Getting the Green For Your High-Performance Home

Building an energy-efficient home is a winner for your pocketbook and the planet—so why is it getting short shrift from many banks and appraisers?

Building a highly efficient home will cost a little more, but it’s worth it if for no other reason than you’ll easily recoup the higher up-front payout through lower energy operating costs. Or maybe you want to take advantage of low interest rates by refinancing your existing home while doing some energy upgrades.

Most of us don’t have the funds to build a high-performance home—or even do a few energy-efficient upgrades—without getting a loan. But convincing the bank that a high-performance home has greater value than a similar, but conventionally constructed home, is often a surprisingly difficult hurdle.

From PITI to PIETI

Roger Normand and his wife Lynn are building a state-of-the-art green home in Saco, Maine. Like many other green home-building pioneers before him, Roger has immersed himself in the ins and outs of building efficiency and green building. While their bank is supportive of their plans for a green home, the Normands’ ability to obtain a construction loan is based on the appraised value of the prospective home.

Three appraisals (by two appraisers) were performed in the course of five months. Both appraisers were members of the Appraisal Institute (AI), and the second appraiser, according to Roger, had completed the AI’s advanced education in green appraisals. Each considered both the “cost” and “sales” methods (see “The Art of Appraisals” sidebar) and provided a final valuation that reconciled the differences between their sales comparisons and cost evaluations.

However, the first appraiser’s report gave no recognition to the home’s energy-efficiency measures, though the standard Uniform Residential Appraisal Report (Freddie Mac form 70 or its equivalent, Fannie Mae form 1004) includes a line item in its value adjustments for “Energy Efficient Items.”

The second appraiser’s initial report listed some of the home’s energy-saving features, which included passive solar design and a super-insulated building envelope, and valued the home’s energy-saving attributes at $24,800.

The third appraisal accounted for Leadership in Energy and Environmental Design (LEED; program of the U.S. Green Building Council) and other green standards, assigning them $95,200. And it also estimated the net present value of ongoing energy savings, including 15 years of energy savings.

In Roger’s experience, the appraisers just didn’t “get” it—at least initially. But the appraisal was high enough that they were able to move forward with their building plans.

“If you want to build green, it’s best to have deep pockets,” says Roger. “It’s still a very long journey ahead to find value in a green appraisal.”

Roger recommends that the traditional PITI (principal, interest, taxes, insurance) mortgage lending ratio become PIETI, “where the ‘E’ represents the home’s energy costs.