I met with some colleagues to discuss our infill development plans for downtown Charleston yesterday at the Rarebit on King. Ideas on what to build and where to build it were being batted around over dinks and carefully placed jokes.
As we were focusing on a particular lot, the issue of appraisal values came up. Specifically, how they really don’t account for much, yet can determine how much the bank will provide you on a mortgage or construction loan.
For example, take two different buildings built at the same time, the same neighborhood, the same size, and the same finishes, but with one difference. Building A was built by a shitty builder using shitty sub-contractors doing shitty work, while Building B was built by an excellent builder using excellent sub-contractors doing excellent work.
Or, think of it a different way. Say Building A was built to the minimum standard, which is basically the local building code, while Building B was built to a much higher standard such that its operation costs were dramatically lower than Building A by hundreds of dollars.
Guess what? More than likely, a comparative appraisal of the two won’t show a difference in value. An appraiser briefly walks through a house, getting a very general idea of the condition of the building and its room count, and may ask if there are any unobservable problems. That’s it. It’s still pretty hard to find a comparison for a higher performing home in most areas these days.
So, why would you want to build a better performing home if its energy and cost saving features aren’t reflected in its valuation? (insert record scratch sound here) Well, because those energy and cost saving features add up big time over the life of the building!
Take for example the case of Gene Myers, a builder in Denver, CO. Myers’s company has built standard three-bedroom 2,000 SF homes that are highly efficient, with HERS scores in the low 40s (that’s pretty good by the way), for sale competitively around $480,000. In that same development, they also offer similarly sized homes with photovoltaic panels to achieve net-zero energy, and those houses cost just $35,000 more than the standard houses.
But here’s the thing, they’re only $35,000 more expensive when you look at the initial cost. Factoring in operating costs dramatically changes the formula. According to Myers, the $35,000 up-charge to his customers adds $100 a month to their mortgage payment, but sis analysis shows that owners will save $300 a month in energy bills.
If I said to you, “Give me $100 and I’ll give you $300 back,” how would that sound? Sounds pretty good, right? Now, why don’t we do that the first month you live in your new home, and then let’s do that every month for as long as you own the home? A net savings of $200/ month over a 30-year mortgage is a lot!
So, homeowners, and architects, builders, real estate agents, appraisers, and lenders need to rethink how we value how we build if we’re serious about building a better preforming built environment.