Making Green Count
According to the U.S. Green Building Council, the number of LEED certified professionals in the real estate field has grown, more than doubling from 2008 to 2009. But the 130,000-plus LEED professionals consist mostly of architects, engineers and contractors. To date, there are only 16 LEED AP appraisers and 41 LEED AP lenders nationwide.
And that’s not nearly enough, says CoStar Group vice president of analytics Norm Miller. “Finding an appraiser who’s LEED AP is probably about as challenging as finding a Spotted Owl,” he said.
That means those in control of valuating green properties typically lack the expertise and experience to accurately appraise sustainable buildings. This undervaluation can cripple financing and result in higher down payments. But the issue presents a classic conundrum of what comes first: the chicken or the egg. The demand for green building in this economy isn’t considered strong enough for appraisers to justify the cost and time of obtaining LEED AP certification. But the lack of professionals versed in green building continues to prevent sustainable projects from moving forward.
“Appraisal fees for the typical green residential property are not sufficient enough to justify obtaining a LEED AP for the one or two green houses per year the typical residential appraiser may appraise,” said Sandra Adomatis, of Florida-based Adomatis Ap-praisal Service.
An active member of the Appraisal Institute and a green valuation expert, Adomatis explained that there simply isn’t a financial incentive for appraisers to obtain certification. Even homeowners are shying away from LEED status because they don’t want to pay the $1,000-3,000 cost of certifying their home, she said, and this is proving problematic for the green market.
Adomatis said appraisal management doesn’t always send the right person to appraise green property and the process doesn’t require an appraiser with sustain-able expertise.
She suspects that those without adequate knowledge of the green market are undervaluing properties. In fact, she said some don’t always realize they’re appraising a “green” building, and accuracy in this segment of the market calls for extensive precision and expertise.
“The green or high performance house is in the category of a complex appraisal problem,” Adomatis said. “The technology is new and the data is limited. It should not be appraised by a trainee or someone without courses and experience.”
Adomatis said incentives for LEED AP certification in the residential sector are lacking and the federal incentives available are much more attractive in the commercial sector so that of the few LEED AP appraisers in the U.S. the majority of them appraise commercial buildings, which fetches much higher appraisal fees than the residential market.
At least one of those 16 LEED AP appraisers is based in Manhattan: Metropolitan Valuation Services president Steven Schleider. But, as is often the case, Schleider’s work focuses on commercial appraisal.
Beyond the lack of financial incentives for obtaining LEED AP certification, Schleider acknowledged the challenge and time commitment involved in obtaining his. “The LEED course material and test was probably the hardest of my professional career. That could be the limiting factor for the low cross-pollination,” he said. Another factor crippling motivation for LEED AP certification is the fact demand for green development’s has been curved due to challenging economic times. Corcoran Group senior vice president and eco broker Susan Singer said there aren’t nearly enough green appraisers and lenders, but those who have already acquired the knowledge are finding few reasons to put their expertise to use – including herself.
“If you don’t make it practical and worthwhile for people – even in real estate and development – I’ve found that people back off the whole concept of green,” Singer said.
Beyond the scarcity in LEED AP appraisers, Singer has another concern. She believes lenders have yet to offer incentives for green building. LEED AP attorney Shari Shapiro, at Philadelphia-based Obermayer Rebmann Maxwell & Hippel can attest to that.
A green building expert, Shapiro has used her blog as a sounding board for sustainable issues. She said that appraisals for newly built green homes do not reflect the total value of the technology, which actually dissuades some homeowners from going green in order to avoid financing complications. With long-term paybacks often neglected by appraisers, Shapiro has called for new government incentives and has suggested that banks finance green building renovations below the standard rates applied to a typical property.
Theddi Wright Chappell, who serves as managing director of valuation and advisory services at Cushman & Wakefield’s Seattle office and also as leader of the firm’s national green building and sustainability practice, said one problem with LEED is the certification’s newness.
Though Chappell earned LEED AP certification several years ago, the distinction – particularly in the residential market – is young, much like the green housing market itself. She said the historical evidence and sales data simply isn’t there yet and features that may hold value to an individual homeowner (solar panels for example) are not necessarily seen as financially viable from an underwriter’s perspective.
Appraisers and lenders are looking at properties from a perspective of cost rather than long-term benefit, but both must be examined to truly value a green property. What homeowners have learned, said Chappell, is that though a green feature may prove beneficial to them, it many not necessarily be mainstream or coveted enough to be considered an asset or value-adding element in the eyes of appraisers, lenders or the overall market.
While she feels there are a “limited number” of appraisers who are LEED AP, the green market remains too “commoditized” to yield the demand needed to encourage more within the industry to devote their time and money to earning certification.
An active Appraisal Institute (AI) member, Chappell said everyone needs more education when it comes to green building and though her organization and its programs cater to the appraisal industry, awareness and education has to come together in multiple sectors.
“I think education is the number one issue, but I think it’s not just with appraisers,” Chappell said.
Perhaps no one understands that better than green consultant and Baruch College professor Kristen Bacorn.
A teacher of LEED AP curriculum, Bacorn wrote a 7.5-hour course on green appraisal this spring in response to a myriad of questions she had been receiving from appraisers new to valuating sustainable properties. She said the need for education is paramount for a number of reasons:
The lack of sustainable comps and historical data; the fact utility savings are not traditionally reflected in appraisal reports; green materials are difficult to define; buildings can be green without being certified; and green certification does not guarantee increased value.
Thus, properties are being valued with costs in mind, rather than lifecycle value of such green elements. For example, the cost of a pool or deck addition is offset by the bump in appraised value but a green roof or solar panel’s value might be assessed around 50% of what they cost to install.
“Appraisers are intrinsically conservative,” said Bacorn, who assisted with pioneering LEED project The Solaire. “Appraisers tend to follow the market, not knead the market.” While the State of New York offers property tax perks to those adding green features (meaning green elements are not factored into property values for the purpose of tax assessments) there’s little incentive from lenders.
“Every bank I ever met in my life claimed they were the green bank. Every bank claims that they’re ‘green’ but I don’t think any of them really are,” Bacorn said. Bacorn said most lenders are unaware of what a green mortgage is, let alone executes them. She believes banks are too preoccupied with initial cost, rather than lifecycle value and regard green features as merely alternative technologies rather than value-add amenities.
The result is valuations that come in well below the building cost, which raises down payments and sometimes foils financing altogether.
While education is part of the solution to fostering growth in the sustainable market, Bacorn also feels it’s time the real estate industry places the importance on green building it deserves.
She said: “The big cliché is that there’s got to be more education, but I think people in the market don’t place enough value on green.”
Steven J. Schleider, MAI, FRICS
LEED Accredited Professional BD+C
Metropolitan Valuation Services, Inc.
44 East 32nd Street, 11th Floor
New York, NY 10016