The cost of failed appraisals

Comment, and question: My husband and I just bought land and are planning to build a modest, 1,200 sq. foot zero energy home--complete with super insulation, passive solar, and solar panels. We are first time home buyers of modest means, and I have cashed out half of my retirement in order to come up with the meaty down payment required for land and construction loans (20% as opposed to 3.5% with Mass Housing). Therefore I am very nervous about future resale because there is absolutely nothing comparable anywhere around here, and it is possible we will have to move in the next 5 years. My question: How do appraisers value energy efficiency, as opposed to square footage? Will this home be valued at less than we put into it?

How the bank will give you the loan? In other words they will have to have some kind of figure the house will be worth in order to finance it.

The house also qualifies under the LEED rule. Google "LEED" and you won't be desapointed.

Good luck.

Ellen, that's a bad move if you have to move in 5 years. That's the sort of house that you build to live in forever - moving in 5 barely justifies buying under traditional metrics.

Bear in mind that if your house is at all odd, you may love it, but fewer buyers will. And all things considered, less demand = less price.

1200 sq ft alone will be disfavored in most marketplaces - people will want bigger.

On the data I have, I wouldn't do it.

We paid around 1,000 for an inspection and appraisal on a multi-family in Plymouth that we wanted to purchase a few years back. It had some issues that came up in inspection and the sellers were quite stubborn about their price. We ended up coming up, well above what our own research supported. I believe we did things a little backwards, getting the appraisal before signing P&S, because we knew their price was too high. When the appraisal ended up coming in 30,000 shy of the offer, right around where we thought it would, they did not budge on price. Actually the listing agent really wanted us to get the appraisal done with someone he knew who could get the deal done. We decided to pass, though it was an expensive waste of our time. Lesson learned, don't make serious offers on homes that are over-priced. Sellers rarely listen to reason.

Ellen - I actually think the house will not have any trouble with marketability. My wife and I have been searching for years in vain for a home that is energy efficient and under 1,400 feet. I almost want to encourage you to build it just to have one less crappy house out there that was built to live in rather than to make a quick buck. However, 5 years is an awfully short time in this market. Then again, I haven't done the research on cost of building vs buying. If you save enough by building it yourself you might make a profit when it comes time to sell.

Ellen-
Nobody is going to want a 1200 square foot home. Don't do it. Appraiser's value square footage, and central air, and great location.

My living room is 1200 square feet.

"Don't do it. Appraiser's value square footage, and central air, and great location."

I would hope that after the bubble years folks can feel liberated enough to build homes based on what they actually need/want for life in the home rather than an appraiser's market value.

matthew - she said that she wants to sell it in 5 years. So payback is relevant. If she doesn't care what someone pays her for it, she should feel completely liberated.

Most people will never be liberated enough to have their chief asset's value be unimportant though.

Charles, it is true that the 5 year turnaround time does effect the equation. With the current market conditions, you may expect to have a home depreciate rather than increase in value after 5 years, regardless of square footage or marketability. So buying/building and selling in 5 years is not a financially appropriate thing to do. I still say that smaller homes are very desirable. Look at the current market. Well built, small homes sell immediately if priced right in certain communities, while the larger homes languish. To a large extent, this is due to the cost of the larger homes being out of reach. However there are also educated consumers who can afford to mortgage a larger home, but are choosing to live in homes that fit them snugly, because they know this is a better strategy in the long term. (Due to the increased debt of larger houses, as well as the potential savings on energy costs when you aren't paying to heat large rooms you use once a month.)

Matthew that's great and all, but you're forgetting that unless you're going to be living in a house until you're dead, you're going to be stuck with a house that nobody wants unless it's 'marketable.' The sentence you wrote that included 'for life' would be exactly that.

Keep in mind too that at 1200 square feet you're putting yourself into a very small market- it's going to be empty nesters, singletons, or people that don't crave 'space' away from their partners. (blech!) when it comes time for resale...in 5 years? How does she expect to get any of that money back?

Also keep in mind, Ellen didn't specify what town she's building in. Makes a huge difference!

Also- a house will appraise and be valued much higher with central air, as well as more than one heating zone. It's just a fact of life.

My house is passive solar but I also have a brand new solid heating and cooling system in my home- I value that much more than going green, as do the majority of potential buyers probably.

Bubble or no bubble it is what it is.

matthew - people talk a mean streak about being green, but it basically boils down in the real world to "I'm green when it doesn't bother me". And small houses bother people.

THe green they want is Bamboo Floors (which are arguably not green at all). In fact, many of the things done by green people I know are just green-washing. Solar panels fall into that category if you look at the embedded energy - they are basically batteries from all the numbers I've seen, which is why they make no financial sense (yes, money tracks energy, no surprise)

High insulation and passive solar? Great idea! Just don't undermine what people who buy your house want. Better to have AC, and have it barely turn on.

There are a LOT of pitfalls in passive solar btw - better is to be conscious of solar. Proper lot and house position/design will get you 90% of the way there. South facing windows with porches w/roofs that were properly solar calculated etch.

I'd do that plus ICF in a heartbeat, but I'd do it in a package others would buy.

