Founder | BPI® Energy Auditor Certified Professional
Whether you’re selling, refinancing, or buying a sustainable home, it helps to know how the Appraisal Institute’s Residential Green Addendum works. You’ll be running into this if you want to document any green or renewable upgrades that your home has, and ultimately you’ll want to maximize the home’s value from then as well.
In this article, I’ll explain everything you need to know about this form and how you can take advantage of it. For starters though –
The AI Green Addendum is an extra real estate property appraisal form that captures a home’s sustainability attributes. The form ensures that homeowners get credit for energy efficiency investments, while buyers get an additional chance to convince lenders to approve their mortgage application.
What Is the AI Green Addendum?
The Appraisal Institute is America’s largest trade group of professional real estate appraisers.
AI created the Residential Green and Energy Efficient Addendum to assist its professionals in accurately valuing homes with sustainability features.
Here’s a video highlighting the journey to bring a sustainability perspective to property valuation.
How Does the AI Green Addendum Work?
Since the Green Addendum isn’t a standard appraisal form, AI encourages real estate market participants to use it.
A seller may request to include the form in the appraisal of their property. Likewise, a borrower may ask the lender to ensure the addendum is included in the assessment.
As a result, the lender can hire an appraiser competent in green building matters.
With the Green Addendum, the appraiser will review a property’s sustainability attributes and standard appraisal information. As a result, the form presents a more detailed home profile.
What Do Green Building Appraisers Look At?
The Appraisal Institute trains its professionals to identify and analyze six elements of green building. As a result, the green appraisal form captures everything from a home’s energy to its water usage and site features.
To bring out the complete sustainability profile of your home, provide the appraiser with as much information as possible.
Here’re the major sustainability features the appraiser using the AI Green Addendum will look at.
Alternative Energy Production and Energy Efficiency
Solar Energy Production System Details
The form captures details of a home’s solar energy production system.
You should provide information on the system size in kilowatts, the amount of energy it generates, and the year the system was installed. If the solar panels have a warranty, show the warranty length in years.
You should also reveal whether you own or lease the system. Leased solar panels aren’t included in the home’s appraised value because they’re considered personal property items.
Panel orientation can affect energy production. As a result, the form details whether the solar panel installation design is a fixed or a tracking mount. You should reveal the number of inverters and their capacity.
If you have energy storage batteries, the form includes details such as battery type, storage capacity, and the year the system was installed.
Energy Consumption Efficiency
Since energy efficiency is an essential feature of sustainability, the addendum recognizes a home’s efforts to cut energy consumption.
Share details on the home’s insulation type and envelope tightness. Make it known if your appliances, such as washers, refrigerators, and water heaters have Energy Star labels.
The form also includes fields for HVAC systems, such as energy efficiency ratings and whether they use programmable thermostats.
Electric Vehicle Readiness
The Green Addendum also evaluates your home’s electric vehicle readiness. The form has a field for electric car charging availability.
A residential electric vehicle charger may run on solar panels.
Many people have shifted to electric cars to take advantage of EV purchase incentives, cut their carbon footprint, and lower car ownership costs.
Water Source and Efficiency
The Green Appraisal form looks at how a home obtains water and controls its use.
In the form, mention whether your house has a rainwater collection system and capacity. You should also show if you have a greywater system that lets you reuse water from the showers and laundry machines.
Moreover, the form lets you point out your water-saving fixtures.
Indoor Air Quality
Healthy living is at the heart of any sustainability effort. As a result, the Green Addendum looks at homeowners’ efforts to improve air quality.
Do you have heat recovery ventilators, humidity monitoring devices, or non-toxic pest control measures? Talk about them in the addendum.
Site and Landscaping
The green real estate appraisal form details a property’s proximity to public services. For example, a home near a bus, train, or subway service could make it more valuable.
An occupant may not need a car for the commute, which would save money on fuel. As a result, the household may retain more cash on its budget to repay the mortgage or invest for retirement.
The orientation of the building and the position of the swimming pool can influence the home’s energy profile. For instance, the building’s orientation can impact the power generated from its rooftop solar panels. Likewise, the swimming pool’s position can affect its heating.
On landscaping, having native plants can be advantageous. Native plants may require less water than exotic ones, improving water efficiency.
My Own Story With The AI Green Addendum Process
After completing our first solar netzero home renovation, the goal was to actually utilize a popular real estate investing strategy known as the BRRRR method (Buy, Rehab, Refinance, Rent, Repeat), which was started over at the BiggerPockets community.
After completing the whole project, it was time to enter the “Refinance” stage, which allows you essentially to get back a lot of your investment capital you initially put into the project from the increase property value itself.
To get started, there is a standard AI Reports Residential Green and Energy Efficient Addendum form you fill out so that any appraiser can see what sustainable upgrades you’ve done.
Once you fill out the form, you give it to your mortgage company or appraiser directly (if you’re in contact with them), and they will use it in addition to their regular home appraisal process.
I might recommend creating your own sheet of green home features and upgrades that you did, in addition to the addendum form above. Here’s what I did:
By given them this separate organized list, and helps them understand everything that you’ve done, above and beyond that typical addendum.
A Quick Story On Solar Energy And Home Appraisals
Mark, the appraiser who did our house above, has been appraising homes for seventeen years. The first thing he said when he walked into our netzero home was:
“Is the solar panel system owned or leased?”
