Vermont Builders & Remodelers Association Education Committee: Finance and Appraisal

On What Grounds and How Does One Challenge an Appraisal?

Wed, 16 Apr 2025 18:22:10 GMT

“It is too late and too costly to wait until the appraisal is completed to realize there is a problem with appraiser competency. Upon completion of the report you may find the appraisal report ignores the high performance features completely (no listing of them and no analysis), the completed AI Residential Green and Energy Efficient Addendum is not included, and the energy modeling reports were not included or discussed. This is the first sign of errors that should be addressed in challenging the appraisal results.”

“When the report is insufficient in detailing and analyzing the high performance features, the borrower must be their own advocate to challenge the appraisal. Just because you do not like the value is not a reason to challenge or call an appraiser incompetent. Lenders cannot hire a second or third appraiser just because you do not like the value. They must have sufficient reason to believe the appraisal is insufficient and the issues cannot be resolved with the original appraiser. If a second appraiser is hired, it usually means the borrower is paying for two appraisals.”

Quotes: Sandra K. Adomatis, SRA, LEED Green Associate

Challenging an Appraisal

Do not approach the appraiser directly – you are not the appraiser’s client. The lender is.

The borrower should ask the lender for a “Reconsideration of Value,” which is a formal request that lenders must track and respond to.

The borrower will most likely have to pay for any second appraisal.

Challenges must:

Be in writing
Based on error of fact(s) or omission
Based on inconsistencies
Addressed with the lender directly
Addressed in a timely manner

Challenges cannot be based on, “I don’t like the value of the appraisal!”

“If an appraiser assigns no value or a ZERO to a particular item that implies it has been analyzed and requires as much support as a $20,000 adjustment? That is a hard fact to address for underwriters, reviewers, and appraisers.”

Quotes: Sandra K. Adomatis, SRA, LEED Green Associate

If an appraiser is hired by a loan applicant to assist in challenging an appraisal, the appraiser providing such support must be careful they are not providing a review or they will have to meet [USPAP] Standard Rule 3. Such support should focus on the property and feature descriptions and methodology used. “Were the energy efficiency and/or renewable energy features analyzed with support in the appraisal to explain the conclusions? Was the appraiser qualified to appraise this type of property? This would come from reviewing the appraiser’s qualifications that should be in the report.”

Sandra K. Adomatis, SRA, LEED Green Associate

How do I Ensure that the High-Performance Features of my Home are Included in an Appraisal?

Thu, 20 Mar 2025 18:16:23 GMT

Developed by the Appraisal Institute and Building Codes Assistance Project (and since endorsed by the NAHB), Appraised Value & Energy Efficiency: Getting It Right explains to real estate professionals and lenders why the appraisal of high-performance homes is a complex appraisal assignment and, for Architects, builders, home performance contractors, and sellers how to proactively prepare customers/buyers for loan applications and appraisals.

Use the procedure described and modify and use the buyer and lender template letters contained in Appraised Value & Energy Efficiency: Getting It Right. Modifications to these template letters should be made to describe the salient features and benefits of a home (e.g., home is a net zero energy home with a HERS Index Score of 0, home is 30% more energy efficient than a home built to minimum required RBES specifications, home has been renovated to meet current RBES energy specifications, etc.).

Provision of the lender cover letter along with the Appraisal Institute’s Residential Green and Energy Efficient Addendum and supporting attachments puts the lender on notice that this is a complex appraisal assignment and that the lender needs to ensure they hire a competent appraiser.

It is important to share this information with prospective lenders at the earliest opportunity and for the loan applicant to be clear with the lender that they will be asking any appraiser contacting them or their builder to schedule an appraisal that they will be asking questions to ensure that the appraiser has appropriate knowledge and experience to perform a complex appraisal of this specialized property type.

Ask questions about the appraiser’s qualifications before the appraisal begins:

How many hours of energy efficiency and green building education has the appraiser completed?

Sandra Adomatis states that 14 hours is appropriate based on the Appraisal Institute's “green” courses.

What is their actual experience appraising green homes?
Is the appraiser familiar with the Residential Green and Energy Efficient Addendum? PV Value?
How will the appraiser assign value to the Residential Green and Energy Efficient defined green categories: “(1) site, (2) water, (3) energy, (4) materials, (5) indoor air quality, and (6) maintenance and operation?”
Ask if the appraiser uses net present value to calculate the energy savings revenue stream, what are the assumptions, methodology and duration for the savings?
Does the appraiser subscribe to the local Multiple Listing Service (MLS)?

