greenfill – Riverside (Scott Sanders, Builder)
  • Slotnick Residence – Glencoe (Nathan Kipnis, Architect)
  • Elmhurst Green House – our school friends! (Bill Styczynski, Architect/Builder)
  • Werr Residence - Wheaton (Bill Styczynski, Architect)

Use the coupon code “green” and get $5 off a weekend pass. See you there!

 

Posted in Green Real Estate Trends, Living in Elmhurst, Market Transformation Examples | Leave a comment

Pioneering MLS App Makes Energy Costs Easy

A partnership project between the City of Chicago, CNT Energy and Midwest Data LLC (MRED) means home buyers in the City of Chicago no longer have to chase down an answer to the simple question, “What are the utility costs like?”

The Chicago Tribune reported on Wednesday that MRED, the multiple listing service serving the City of Chicago as well as surrounding collar counties, has made it easy for Realtors to comply with a City of Chicago ordinance requiring disclosure of energy costs when listing a property for sale.   According to the City press release, Chicago is the first city in the country to provide this information on home listings.

“This innovative tool will allow residents and homebuyers to factor energy costs into their buying decisions and streamline the 25-year old paper-intensive process for Realtors and utility companies, allowing them to focus on their customers. It is a win-win that will create a better marketplace and opportunity in our neighborhoods,” said Mayor Rahm Emanuel.

Slide1Indeed, MRED is truly innovating an outdated and often frustrating process where Realtors were never quite sure if energy cost reports requested to comply with City ordinance would actually show up in time for closing.  An update to the ordinance in March now allows for disclosure through an electronic database.

Now agents can collect utility account numbers when obtaining other listing information from a seller.  The agent will be prompted to enter account numbers when listing property in the City of Chicago.  With just a few button clicks, account information can now be entered and verified so that energy costs can be automatically updated to the listing.

Slide2

Agents have the option to fully comply with ordinance online by downloading and attaching a user-friendly energy cost report which is available automatically via the reporting tool MyHomeEQ which is linked with MRED’s MLS software.

Innovation via collaboration is a beautiful thing!

It was an honor to provide a little support to MRED’s product development team and the Mayor’s Innovation Delivery Team to make this idea a reality!

Posted in Market Transformation Examples, More/About Me | Leave a comment

Back to the Future on Climate and Valuing Efficiency

IMDb image

Two weeks ago, President Obama introduced his Climate Action Plan.  To some, it probably seemed like big news.  But to me, his speech emphasized the “Back to the Future” nature of his plan. The President remarked:  ”This used to be a bipartisan issue,” and reminded the audience that some of the original leadership on climate policy came from Presidents Nixon and G.W. Bush, as well as Senator McCain.

The President’s Climate Action Plan includes a key focus on reducing energy use in buildings. Buildings account for about 40 percent of total energy use and carbon pollution in the United States, more than industry or transportation.

I’m pleased to see that the issue Reducing Barriers to Investment in Energy Efficiency ended up in the plan. In May I had the honor of joining staff from the Institute for Market Transformation to brief the White House Council on Environmental Quality (CEQ) on this topic.

In my work I encounter a fascinating combination of professionals from private and public sectors who work tirelessly to make energy efficiency more accessible to home owners every day, and to make the process for reselling these homes straightforward and fair.   From insulation contractors and builders, to Realtors, MLS operators and appraisers, it was an honor to report on the cooperation and progress among these trades as depicted in the image below.

value_green_homes_visual

Source: Green MLS Toolkit

CNT Energy’s Value for High Performance Homes Campaign website continually tracks and reports progress in this space.  While industries are working together to make progress on the resale process for high-performance homes, underwriting progress has not kept pace.  Research indicates that owners of energy efficient homes are far less-likely to default on a mortgage, but current underwriting practices, which are largely influenced by government-owned entities such as Fannie Mae and Freddie Mac do not account for efficiency.   As a result of the CEQ briefing, the climate plan calls for progress on page nine:

In order to advance ongoing efforts and bring stakeholders together, the Federal Housing Administration will convene representatives of the lending community and other key stakeholders for a mortgage roundtable in July to identify options for factoring energy efficiency into the mortgage underwriting and appraisal process upon sale or refinancing of new or existing homes.

And so we have “Back to the Future”.  This roundtable is needed to help federal Slide1underwriting standards keep pace with industry advancements like I encounter every day.  Recently, I stumbled across the original MLS listing sheet for my home when it was first sold back in 1967.  Back then, energy costs (a surrogate for efficiency) was just part of the deal.  No roundtable was needed get it in there back then. And sadly, no roundtable was convened to pull it out at some point in our recent past.

So I applaud the President’s leadership to get back to the future – and I look forward to being a part of the process to support a better home finance process and a better planet by including efficiency again.

