The Appraisal Institute, the nation’s largest professional association of real estate appraisers, today encouraged homeowners to exercise good judgment when deciding which home improvement projects to take on, saying that not all renovations enhance property values.

“It’s very important that renovations stay within, but not exceed, community norms,” said Appraisal Institute President Ken P. Wilson, MAI, SRA. “If they don’t match what’s standard in a community, owners could have difficulty recouping their investment when selling the property.”

According to Remodeling magazine’s most recent Cost vs. Value report, some of the projects with the highest expected return on investment are entry door replacement (steel), deck addition (wood), garage door replacement, attic bedroom and minor kitchen remodel. Other renovations with high expected pay-offs include window replacement (wood and vinyl), siding replacement (vinyl) and basement remodel.

Wilson advised homeowners that it may be best to hold off on major renovations if a homeowner isn’t sure how long they will be in the home. The longer a homeowner stays in a property, the greater the opportunity for a return on investment, he said.

“Consumers should be aware that cost does not necessarily equal value,” he added.

For an unbiased analysis of what their home would be worth both before and after an improvement project, a homeowner can work with a professional real estate appraiser – such as a Designated member of the Appraisal Institute – to conduct a feasibility study.

During a feasibility study, the appraiser will analyze the homeowner’s property, weigh the cost of rehabilitation and provide an estimate of the property's value before and after the improvement.

Some green and energy-efficient renovations, such as adding Energy Star appliances and extra insulation, are likely to pay the homeowner back in lowered utility bills relatively quickly. Lower utility costs also are a draw for potential homebuyers. When appraising a home, the appraiser evaluates local supply and demand for green and energy-efficient properties and features.

The Appraisal Institute offers a free, informative brochuretitled “Remodeling & Rehabbing,” which provides consumers with valuable advice on home remodeling.

When valuing green buildings, real estate appraisers’ analysis must be supported by market data on the subject property that helps explain why it stands out from its conventional peers, according to guidance issued today by the Appraisal Institute and the Institute for Market Transformation.

Seeking to assist owners who retrofit an existing building or build a new one with energy-efficient features, the two organizations issued “Green Building and Property Value A Primer For Building Owners and Developers.”

“As owners and developers enhance buildings with energy-efficient features, appraisers can help make the case for green appraisal value,” said Appraisal Institute President Ken P. Wilson, MAI, SRA.

According to the organizations’ guidance, because these buildings with energy-efficient features are different from traditional ones, owners have had to change not only how they design, build and market, but also how they approach financing and construction processes. Otherwise, owners may pay for green — with certifications, capital improvements and marketing — and not fully realize the expected market benefits.

Moving beyond the value that accrues to owners from rents, operational savings and market recognition at sale, the guide helps building owners and developers understand the appraisal process and how green, high performance characteristics and data can be used by appraisers to help fully maximize valuation.

The Appraisal Institute’s and Institute for Market Transformation’s guide also includes sections on:

•  Leading Indicators (local market, comparables, incomes and expenses, tenant demands, costs).
•  Four Components of Value and How Green Fits In (revenue, occupancy, operating expenses, risk).
•  Navigating the Appraisal Process (internal valuation, refinance, sale).
•  Talking to Lenders.
•  Getting an Appraisal That Values Green (helpful interventions by the building owner).
•  Owner Checklist for Appraisals.
•  Green Asset Value: Positive Considerations and Downside Risk.

“The Appraisal Institute encourages building owners to work with appraisers who are experienced in the area of green valuation to help ensure a credible, reliable opinion of value,” Wilson said. “Building owners can help their cause by providing as much data as possible to the appraiser, along with any relevant market research.”

For the full report see here.

A study from Lawrence Berkeley National Laboratory found that each kilowatt of solar capacity could add about $6,000 in value to a home — at least in California, Fast Company reported Jan. 3.

A typical residential installation consists of a 5KW array, which could increase a home’s value by $30,000.

The study compared the value of 1,894 California homes with solar panels against 70,425 homes without a solar installation. All the homes were sold between 2000 and 2009, and had systems purchased outright rather than leased (leasing is more common).

The study noted that “solar premiums” fell sharply as arrays got older, dropping about 9 percent per year across the homes studied. However, the solar premiums fell at a rate significantly higher than the rate of panel performance, which the research showed only dropped about 0.5 percent per year, Fast Company reported.