If no, this causes concerns about competency above and beyond energy efficiency and green building. Where are they getting their data? The MLS serving all of Vermont is the New England Real Estate Network (NEREN). NEREN has recently updated their 3^rd party verified green fields and can document the ratings, scores, Profiles, and other 3^rd party verified building certifications available in Vermont. NEREN also maintains database provided by Efficiency Vermont that lists the address of all homes participating in Efficiency Vermont’s Residential New Construction Service (since the fall of 2010) where a Home Energy Rating (HERS) Index Score is provided, the Index Score, any 3^rd-party verified building certifications earned, and the date of completion in the Efficiency Vermont service.

If the buyer or builder doesn’t get satisfactory responses from an appraiser they should not schedule the appraisal and should immediately contact the lender to discuss their concern about the appraiser’s lack of knowledge and experience with high-performance homes.

Will Hiring a Qualified Appraiser Ensure that Sufficient Contributory Value for Energy Efficiency or Renewable Energy Systems is Realized?

Mon, 03 Mar 2025 19:13:51 GMT

No guarantee here.

The market must be convinced that renewable energy and high-performance building features have value. Though it’s great if they are, it is not the appraisers’ responsibility to be an advocate for energy efficiency or renewable energy.

The appraiser is responsible for:

Understanding the building technologies utilized
Knowing how to measure market reaction to the building features and attributes

Credit: Brad Hevenor, MAI Markus Appraisal, RI

Can I Hire my own Appraiser?

Wed, 26 Feb 2025 19:12:26 GMT

Though the borrower will be charged for the cost of the appraisal, it is the lender that must hire the appraiser to develop the appraisal and to develop an opinion about home value.

You may hire a qualified appraiser to help prepare the appropriate documentation for provision to a lender-hired appraiser. However, any appraiser you hire cannot also work for the lender on the same appraisal.

Note that in addition to competence with specialized property types, appraisers need geographic competence in the market where the home is located.

What Communications are Allowed with an Appraiser Hired by the Lender Under the Lending Guidelines in the Dodd-Frank Act?

Tue, 04 Feb 2025 19:08:23 GMT

What Communications are Allowed with an Appraiser Hired by the Lender Under the Lending Guidelines in the Dodd-Frank Act?

Appraisers can talk with builders, brokers, agents, and sellers
Builders, brokers, agents, and sellers can provide the appraiser with documents
Builders, brokers, agents, and sellers can accompany appraiser on the inspection
Appraisers cannot be pressured by loan officer or others involved in the process to arrive at a value conclusion or to omit important facts

Few lenders have seen or heard of the Residential Green and Energy Efficient Addendum and some may claim that they have to pick appraisers off their rotation lists.

The Residential Green and Energy Efficient Addendum puts the lender on notice that you have a complex appraisal assignment and they need hire a competent appraiser Dodd-Frank banking reform act prohibits them from involvement appraiser hiring. The prohibition pertains to loan officers and others whose income is tied to the loan, not their purchasing department or a hired Appraisal Management Company (AMC).

“The lender or AMC should have some general guidelines on choosing appraisers and once they have made their choice, the appraiser should examine [the assignment] and make the final competency decision.”

“Lenders and AMCs are required to have appraiser panels with more than one appraiser. They are charged with hiring the appraiser with competency in the property type and geographical area, NOT the next one on the rotation list, NOT the cheapest, NOT the most conservative, and NOT the fastest.”

Quotes: Sandra K. Adomatis, SRA, LEED Green Associate

With the routine provision of appropriate data documenting energy efficiency and renewable energy features along with loan applications lenders and AMCs will start asking about an appraiser’s course work and experience in valuing high performance or green properties.

Are there Appraisers in Vermont with Appropriate Knowledge and Training?

Mon, 03 Feb 2025 19:05:12 GMT

Appraisal Institute

The Appraisal Institute (AI) has a Registry listing appraisers on their Green Building Resources web page who have completed AI’s Valuation of Sustainable Buildings Professional Development Program and Registry: www.appraisalinstitute.org/education/education-resources/green-building-resources/

AI’s Registries (both Residential and Commercial – use search by state) list Vermont appraisers who have successfully completed course work and exams within the Appraisal Institute’s Valuation of Sustainable Buildings Professional Development Program. A Registry listing requires 28 hours of course work and passage of three exams for residential appraisers and 35 hours of course work and passage of three exams for commercial appraisers.

This Registry enables lenders or their Appraisal Management Company to draw appraisers from a pool of qualified appraisers for an appraisal on a high performance and/or “green” home. For many parts of the state, a lender’s purchasing agent or Appraisal Management Company can now hire an appraiser from this Registry without needing to quiz them as to their experience or competence with this type of complex valuation assignment.