Why did he ask this? It’s because leased solar systems throw a wrench into the entire appraisal and home value process. In many cases, a leased solar system is more of a liability than an asset on your roof.
This proved to be the case according to him as well. He was pretty relieved to find out that the solar system was purchased outright and I had total ownership. This allows for you to potentially gain value from solar.
Overall he said the home was one of the cleanest and “put together” straightforward sustainable home projects he’s seen. This is in large part because no complications to the appraisal process were added, nor was there additional maintenance for any homeowner with the upgrades, along with other benefits.
To read more about solar on these topics, check out this article on solar home value, and also reasons why to not lease a solar panel system.
How Is the AI Green Addendum Different from the Standard Appraisal Process?
The AI Green Addendum is used alongside the standard appraisal form to capture more information about a real estate property.
The addendum brings out important property details often overlooked in standard appraisals.
The regular appraisal procedure looks at recent sales of similar properties and current market trends. It also compares property size and floor plan details.
While these details are important to value a property, they don’t tell the whole story about the modern building.
The Green Addendum goes a step further to capture the sustainability value of a home. Valuing a property with the addendum requires an appraiser with additional training in green building valuation.
Here’s a video about the skills that green building appraisers learn.
Does a Home Have To Be Certified To Use the AI Green Addendum?
The addendum can be used to appraise certified and yet-to-be-certified green homes. That includes new constructions and remodeled homes that still need to receive sustainability certification labels.
It makes the appraiser’s work easier if they have trusted third-party reports and labels. They attach the certification documents to the addendum.
Who Should Complete the AI Green Addendum?
The most knowledgeable person should complete the form about a home’s green attributes. Then, multiple professionals can provide information in their areas of focus.
For instance, builders, architects, energy raters, and solar installers can provide all work on the addendum. Those who complete the form should sign it for the appraiser to know they’re licensed professionals.
How Long Does It Take To Complete the AI Green Addendum Appraisal?
According to the Appraisal Institute, the form can be completed in 30 minutes if the required documents are readily available.
How long it actually takes to complete the process may be influenced by whether the appraiser is receiving reports from trusted third parties or others.
Moreover, how extensively the property’s sustainability credentials span may also impact the length of the appraisal process.
Who Benefits From the AI Green Addendum?
A green home is more comfortable and healthier than a standard one. Moreover, a sustainable home is more durable and has lower ownership costs.
As a result, valuing a property’s sustainability features can benefit everyone in the transaction.
Here’s how parties to a real estate transaction can benefit from the Green Addendum.
Sellers Get Credit for Sustainability Improvements
The Green Addendum appraisal ensures that sellers receive a more accurate assessment of their property than under the standard procedure.
Therefore, the seller has strong backing for their asking price. That may result in a more profitable transaction.
Refinancing Homeowners May Obtain More Money and Save on Insurance
An appraisal considering a home’s green credentials results in a higher property value. A refinancing borrower may qualify for a larger refinancing mortgage than would otherwise be possible.
Moreover, the green appraisal may help a homeowner qualify for property insurance discounts.
Buyers May Secure Loan Approvals More Easily
A homebuyer has the burden of convincing the lender that the property they want to purchase is worth the loan they seek.
With the green appraisal, it may be easier for borrowers to prove their case before lenders to secure mortgage approvals. There’s also a chance for the borrower to obtain more favorable loan terms.
The Green Addendum appraisal also helps buyers ensure they aren’t overpaying for a property purchase.
Lenders Can Calm Down
When giving out a mortgage, lenders want to be sure that the property they’re financing is worth it as collateral. The Green Addendum appraisal can make the bank comfortable that its money will be safe.
Further, a green home is more durable, and its value can increase quickly as more people pursue sustainable living.
What Are the Disadvantages of the AI Green Addendum Appraisal?
Requires Special Appraisers
The Green Addendum appraisal requires professionals with special skills. Only an appraiser who has taken AI’s green building training can perform the task competently.
Demands More Work and May Suffer Delays
Analyzing a property’s sustainability features is additional work to the standard appraisal procedure. As a result, producing the appraisal report would take longer than usual.
There’s also the risk of a delay or incomplete analysis if the required documents aren’t readily available.
You Pay More for the Appraisal
The borrower bears the appraisal cost. The standard appraisal costs from a few hundred to a few thousand dollars.
Since the Green Addendum appraisal is an extra service, it would cost you more.
However, the property’s higher valuation would more than offset the additional appraisal fee. Considering a home’s sustainability profile in an appraisal can lift its value by tens of hundreds of dollars.
Conclusion
The Appraisal Institute created the Residential Green and Energy Efficient Addendum to enable a more accurate valuation of sustainable homes.
The extra appraisal procedure in the AI Green Addendum can add tens or thousands of dollars to a property’s value.
The addendum can help homeowners obtain refinancing loans more easily and cut property insurance costs. However, the task requires appraisers with special skills.
Sources
Forbes: Can You Make Your Insurance Green? | Appraisal Institute: Residential Green and Energy Efficient Addendum | Appraisal Institute: A Guide to the Residential Green and Energy Efficient Addendum | Fueleconomy.Gov: Federal Tax Credits for New All-Electric and Plug-in Hybrid Vehicles | Rocket Mortgage: What Is A Home Appraisal, And How Much Does It Cost?