“[The panels] might be perceived as older technology, even if they're still producing electricity at the expected rate,” lead author Ben Hoen explained, Fast Company reported.

Hoen said he plans to do research in other states, and for homes with solar leases. 


The findings mirrored those reported Oct. 31 by the Appraisal Institute, which partnered with the Colorado Energy Office and found that solar arrays increased market value and almost always decreased marketing time of single-family homes in the Denver metropolitan area.

Read the report: Lawrence Berkeley National Laboratory study. 

The Appraisal Institute, the nation’s largest professional association of real estate appraisers, today advised homeowners to properly maintain their landscaping, which can significantly affect property values.

“If a landscaping change is positive, it can often enhance price and reduce a home’s time on the market,” said Appraisal Institute President Richard L. Borges II, MAI, SRA. “But if the change is negative, it can lower the price and lengthen the time a home remains for sale.”

Curb appeal is essential when selling a home, Borges said, noting it’s the homeowner’s opportunity to make a great first impression. A home with lackluster landscaping or an exterior in desperate need of a fresh coat of paint will likely be unappealing to prospective buyers and ultimately could affect the home’s potential resale value, he said.

Landscaping is typically associated with lawns, trees, bushes and flowers. But other items also can be considered part of landscaping, such as fire pits, decks, patios, waterfalls, swimming pools and outdoor lighting … all of which could add to the value of the home.

Borges added that homeowners should trim growth regularly, replant approximately every 5 to 10 years depending on growth and not “overwhelm” the house. He also advised that homeowners check out what their neighbors have done and keep landscaping maintenance and improvements on par with neighborhood norms.

According to the International Association of Certified Home Inspectors, trees that are too close to buildings may be fire hazards. Additionally, larger tree root systems that extend underneath a house can cause foundation uplift and can leech water from the soil beneath foundations, causing the structures to settle and sink unevenly.

According to a recent study conducted by Lawn & Landscape magazine, about two-thirds of homeowners say they’ll get less than 60 percent of their landscaping investment back when they sell the home.

“Landscaping improvements could make an impact on resale value, and homeowners need to consider how long they’ll be in the home and whether to make short-term updates or plan for the long haul,” Borges said.

Borges said homeowners should ask themselves the following questions when it comes to the quality of their home’s green space:

• Is the landscaping attractive enough to make the prospective buyer walk through the front door? Keep the design contemporary and in line with comparable properties in the area.
• Could the landscaping provide cost savings? Landscaping that requires little or no water to maintain could be desirable depending on the geographic area.
• Is the landscaping energy-efficient for the home overall? For example, it’s a good idea to plant trees in a place where they block the sun in locations with year-round hot climates.
• Are the trees planted at a safe distance from the home and are they healthy and well maintained? Weak, old or damaged trees planted too close to a home or building could pose dangers to the home’s structure and will need to be removed. Consumers should also be sure that mulching or beds don’t get too close to wood around foundations to avoid wood-destroying organisms.

The relationship between actual cash value and fair market value needs to be clearly defined by real estate appraisers called upon to develop an opinion of value for insurance purposes, especially in legal situations between the insurer and insured, according to an article published in The Appraisal Journal.

“The Relationship between Actual Cash Value and Market Value,” by David L. Clark, MAI, and Larry W. Stark, MAI, examines the lack of consensus in the definition of actual cash value, or ACV, by insurance companies and how it has led to a long history of confusion and litigation on this type of insurance policy, as well as how appraisers can help develop clearer terms for what constitutes the ACV of a property.

According to the article, ACV insurance policies are often used to save money on premiums, since they are usually cheaper to issue. They may also be used for high-risk assets, such as buildings in need of extensive renovation or those in hazard-prone areas where replacement cost policies may be harder to purchase.

The article presents three approaches courts commonly use to measure the ACV of a property to settle legal disputes between an insurance company and the insured: determine fair market value, or the price a willing buyer would pay to buy property from a willing seller in a free market; calculate replacement cost less depreciation; and determine value set by the broad evidence rule, which requires the insurer to consider added evidence like the taxable value of the property, prior attempts to sell the property and economic concerns.

