Dave Porter of PorterWorks, Inc.

Read the education session summary

Link to the presentation made during this session:

Okay, I got here a little late, I was having a great conversation with Paul McFadden of The Legacy Group. He introduced himself by saying he follows me on Twitter, which was very cool.

Dave Porter is a funny guy. There is a video camera going so maybe this session will show up somewhere later. I wonder if they will bleep him? hehe

There is a huge problem in properly valuing green homes. Yes, the cost of a green home may be a little more than a non-certified home. Usually it will be less than 10% of a price difference. The long term investment made by the person who buys an environmentally-certified home should be properly appreciated and valued. The problem is the appraisal process now is based on the past performance of the marketplace. There are a number of guidelines that appraisers follow which just can’t properly accommodate environmental features in homes.

What we need is an appraisal process that will take into account the future performance of that particular home, not just “the market”.

So Mr. Porter asks: Why the comps? Who made that the sacred cow?

Dave suggests that nit might be more appropriate to compare an environmentally-certified home in Seattle with a similarly green improved or built home in Kirkland. The the sustainable features of a home become more important than just geography.

He said there is a report floating around at Fannie Mae that he cannot get his hands on that actually shows numbers that say that there is a 11% higher foreclosure rate found in non-green homes. The suggestion being that green home buyers are a littlre more astute and vested in their homes.

Dave gave a number of resources that will change our lives, or at least give buyers and agents a chance at arguing value. Challenge an appraisal that is low. In your letter write, “The appraiser needs to be competent in green building construction. If the appraiser is not qualified to value green properly, an appropriately qualified appraiser should be assigned.”

Some other tools:

1) The Marshall & Swift Guide Book of Green Building Costs

—Added detail on 3/18/10 —-

2) According to Rick Nevin and Gregory Watson “An Increase in Property Resale Value occurs in homes with solar electric systems because these systems decrease utility operating costs.” According to a 1998 US Appraisal Journal article by Rick Nevin and Gregory Watson, a home’s value increases $20,000 for every $1,000 reduction in annual operating costs from energy efficiency.

Read Evidence of Rational Market Valuations for Home Energy Efficiency by Rick Nevin and Gregory Watson for the US EPA.

—End addition—

3) PITI should also include Utilities and Maintenance in the calculations. (PITI=principle, interest, taxes, insurance)

EEM/EIM loans are different and not all of them require a HERS rating or EPS score. (EEM=energy efficient mortgage, EIM=energy improvement mortgage)

The FHA appraisal only needs to be for the un-improved loan amount. Example: $400k house that is going to get $20k in improvements. It makes sense that the appraisal should be for the current condition of the property, not what the improved condition will be after additional loan funds are used to improve the property. FHA have a 5% allowance for energy improvements. Also talk to your lender at stretched ratios of the 33/45. The buyer should only need to qualify at the unimproved loan amount, not the loan amount that includes money for improvements.

The greenest loan there is right now is the FHA 203K streamlined loan. I actually had a listing sell in 2008 using that loan. What’s nice about the 203K is that there are no quotes required in advance. You get part of the money when you close, and you submit receipts for reimbursement for the second half of the allowance. I can’t remember off the top of my head how much the total allowance was for at that time.

Dave recommends the HERS or EPS score of homes be included in the recording of the title. Home buyers, when they become sellers, will probably have lost the certificate. If it was recorded then that environmental certification is never lost.

The presentation for this session is available online, and he is going to email me the link. I will update this post with it when it is available later today.

I need some sugar!