Posted in Green Financing/Valuation, Green Real Estate Trends, More/About Me | Leave a comment

Valuing Efficiency in Underwriting

Home Energy Efficiency & Mortgage RiskIn March, a joint study by the University of North Carolina at Chapel Hill Center for Community Capital and the Institute for Market Transformation (IMT) found that owners of ENERGY STAR-rated homes are one-third less likely to default on a mortgage than the average borrower.  Home Energy Efficiency and Mortgage Risks focused on owner likelihood to default or prepay and not on existence of a premium for energy efficiency features.

The strength of the performance was strong and clear as quoted in an NBC article:

“We were quite surprised by the numbers,” said Nikhil Kaza, asst. professor of city and regional planning at the University of North Carolina at Chapel Hill who worked on the study. “We thought there would be some association between energy efficiency and mortgage risk, but we did not expect such a large association.”

The study authors call for policy work as today’s underwriting practices do not account for efficiency:

“Consumer and industry acceptance of energy efficiency is high. But the lack of broad consideration of potential energy savings in the mortgage underwriting process still prevents many moderate- and middle-income homebuyers from fully enjoying the cost savings…Since our study findings now show that energy efficiency is strongly and consistently associated with lower mortgage lending risk, lenders and policymakers have one more reason to promote it.”

On June 6, 2013 Senators Bennet (D-CO) and Isakson (R-GA) introduced Sensible Accounting to Value Energy (SAVE) Act in the Senate as S. 1106.  The GovTrack website summarizes SAVE as:

A bill to improve the accuracy of mortgage underwriting used by Federal mortgage agencies by ensuring that energy costs are included in the underwriting process, to reduce the amount of energy consumed by homes, to facilitate the creation of energy efficiency retrofit and construction jobs, and for other purposes.

NAR has worked with IMT over several years to minimize the impact of SAVE on older homes and worked vigorously to ensure that the proposed legislation did not stigmatize or disadvantage them in any way.  On June 5th, NAR send a letter to Senators Bennet and Isakson, applauding their efforts on the bill.

Posted in Green Financing/Valuation | Leave a comment

NAR Appraisal Insights Blog – Three for One Bonus!

Thanks to NAR’s Appraisal Insight blog for inviting me to be a guest-author on green valuation topics.

My first blog, Three-for-One Bonus:  V2.0 of Appraisal Institute’s Green & Energy Efficiency Addendum Hits the Street was posted last week.  Read more to learn who should be filling out this form, and why it’s use keeps growing!

NAR Image

Posted in Green Financing/Valuation | Leave a comment

NAHB Finds Top 5 Buyer Wants are Green

NAHB’s study,  What Home Buyers Really Wantcaptures what buyers of new homes must have, and what they are willing to give up.

For the first time, High Performance factors into four of the Top 5 “must haves”:

  • ENERGY STAR appliances (94%)
  • ENERGY STAR for new homes labeled construction (91%)
  • ENERGY STAR windows (89%)
  • Ceiling fans (88%)

The report signals that the market is well on its way moving towards McGraw-Hill predictions that residential green building will be up to 25% of the market in 2013, and up to 38% by 2016.

Posted in Green Real Estate Trends | Leave a comment

More Green Sprouts from Gen Y

It’s the Millennials - Gen Y (born 1982-2002)- that are going to be key to turning the real estate market around.

And there’s more and more data coming out about their home buying preferences.  They may not say it directly – but all the signals are indicating that they need to be sold on both performance and value.

First is a study from Better Homes and Gardens Real Estate.  It confirms almost word-for-word what I’ve been predicting about Gen Y. The report found that 77% of Millennials seek

Essential, purposeful homes equipped with the technological capabilities they have grown accustomed to, as opposed to stereotypical luxury homes preferred by many in their parents’ generation.

This means older, smaller, higher quality and higher performing homes that these homeowners can modify to make their own.

A Millennial blogger commenting on the Better Homes and Gardens research captures the home buying perspective of her generation:

…up the road is a much newer city, where you can get more home for your money. You’re also farther from major highways as well as inconveniently farther from our favorite sushi place.

The National Association of Home Builders found in their recent ”What Home Buyers Really Want” report that 30% of first-time home buyers (likely Millennials) select a home based on its location to where they work.

This translates in to a whole new perspective on buying for Millennials.  They are not just interested in getting to the closing table. But like a cheap printer that kills you in printer cartridge costs, these buyers are making selections based on the Total Cost of Ownership for a certain address — everything from desired remodeling costs to the utility budget (and  opportunities to shrink it) to the cost to get around.

For efficiency contractors, Gen Y represent a ripe market opportunity – personalizing and improving older homes.  For Realtors Gen Y is an opportunity to stand out.  It’s not just about knowing the properties anymore. It’s about providing tools that enable better choices – and build a very loyal base of referral customers!

Posted in Gen Y Green, Total Cost of Ownership/Affordability | Leave a comment