Adding Value to Contractors’ Work in the Mortgage Market

Home Performance Coalition, with the Appraisal Institute, is working to increase demand for residential energy efficiency by ensuring that the improvements people make to their homes – largely completed by contractors – are accurately reflected in the value of the home.

If energy efficiency upgrades are accurately valued at the time of sale, in the same way that homes are enhanced by more visible amenities such as granite countertops, homeowners will be much more likely to invest in those improvements, increasing the profitability of the home performance industry. This strategy requires the energy efficiency industry to provide real estate agents and appraisers with high-quality information about a home’s energy efficiency features at the time of listing, and it requires education of all sectors involved in real estate sales. (The City of Portland recently approved a policy to have every home sold in Portland receive a Home Energy Score, or equivalent, at the time of listing).

The Appraisal Institute recently released A Guide to the Residential Green and Energy Efficient Addendum that provides appraisers, real estate agents, energy and green raters, lenders, builders, the secondary mortgage market, and green/energy organizations with an explanation on how each section of Residential Green and Energy Efficient Addendum applies to the valuation and marketing of the property.

For existing homeowners, the Residential Green and Energy Efficient Addendum provides a “brag sheet” or description of hidden features that are often overlooked by real estate professionals when documentation like the Addendum is not available. Many new construction specifications do not communicate high performance features in a meaningful way to appraisers, real estate agents, or the lending world. Completing the Addendum on existing, proposed, or new construction structures and giving it to all parties involved in the transaction, including attaching it to the MLS to enhance marketing, is important. If this data is readily available to all parties, it would result in a smoother transaction, better marketing, and a more credible appraised value. At the time of the mortgage loan application, the borrower should give the loan officer the completed Addendum to notify the lender that an appraiser with “knowledge and/or competency” of how to value energy efficiency features is necessary.

The Residential Green and Energy Efficient Addendum has been gaining market share as a tool to communicate the high performance features of a home over the last several years. Home Performance Coalition provided input into the Addendum and is currently mapping HPXML to the fields in the Addendum to facilitate the automatic transfer of information supplied in a BPI-2101 compliant certificate to appraisers.

In coordination with the Appraisal Institute, HPC also published a three-page brochure, Appraised Value and Energy Efficiency: Getting it Right, for contractors on how to speak to homeowners about the benefits of documenting the energy efficiency improvements they make to a home.

For more information, please contact Julie Caracino at jcaracino@homeperformance.org.