Green Building Adjustments in Real Estate Sales Comparisons

Instructor: Eileen Cappelloni

Eileen worked for the Orange County Asssociation of Realtors for 31 years. She has written real estate courses and exams for other publishing companies

This lesson provides examples of special energy efficient items in green buildings and explains why adjustments must be made by the appraiser during the sales comparison approach to reflect the impact on the sales price of the comparables.

What Is a Green Building?

A green building is a commercial or residential structure that has been upgraded or constructed in a way that reduces the negative impacts on the environment. For example, green buildings may:

  • Incorporate sustainable materials, such as reused, recycled, or renewable materials, in the construction
  • Utilize renewable energy, such as solar energy
  • Reduce heat loss with high efficiency windows, doors, and insulation
  • Conserve energy with ENERGY STAR kitchen and laundry appliances
  • Improve indoor air quality with air purifiers and other equipment
  • Incorporate materials designed to reduce water usage, such as low-flow toilets, waterless urinals, or landscape features that require less water

Buildings that meet minimal efficiency standards, such as resource efficiency, energy efficiency, water efficiency, and indoor environmental quality standards, can be certified as a green building by a national company or program like the National Green Building Standard (NGBS).

Green Building Adjustments

When using the sales comparison approach to determine the value of a property, appraisers compare one property to one or more other properties that have sold recently. In some cases, there may be a lack of comparables. For example, the market may have few or no residences with green features or the market may have green homes but no recent sales.

Even when there are similar comparables, the properties are almost never exactly the same. This means that appraisers must make quantitative or qualitative adjustments (or a combination of the two) to estimate value.

Quantitative adjustments consist of making either a dollar or percentage adjustment to account for the differences between the subject property and the comparable sales. This may involve a paired sales analysis, cost data analysis, regression analysis, etc.

Qualitative adjustments require the appraiser to grade the comparable sales in terms of determining whether they are inferior or superior to the subject. This may involve relative comparison or a ranking analysis.

Making and Supporting Adjustments

The appraiser must compare the quality and energy features of a green building to each comparable sale to determine if:

  • The comparable sales have the same incentives as green or Energy Star homes
  • The incentives have value that offset some of the additional costs of the green features

Items that are not easily quantifiable with exact dollar amounts could be addressed qualitatively on the appraisal form through comments about potential monthly energy savings, required maintenance, etc.

Whenever possible, appraisers should seek out documentation that can help them make and support their conclusions. Helpful resources include:

  • Green certifications from third parties like the National Green Building Standard (NGBS)
  • Energy reports completed by independent home energy consultants or auditors who have been certified by local or state programs
  • Certified Home Energy Rater assessments that have been created with the Home Energy Rating System (HERS) Index, a nationally recognized system that is used to calculate a home's energy performance

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