The authors suggest that although ACV can be defined, insurance companies rarely do because they want to reserve the right to dispute the claim of the insured — and appraisers should develop a clear definition of ACV approximate to market value, and defend that definition with knowledge of the inconsistencies in definitions supported by other sources.

For the complete article: Here

The nation’s largest professional association of real estate appraisers today announced that solar photovoltaic systems typically increase market value and almost always decrease marketing time of single-family homes in the Denver metropolitan area.

The Appraisal Institute partnered with the Colorado Energy Office to provide an analysis of the impact of solar PV systems on the home-buying process. The study sought to better understand the impact, if any, that solar PV has on the sales transaction process.

According to the study, homeowners in the Denver metro area over time increasingly have sought residential homes with PV systems.

“While the study shows that solar PV systems typically increase market value, appraisers with knowledge and experience in this area are uniquely positioned to provide credible, reliable opinions of value and accurately reflect what’s happening in a particular market,” said Appraisal Institute President Richard L. Borges II, MAI, SRA.

A PV system is a solar electric system that is designed to convert sunlight into electricity. The Appraisal Institute worked with the Colorado Energy Office to analyze 30 homes in the northwest Denver metropolitan area that sold and closed between Jan. 1, 2011, and May 31, 2013, with properties ranging in sale price from $200,000 to $680,000. The 30 case studies each consisted of a single-family residential home that had a PV system installed at the time of sale.

This report was reviewed by professionals of the Colorado Chapter of the Appraisal Institute prior to the publication and dissemination to real estate transaction stakeholders. These reviewers provided both review and comments per the terms of a memorandum of understanding, signed in October 2012 by Colorado Gov. John Hickenlooper and Appraisal Institute CEO Frederick H. Grubbe, which seeks to address a need for data in valuing homes with green and energy-efficient features.

“As a thought leader in green valuation at the local and national level, we were glad to be part of this important study,” Borges said. “Our organization takes pride in educating the public about the ways energy-efficient home features could impact home values.”

Working with the Colorado Energy Office on this study is the most recent example of the Appraisal Institute’s leadership in green valuation efforts.

Fannie Mae and Freddie Mac have started to electronically validate all loans they purchase in order to better flag defective ones and to better assess risk when banks sell mortgages to the two government-sponsored enterprises, National Mortgage News reported Sept. 18.

Steve Spies, vice president of loan quality and lender assessment at Fannie, said the GSE’s new expectation is “zero defects.”

Previously, the GSEs only reviewed a sample of the loans and only after they defaulted. Now they will review all loans within 120 days of purchase and grade lenders on underwriting, quality control and governance; should banks sell GSEs defective loans, they immediately will be forced to repurchase them.

Fannie and Freddie reported that most underwriting defects are related to lenders failing to obtain copies of all necessary paperwork for supporting loan decisions; with rising interest rates, the GSEs worry that banks have begun loosening standards.
 
"As rates go up, the credit box will try to be expanded, corners will be cut and that's when we will be on the front lines," Chris Mock, Freddie's vice president of quality control, told National Mortgage News.

Fannie and Freddie also have begun reviewing 10 percent of all loans where quality control processes have been outsourced. National Mortgage News reported that Fannie currently has 500 employees working on ensuring lender compliance, and Freddie has 250.

The tougher standards should benefit banks, as well. One component of the new guidelines is that lenders don’t have to repurchase a failed loan as long as it performs for three years, and loans refinanced through the Home Affordable Refinance Program are relieved of repurchase requirements after only a year of consecutive on-time payments.

Becky Walzak, president of Walzak Consulting in Deerfield Beach, Fla., told National Mortgage News that it won’t be easy for banks to keep up with the new standards.

“They want lenders inspecting every single loan and sending it back if it's not right, and that is so extremely expensive, lenders cannot afford to do that,” she told National Mortgage News. “They want more people looking at compliance and loan quality, so now we have this subpopulation of people at these lenders checking the checkers and paying for it. That's why the cost of a loan will go up.”

Fannie and Freddie argue, however, that the new standards are necessary to avoid another housing bust. Since 2008, banks have had to repurchase thousands of defaulted and non-performing loans, and the Federal Housing Finance Agency has launched 18 lawsuits against banks for misrepresenting loan quality.