Green home appraisal blues

When we started this project, we knew we were going against the prevailing wisdom, it’s one of the reasons we call this the uphill house. We always seem to be pushing things uphill when they naturally want to go the path of least resistance. First we decided to build a house on the side of hill. Not the easiest or cheapest option, but the view is spectacular and we have great access to the sun. Then we decided to build a super tight, super insulated house in an area that has no skills building this way, but we did it anyway and were quite successful. Finally, we decided to build a smaller house so we could spend our money on quality materials, systems and appliances.

All these things make a beautiful, long lasting, extremely comfortable and efficient home, but unfortunately don’t appraise well. We recently had our home and property appraised as we seek to roll over our construction loan into a mortgage.

Make sure there’s something soft under your jaw… the appraisal came in at roughly 65% of the total value we’ve put into the land, house, driveway, septic and well… and that doesn’t even include our own sweat equity.

The main issue is the lack of comparable properties. The closest truly comparable net zero homes in New York are closer to Albany, and there’s a few across the border in Vermont and Massachusetts. Since there are no comparable properties in our immediate area, we must be compared to houses of a similar size and number of bed and bathrooms. Those houses are far cheaper since they only include the code minimum for insulation and none have a solar PV array. The difference in value is quite large.  (There is a good article by Richard Defendorf on the GreenBuildingAdvisor site that describes these issues, When Green Poses an Appraisal Problem.)

As we see it, home appraisals are good at valuing similar things, apples to apples, but fail when comparing Apples to PCs. We are quite happy to pay a premium for Apple products because we understand and appreciate the value. If you don’t understand the value, then an iPad clearly looks more expensive than it’s worth when compared to other tablets. If you’re only means of comparison is square footage and number of beds and baths, then our house looks more expensive than it’s worth in comparison to other homes.

The end result is that we do not qualify for a standard loan from Freddie Mac. Thankfully we are working with a great local bank that sees the value and is willing to take the loan onto their balance sheet. However, to protect themselves from the extra risk of not being able to resell the loan to Freddie Mac, they are offering the loan at a higher interest rate.

And this is what leaves us feeling blue. Building green and choosing quality over quantity is considered more risky than a standard home built using standard practices.

7 Responses to “Green home appraisal blues”

  1. 1 Chuck 25-February-2012 at 11:03 am

    Any chance a tax appraisal will follow that same logic?

    • 2 Larry 25-February-2012 at 2:35 pm

      Excellent point Chuck! Although I wouldn’t normally use ‘tax’ and ‘logic’ in the same sentence. Guess we’ll find out in September when the school tax bill arrives.

  2. 3 Jim Merrithew 25-February-2012 at 2:51 pm

    Larry and Jill,

    Hopefully, for many years to come, when you receive your electrical and heating bills (or lack of same) and spend your week-ends lounging in the heat of the sun, you will find many reasons to smile.

    You are trail blazers. Those who break the trail always work harder than those who follow in the footsteps.

    The citizens of Canada and the U.S. enjoy freedom and a wonderful quality of life because of the hardships and sacrifices made by the pioneers who created our great nations. The two of you are the pioneers of a new age. Your work, sacrifices and vision will inspire those who follow.

    There are some things which cannot be assessed with a dollar value because they are so unique. Your house is an amazing accomplishment which, like the MasterCard ads, is “Priceless”.

    Take care. Jim

  3. 4 Peter Hastings 27-February-2012 at 4:50 am

    Do your property taxes reflect the (lower) market value of your house or the actual (higher) cost of the house ? Until the general public is willing to pay the extra for a better-quality house, the appraiser cannot assign such a house a value which reflects its build cost. Similarly, no responsible lender can lend more than the market value because that is (amongst other things) what caused the recent crash. You are being penalised for being responsible and prudent. You should have bought disposable garbage like the rest of the population.

    The disconnect between appraised value and build cost will continue to limit the amount of green building that gets done. You are to be applauded for having lived up to your principles despite the discouragements. Remember that it’s a pretty weedy principle that is easy to live up to. Your decisions have been driven by long-term considerations – may you and your children enjoy and love your house for many years to come.

    • 5 Larry 27-February-2012 at 8:12 am

      Thanks Peter. No disagreement here, market forces should and will determine the value of a home and the resulting taxes. The only disappointing aspect is that building this type of house is considered more risky than building a standard house. And that is only because if we default on our loan, the bank is on the hook directly, rather than being able to pass the risk onto a tax-payer-backed entity Freddie Mac.

  4. 6 Lucy Foxworth 1-March-2012 at 12:57 am

    I’ve seen articles referenced on GreenBuildingAdvisor that say well-built green homes sell faster and for more money. I’m sure you’ve seen them as well.

    I just wish the appraisal process would catch up soon and recognize the quality of the home rather than square footage and bedrooms and baths and “comparable properties.”

    You are an “early adopter” in green building in your area, you pave the way for those of us who follow. One researcher, Jay Pil Choi (who researches herd behavior) described you guys as pioneers. “If all consumers are striving for value and take the approach of ‘wait and see,’” he said, “the new products will never be able to take off or take much longer to succeed in the marketplace.”

    Here’s the link:

    So thank you for that.

  5. 7 W Smith 18-November-2013 at 4:42 pm

    We had the same issue with the appraisal. I was able to drop my building costs about 25% from the original quotes thanks to some creative re-quoting; we were our own GC, so saved 20% there; sweat equity, etc … and our appraisal barely covered what we had in the house. Same problem – no comps in the area, R50 means nothing in the marketplace, etc … but take satisfaction in lower property taxes, lower monthly utilities, and eventually the interest rate could come down during a refi. So all those posts about a micro-home with 1BR and 1BA – great idea, but just plan on paying for it without a bank’s help.

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