Trying to Put a Value on Sustainable Building

Sustainable building is making an ever-increasing impact on both the commercial and residential real estate markets.

In a survey of local home-building associations announced June 6, the National Association of Home Builders reported that in excess of 97,000 green houses have been built and certified by voluntary, builder-supported building programs nationwide since the mid-1990s.

That’s more than a 50 percent increase from the last survey of green homes: In 2004, the National Association of Home Builders Research Center counted 61,000 green homes in the United States.

Although the numbers still make up a small percentage of the total number of houses built each year, even in this slower market, green building has created a problem for the nation’s appraisers, and for the Appraisal Institute, the professional association celebrating its 75th anniversary next month:

How do you set a dollar value on green building? What short- and long-term effects will sustainable building have on the local and national real estate markets?

That’s something Thedi Wright Chappell is trying to sort out these days. Chappell, who grew up in Tennessee and Georgia, is an MAI based in Beaverton, Ore. While she and other appraisers have been trying to “create tools to evaluate ‘green,’ one of the main issues we have to deal with is what exactly are we talking about,” she said.

“Global warming has increased our awareness of sustainable building, but all of our references are for high-performing buildings and not sustainable ones,” she said in a recent interview. “We are moving toward sustainable buildings; however, we need to let people know what features make up those buildings and then, by using cost-benefit analysis,” determine the value reliably and easily.

Although the number of green buildings has been increasing, there still isn’t enough empirical data available yet to make accurate comparisons. Appraisers have to do lots homework to identify the benefits of sustainable building and their market value, she said.

An appraisal is based on the four forces of value: economic, environmental, social and governmental, and each of those forces must be present for an appraiser to make an accurate determination of value. Green building won’t revolutionize the appraisal industry, nor will it cause one of those forces of value to become a more valuable tool than the others in ascertaining value, she said.

Geography certainly is major determinant in placing a value on a feature of sustainable building, since what is valuable in one part of the country might not be as important in another part, she said.

Chappell focused on water conservation as a feature, pointing out that it would be much more important to an appraisal in a dry area such as Phoenix, with 7 inches of rain a year than Portland, Ore., which receives 37 inches of rain annually.

“Moreover, if green building is designed to improve indoor air quality, how do you measure the value of such an environment for a child who suffers from asthma,” she said.

Americans appear to be embracing green building and its features at a much faster rate than, for example, energy efficiency.

She cited a survey by Earth Advantage, a nonprofit organization in Portland, Ore., that focuses on green building. The survey found that 42 percent of the people interviewed would pay 10 percent or more for a $300,000 house for green features.

“While energy efficiency is cited as a concern, indoor air quality appears to be more important to the people who were surveyed,” Chappell said. It may be that people will expect that apartment buildings should be built with green features, and if a building doesn’t have those features a couple of years down the road, the value of the property could be discounted because of it.

Energy-efficiency might not be as important as a measure of value until higher prices begin to hurt the more fortunate, who can afford recent increases in the price of electricity and gas. On the other hand, large commercial buildings tend to be more energy efficient — taking advantage of solar energy, for example, because corporations tend to believe they will be seen in a bad light by consumers if they don’t use this technology to reduce consumption and costs, she said.

“The four forces of value determine the highest and best uses of a property,” she said. In ordinary circumstances, the appraiser has comparable properties to help make that determination.

“In assessing the value of green building, without hard empirical data, the appraiser has to put a greater focus on the physical attributes of a property, because how the building is put together has an impact on its performance, and thus, its value,” Chappell said.

Geography, as was pointed out, is a major factor in the value of green building features, but “who the probable buyer of the building will be also will determine value,” she said.

“If the buyer will occupy the building, indoor air quality will be more of a determinant of value than if the buyer is planning to flip the property,” she said. “It comes down to what does the buyer want and the features the buyer values most?”

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