AI’s Valuation of Sustainable Buildings Professional Residential Registry as of 12/28/16:

Vermont Realtors® Energy Efficient Professionals Qualifications Registry

In the near future Vermont Realtors® (our National Association of Realtors® state chapter) will also host a Registry. This local registry, the Energy Efficient Professionals Qualifications Registry (EEPQR), will list appraisal and real estate sales professionals in Vermont that complete a minimum of 7 hours of state-approved, continuing education courses about energy efficiency and renewable energy to be considered for the Registry. These courses are being designed to meet or exceed national and state standards for core competencies in appraising and selling “green” or high performance homes. Once the coursework is completed, an application will be submitted for review by a Vermont Realtor’s® EEPQR committee.

Vermont Realtors® will recognize the Appraisal Institute’s Valuation of Sustainable Buildings Professional Development Program’s Registries and invite those appraisers with AI Registry listings to apply for EEPQR listings.

Calypso Continuing Education in Randolph, VT will soon be offering a state-approved, 7-hour online continuing education course on appraising high performance homes.

What are the Competency Rules and Requirements?

Fri, 31 Jan 2025 18:41:17 GMT

Competency

The “Competency Rule” in the Uniform Standards of Professional Appraisal Practice (USPAP) states that an appraiser must

Be competent to perform the assignment,
Acquire the necessary competency to perform the assignment, or
Decline or withdraw from the assignment.

Competency Requires:

The ability to properly identify the problem to be addressed, and
The knowledge and experience to complete the assignment competently, and
Recognition of, and compliance with laws and regulations that apply to the appraiser or to the assignment…includes familiarity with a specific type of property.

Further, unlike under USPAP’s minimum competency requirement, if the lender intends to sell the mortgage in the secondary market (e.g., Fannie Mae, Freddie Mac, FHA), acquiring the necessary competence while performing the assignment is not allowable. So in that instance, an appraiser must be competent to accept the assignment or must turn it down.

Selling Guide: Fannie Mae Single Family - Published June 28, 2016 B4-1.1/03, Appraiser Selection Criteria Knowledge and Experience:

“Lenders must use appraisers that have the requisite knowledge required to perform a professional quality appraisal for the specific geographic location and particular property type; and, have the requisite knowledge about, and access to, the necessary and appropriate data sources for the area in which the appraisal assignment is located.”

Appraisers that are not familiar with specific real estate markets may not have adequate information available to perform a reliable appraisal.”

“Although the Uniform Standards of Professional Appraisal Practice (USPAP) allows an appraiser that does not have the appropriate knowledge and experience to accept an appraisal assignment by providing procedures with which the appraiser can complete the assignment, Fannie Mae does not allow the USPAP flexibility.”

Table source:

Residential Green Valuation Tools – August 19, 2014, Sandra Adomatis, SRA, LEED GA

When are the Cost Approach and Income Capitalization Approach Used?

Wed, 01 Jan 2025 18:39:33 GMT

Cost Approach

Less common but likely most appropriate as secondary evidence for adjustments for a highly-energy efficient home where comparable homes don’t exist.

Income Capitalization Approach

Commonly used with income generating properties. Though uncommon, use of this approach is appropriate in support of adjustments to the Sales Comparison Approach when energy savings are credibly documented as an income stream.

Appraisers without training in appraisal of high performance homes will likely have difficulty identifying Comparable Sales and difficulty using the Cost and Income Capitalization Approaches. They will also find it difficult to assess trends evident in a given market.

What are the Sales Comparison Approach, Data Collection Method, and the Valuation Process? When are they Used?

Tue, 24 Dec 2024 18:36:33 GMT

The Sales Comparison Approach

The sales comparison approach is based primarily on the principle of substitution. This approach assumes a prudent (or rational) individual will pay no more for a property than it would cost to purchase a comparable substitute property. The approach recognizes that a typical buyer will compare asking prices and seek to purchase the property that meets his or her wants and needs for the lowest cost. In developing the sales comparison approach, the appraiser attempts to interpret and measure the actions of parties involved in the marketplace, including buyers, sellers, and investors.

Data Collection Methods and Valuation Process

Data is collected on recent sales of properties similar to the subject being valued, called "comparables". Only SOLD properties may be used in an appraisal and determination of a property's value, as they represent amounts actually paid or agreed upon for properties. Sources of comparable data include real estate publications, public records, buyers, sellers, real estate brokers and/or agents, appraisers, and so on. Important details of each comparable sale are described in the appraisal report. Since comparable sales are not identical to the subject property, adjustments may be made for date of sale, location, style, amenities, square footage, site size, etc. The main idea is to simulate the price that would have been paid if each comparable sale were identical to the subject property. If the comparable is superior to the subject in a factor or aspect, then a downward adjustment is needed for that factor. Likewise, if the comparable is inferior to the subject in an aspect, then an upward adjustment for that aspect is needed. The adjustment is somewhat subjective and relies on the appraiser's training and experience. From the analysis of the group of adjusted sales prices of the comparable sales, the appraiser selects an indicator of value that is representative of the subject property. It is possible for various appraisers to choose different indicator of value which ultimately will provide different property value.

