FutureStructure

Appraisals Still Don't Capture Full Value of Green Building Investments

Green investments can save money, but appraisers often don't take into account their full value when assessing buildings, a pair of reports from the Lawrence Berkeley National Lab asserts.

by / October 26, 2015

Although “green” construction is booming in the U.S. these days, the owners of environmentally friendly buildings may not be capturing the full value of their properties — because appraisers usually don’t consider energy-efficient and renewable features when assessing buildings, according to a pair of reports.

Both reports from the Lawrence Berkeley National Lab — the first of which discusses non-residential buildings and the second of which discusses residential buildings — assert that appraisal taking into account green features is still not the norm despite a growing industry interest in finding ways to reflect energy efficiency in valuation. Green investments save money on energy bills, but when it comes to commercial space, they also add value to the property: According to several studies cited in the first report, “green” buildings have higher rents, lower vacancy rates and higher sale prices.

Part of the problem, according to the first report, is that appraisers simply don’t have very much information on the green and high-performing (HP) aspects of buildings — either because it’s not there or because they don’t know where to look for it.

“Existing competency standards require that appraisers substantiate their findings with data,” the first report reads. “The types of non-traditional third-party experts possessing substantial green/HP data are often unfamiliar to appraisers.”

But an emerging state policy trend might help address that. This month, California Gov. Jerry Brown signed into law a bill that requires utilities to provide building owners and operators with the full energy usage data for whole buildings. In most states, that data is difficult to get at in multi-tenant buildings because building owners must get the agreement of each individual tenant to access their energy usage, then aggregate the data to see how the building is performing. California’s law not only requires utilities to make that data available to building owners and operators, but will open it up to the public as well — a policy move that energy benchmarking proponents say very well might spread to other states.

There are other barriers to appraisers fully noting the value of green and high-performance features of buildings, however. According to the first Lawrence Berkeley National Lab report, appraisers often aren’t trained on how to properly appraise those features, and standard appraisal methods were often not developed to take the features into account.

Then there’s the risk aversion factor. Appraisers might be hesitant to include green, high-performance building features in an assessment because they’re afraid of overvaluing the building, or at least lending themselves to the perception of overvaluing it.

Lawrence Berkeley National Lab called for a broad push for appraisal training and professional development that includes information on assessing green and high-performance buildings, along with more open information on the value of the contributing upgrades and energy performance in order to increase accurate and fair appraisals on the properties that make an effort to go green.

Doing so might be difficult; according to the first report, two-thirds of appraisers don’t belong to a trade organization.

“While there is no silver bullet for advancing the practice of valuing green/HP features, there are concrete opportunities,” the first report reads. “Parties seeking solutions must identify barriers they wish to address and select from among potential initiatives that map to those barriers. Close collaboration with the appraisal community is critical, as non-appraisers have historically obtained limited traction with this industry due to lack of understanding of the nuances involved in the valuation profession. Large organizations and agencies should have a united approach; the perception or reality of a fragmented and uncoordinated strategy is unsettling for prospective partners in the appraisal industry.”