Scotsman Guide - September 2010 Residential Edition

Rev Your Green-Lending Engine v Y u G e n-Le n En ne
Knowing sustainable principles will help you help clients avoid lazy appraisals

As more consumers show interest in green-built, energy-efficient homes, many homebuilders and developers are changing their building practices to meet increased demand. What’s often missing from the process, however, is education for mortgage brokers who wish to offer their clients green-loan options, as well as education in building science and new valuation techniques for home appraisers who value green homes.

As a result, many mortgage brokers are missing a burgeoning opportunity to grow their businesses. By familiarizing themselves with sustainable-building principles and green-finance issues, as well as with appraisal issues that may exist, brokers can help their clients find financing and tap into the wave of growth behind green building.

Appraisal obstacles
Although builders expect building
green homes to give them an edge as
the market evolves, appraisal road-
blocks can dampen supply and limit
innovation.

Sustainable building materials sometimes are more expensive. If it costs a builder $15,000 to include certain green features, then it will typically expect to sell the home for at least $15,000 more than a standard home. This may not always be possible if the appraiser is not aware of the green features’ value, however.

Overcoming hurdles

Building and selling homes typically is a sequential process with loosely connected segments of professionals. First, a developer builds a home. Then, often with the help of a real estate agent, a buyer sees it and works with a mortgage lender or broker to obtain financing to purchase the home. The financing process includes the appraiser valuing the home.

Although developers and real estate agents often have educated themselves about the tenets of green building as homebuyers express increased interest in living sustainably, the appraisal and lending processes can be a chokepoint. If an appraisal on a green home comes in below value, the bank will not make the loan. And if a bank will not lend them money, then most buyers cannot purchase the home.

Mortgage brokers can help shepherd the process. Although brokers are separated from appraisers by appraisal-management companies (AMCs), there can be back-and-forth interaction between the lender and appraiser or a request for a green-certified appraiser. As long as the discussion is not a statement of expected value, then the lender could provide extra documentation of the home’s value — e.g., comparable sales or documented costs and benefits of the green features — to the appraiser prior to the inspection.

Brokers can ask lenders to relay the following questions to the AMC to assist in receiving an accurate valuation:

• Has the appraiser taken a green-val-
uation course?
• If not, does the appraiser have ex-
plicit green-building experience?
• How many green-certified homes
has the appraiser inspected?
Finding solutions

Education is available for mortgage brokers that can help them better serve their clients and work with lenders to get them on board with green-lending options. Some training can help educate brokers on the nuances of green building or help them tailor marketing materials for green offerings.

If their market does not have green-
certified appraisers, brokers can help
bring the appraisal issue to the forefront
through state mortgage-professional as-
sociations to apply pressure to local ap-
praisers to seek certification. Education
courses also can update appraisers on
green-building techniques. If appraisers
recognize the value in various features,
then they can include it directly in their
appraisal results.

Dakota Gale is program manager, sustainable finance, at Earth Advantage Institute, a nonprofit green-building resource in Portland, Ore. Before joining EAI, Gale operated a mortgage business for residential loans. His experience includes designing solar panels and semiconductor technology in California. He also worked as a green-building engineer for PAE Consulting Engineers, designing Leadership in Energy and Environmental Design-certified green buildings. He teaches a sustainability class at Marylhurst University. Reach Gale at dgale@earthadvantage.org.