Catch up with Part I and read on to Part III in our Financing a BrightBuilt Home blog post series!
PICKING THE TEAM
To recognize the best value in a green home, it is important to build an effective team. In addition to the usual suspects— builder, architect, lender, realtor—you may want to consider a few others, such as an energy rater, an appraisal consultant and the homeowner as self-advocate. The team counts, and building a solid squad of knowledgeable players will serve the homeowner well when it comes to dollars and cents. Editor’s Note: This publication is a great resource for finding professionals fluent in high-performing homes.
While years ago, buyers were driven primarily by finishes, styles, features, and of course, the ever-important location, there are now new markers of interest. Homes with solar arrays, efficient boilers (or no boiler at all), better performing windows and so on, are being noticed for their sustainable qualities.
And it’s not just in the listing title but, most importantly, in the newly-added check boxes for green features on the Multiple Listing Service (MLS). These performance-specific categories have been added to the MLS so that listing agents can ensure the “green” features of the home are clearly spelled out. The standardization of green features bodes well for new high-performance homes seeking area comps. Existing homes that have been upgraded to include sustainable features stand to gain as well.
While these added tools are important, it’s also important for homeowners to know their role in aiding realtors to best list and advertise a high-performance home. As Julia Bassett Schwerin, a designated Green Realtor with Coldwell Banker, notes, “The best thing a realtor can do is to understand how the homeowner saved money thanks to those features.” It’s incumbent on the homeowner to provide that information to their realtor, through either historical utility bills or spec sheets on their home’s features.
Schwerin also stresses that it’s important for both homeowners and realtors to give appraisers as much information as possible, to best equip them in their process. “Appraisers are way too busy right now, so you gotta help them, gotta make it easy for them. That’s the main thing I stress: give them as much information as you can to help them recognize the value of your property.”
Typically, smaller banks and mortgage brokers can structure creative loan solutions for their applicants, unlike larger entities that frequently sell mortgages to secondary markets. While they may not have the same access to some loan programs—such as the Federal Housing Authority’s “Energy Efficient Mortgage,” or “EEM” program—the smaller lenders often make up for it through their flexibility, open-mindedness and potential for a more personal relationship. For this reason, many professionals within the high-performance realm (builders, architects, appraisers, etc.) recommend sticking with your local bank or broker.
Promisingly, lenders acknowledge that high-performance homes are a great investment. Asked if he would be willing to creatively structure a loan for a high-performance project, Mark Jones, director of retail lending at Saco & Biddeford Savings, says, “We love them, actually. We want to make it work for the community and the environment. Loan-to-value [LTV] is the last thing that predicates tardy payments. If debt ratios and credit scores look good, but the LTV skews a little high…we are still willing to grant the higher LTV because the value is there.”
In other words, because operational and utility costs of the home will be low, the bank is willing to lend a higher amount to an applicant who is seeking to finance a green home.
The first step in finding a lender for a high-performance project is setting up a meeting with them to see what their lending departments are willing to explore for financing a high-performance home.
Incorporating green design thinking and specifications from the start will make life easier for everyone involved, particularly the builder, when it comes time to do the numbers. In Maine, quite a few architectural firms and independent architectural designers are well-versed in high-performance. If meeting with prospective designers for the first time, ask them about their experience in high-performance homes and if they have any certifications or accreditations that speak to their knowledge of sustainable design (examples include Certified Passive House Consultant, LEED Accredited Professional, Energy Star partner, etc.). Ideally, they can speak to performance strategies around insulation, air-sealing techniques, energy efficient mechanical systems and solar orientation.
As with designers, Maine boasts an abundance of highly qualified high-performance home builders. Any builder who has previously constructed a Passive House, Energy Star-certified or LEED-certified home is likely to have the knowledge required for building high-performance. The successful performance of a green home is predicated on a holistic balance of wall assemblies, mechanical systems, and more, so it is critical to find a builder who can put all the pieces in place. In addition to (or if necessary, in lieu of) the certification qualifiers noted above, look for a builder who shows a high level of attention to detail and who is familiar with air-source heat pump technology, solar installations and the verbiage and considerations around blower-door tests—such as hitting an “ACH 50” of 1.5 or better. Visit www.energy.gov/energysaver/blower-door-tests for more information.
Operating as third-party entities, energy raters verify the anticipated performance and corresponding operational costs of a proposed home. In doing so, they can also identify opportunities to improve performance. They evaluate the specifications, design characteristics, solar orientation, number of occupants and other contributing performance features of the home. They also determine how the home will perform, how much energy it will require and ultimately, how much it will cost to operate. Energy raters use energy modeling software to evaluate these conditions and will arrive at a “score” for the home.
Most often, this score will be the widely recognized Home Energy Rating System, or “HERS” score, which is defined by a number between 0-100. While it’s possible to hit below zero (for a net-positive home) or above 100 (for a leaky old home), a conventionally built “standard new home” receives a score of 100. Most high-performance homes land somewhere between 0-50 (i.e. 50-100% more energy efficient than a standard new home). Whether you’re building new or listing an existing high-performance home, the HERS score is a metric that will convey a specific added value in a language spoken across many disciplines in the industry.
To best anticipate what an appraiser will assess for the value of your project, it is wise to hire an appraisal consultant early on. This consultant should be either an active appraiser or experienced in the appraisal process and be able to help determine if your project is likely to achieve a valuation that will qualify it for the required financing.
Bob Strong, CEO of Property Valuation Services, says that it is common for new construction projects to appraise for less than the cost to build the house, particularly in certain regions where existing housing stock is comparatively inexpensive. He states, however, that “new construction is taking off right now because inventory is so low.”
It’s a good idea to enlist an appraisal consultant early in the process to help characterize the green and design features of the home so that you realize optimal appraisal value. This will help ensure that construction pricing is in keeping with projected value of the project so that you do not arrive at the end of the process only to find that you can’t finance the home you’ve spent months planning.
You, the homeowner, are in fact the most important player on the team. If you’ve done your due diligence and arranged a stellar team of qualified professionals, then you’ve done most of the work already. Each member of that team should be working as your advocate and assisting you with providing the information you’ll need to submit to the lender for your appraisal. At the end of the day, though, it is up to you to pull together all the necessary documents and records to submit to your lender of choice.
As Strong puts it, “Spend a little more time up front. Have all of the appropriate eyes on the project to ensure that once it goes to the lender, you can feel confident that your appraisal won’t fall short.”