Source: https://en.wikipedia.org/wiki/Real_estate_appraisal

What if there are no Good Sales Comparisons?

Wed, 11 Dec 2024 18:30:27 GMT

In Vermont it can be very difficult to find good sales comparisons for high performance homes. Many of our highest performing homes are custom built and are not the type of arm’s length sales transaction needed for a sales comparison analysis.

There are three primary methods of appraisal in an appraiser’s tool box:

Sales Comparison Approach (or Market Approach)
Cost Approach
Income Capitalization Approach

To appraise high performance homes appropriately, the appraiser needs data that enables them to use all three methods of appraisal.

Sales Comparison Approach (or Market Approach)

Most common method used as it is required by Fannie Mae, Freddie Mac, FHA, etc.

Why do Some High-Performance Homes have Difficulty with their Appraisal?

Mon, 01 Jul 2019 17:29:23 GMT

Energy efficiency can be overlooked in the appraisal process for a variety of reasons, including a lack of access to quality data, underwriting impediments, and lack of appropriate appraiser qualifications. Many appraisers are not aware of the unique features of an energy efficient home.

High Performance Homes are Specialized Property Types and Complex Appraisal Assignments

High-performance houses have unique features compared to a traditionally built home
Databases are insufficient presenting research challenges (hard to find comparable sales)
Most appraisers do not have training about this specialized property type
Without knowledge of construction methods and benefits to the owner, it will be difficult for the appraiser to appraise this specialized property type appropriately

Is Helping Documenting High-Performance Available in Vermont?

Mon, 01 Jul 2019 17:27:46 GMT

Yes, indeed, Efficiency Vermont services and those provided by collaborating contractors provide expert technical assistance and 3^rd party verification of the energy efficiency a home achieves for both new and existing homes. Additionally, assistance with national energy efficiency and green certifications is also available in Vermont.

New Homes (and homes undergoing a complete gut rehab) – to learn more call: 800-893-1997

Numorous options exist in Vermont for independent, 3rd party verified home performance documentation through Vermont's statewide energy efficiency utility, Efficiency Vermont.

Existing Home Efficiency Improvements - to learn more call: 888-921-5990

Existing home services are provided in collaboration with Efficiency Vermont by Building Performance Institute (BPI) certified auditors and/or U.S. DOE Home Energy Score Assessors.

National and Vermont certifications, 3rd party varified by BPI certified auditors and/or U.S. DOE Home Energy Score Assessors - fees may be charged by auditors/assessors.

How do I Document the High-Performance Features for Appraisal?

Mon, 01 Jul 2019 17:26:07 GMT

“The best advice to a borrower or someone seeking a value of a high-performance property is to provide all the information necessary to allow the appraiser to understand what is behind the walls and what makes the house high-performance.” Sandra K. Adomatis, SRA, LEED Green Associate

First and foremost, the information to provided should include a completed Appraisal Institute Residential Green and Energy Efficient Addendum (all homes, new, and existing).

The objective of this Addendum is to standardize the communication of the high-performing features of residential properties. Identifying the features not found on the [Uniform Residential Appraisal Report -URAR] 1004 form provides a basis for comparable selection and analysis of the features. Builders, contractors, homeowners, and third party verifiers are encouraged to complete this Addendum and present to appraisers, agents, lenders, and homeowners.

Attached to the Residential Green and Energy Efficient Addendum include:

A full Home Energy Rating System (HERS) report labeled either “Proposed”-from-plans or “Official” when construction is complete (new homes)

The HERS Index Score is an ideal tool for appraisal use and of particularly high value is the calculation of the home’s annual energy savings as compared to a minimum code-built home. That net present value of the energy savings may support adjustments to the Sales Comparison Method of appraisal by enabling use of the Income Capitalization Method of appraisal.

Vermont Home Energy Profile and DOE Home Energy Score (existing homes)
Certifications from any energy efficiency organizations or green building programs

When applicable (generally with new homes) indicate either “Proposed”-from-plans or “Official” if construction is complete)

Copy of VT Residential Building Energy Standards (RBES) Compliance Certificate (all homes)

Either “Proposed”-from-plans or “Official” if completed

Building plans and specifications (all homes - when available)
Renewable energy specifics and energy production records (when applicable)

When applicable, use PV Value a U.S. DOE Sandia National Lab developed online photovoltaic (PV) system production and value calculation tool

Incremental cost of construction data for energy efficiency and green features in the home

Cost Data Addendum for High Performance Homes is a good tool, useful for collecting and sharing data with an appraiser (all homes)