I know that you folks may not find 1200 square feet very marketable, however, I do know that there are a lot of folks who are making big decisions based on living within their means and their environment. It may be a niche market, but it's a growing niche. As fossil fuels become more scarce and the economic incentives for choosing to live green increase, more and more people will be making similar choices. I definitely do not speak for every buyer's tastes out there. My wife and I do not even consider a home that does not have good passive solar site properties. Considering that most homes are sited on their lot facing the road, rather than the sun, this eliminates 80% of the homes on the market right off the bat. Does this make it harder to find a home? You bet! Does it mean I'm going to settle for living in a house that doesn't benefit from proper solar heating? NO WAY. There are already plenty of homes built without any consideration for efficiency and natural energy. I'm simply saying that we need a few more good houses. -By all means, do the math and make sure it will work out for you financially, but don't build another inefficient overlarge/overpriced home if can avoid it. We already have too many of those thanks!

There are plenty of buyers out there looking for just this type of home. More and more buyers of all types want something smaller and energy efficient. The number one important re-sale factor of this home over all is location. A small, green house in Arlington will be sold for a premium in a heart beat, for example. Heck a small, non green house in Arlington will sell in a heart beat. One just did, 700-ish sq feet for about $350,000.

sorry guys, as a developer I'm just not buying it. People talk all kinds of nonsense, but don't walk the walk.

It may be true for you 2, but you don't aim products at the 2, but the 98.

This isn't a defense of mcmansions, which I hate. But I've seen a million times, despite the fine words, idiosyncratic houses don't sell. Appraisers don't like them, banks don't like them, and people with green tastes and independent wealth are few and far between.

Not to mention most "green" if looked at analytically is "greenwashing".

Though I agree wholeheartedly on passive solar and insulation. I believe in it. And no one who has ever looked at something I've done has even asked about it. They care about the kitchen though...

oh, and arlington does sell way over what you'd expect no doubt. Boggles my mind. Some of the worst value in metro boston real estate, yet people still buy

This type of home has a market, and in 5 years it will have a bigger market. I think there are plenty of buyers who would love to have an energy efficient, simple home with an original design in an era of cookie cutter, gated developments.
Living in California after growing up on the East Coast, I was determined to move into an established neighborhood with variation on the streets. I think it is a big draw for many buyers, and having an original, new-build house will really stand out when it comes time for the sale.

Chris - original? Yes. New? Yes. Small with no AC? No.

There is a ton of research out there on this that is readily available. Despite what one might like to think about the world, reality governs in the end. People do not want what they should want, they want what they want.

Though they often pay lip service to certain fashions, their actions rarely do.

Once again, there is plenty of data out there if you do the research.

And, a lot of things that are thought of as green merely show that the person talking them up doesn't understand what they are talking about (solar electricity! Bamboo floors!). There are REAL green things one can do - solar informed construction, solar hot water, over-insulate. They tend not to be as sexy.

The greenest thing you can do is live in a small, already built, city apartment with good mass transit. Building your own house in suburbia is utterly non-green. The irony is rich.

I do have to agree with you Charles about the greenest thing you can do being to live in an already existing home/apartment, in a location where you do not need to drive. Unless you are building out of cob or a similarly low impact resource, home construction is going to have a big footprint.

-But it's fascinating the amount of energy some folks will expend in trying to convince others not to live green. What's that all about?

Buyiny a house or I thought I was
It was appraisd 45days ago for $409000
I got the house for $40000
The bank had it appraised and it came back at $319000
$81000 drop in 45 days someting not wright here

"Greening" your commute is about 2x as effective as improving the energy efficiency of your home. San Diego is looking into this now... amid the tremendous push for reducing home energy consumption.

First off, I'm going to have to say I don't think that "green" home is a good financial investment. If you want it, prepare to lose money. Wind turbine = 6 year payoff, solar panels are 3.5-6 year payoff if you build them yourself, install them personally, and know how to grid-tie them... the bottom line is that even in the best case scenarios most of these "green" power sources won't pay for themselves earlier than 6 years. If you pay to have them installed... expect to wait 20+ years... maybe more.

What's worse? These systems can foul-up. If you built/installed them, no big deal. It's easy to track down an issue if you are familiar with the tech... but for the general public this is going to be a major issue! In other words, people may like the technology, but as solar power becomes more normal people will start to be more concerned about the up-keep associated with that "free" energy. It really is going to limit the market considerably. I say, go ahead and go 1,200 square feet if it's not too abnormal for your community. Go well insulated too! But build and install your own grid-tied system. I can build and install a 1.2kwh grid tied system for $3,200 that's fool proof, and I mean fool proof... guess what, you can do the same thing. Also, if your location supports it (low humidity) look into a Coolerado AC system. You can power your AC with your solar panels using this system, and that would go a long ways towards zero-energy consumption.

Feel free to e-mail me if you'd like... I'd love to hear how things go for you.

j . h a r p e r 1 2 at y a h o o . c o m

Drop the spacing.

I hope that home works out wonderfully for you guys!

best of luck!
J. Harper