Hey idaho, unfortunately appraisers and mortgage sharks haven't jumped onto the green bandwagon. They really aren't that interested in any ecological concerns.

If I were lending somebody a six-figure sum secured by collateral (i.e., the house and the land it's built on), I would only be concerned about the resale value of the collateral. Whatever the advantages of a SIP structure may be, it is only relevant to the lender if those advantages translate into higher resale value on the open market -- they're not concerned about selling to the original buyer, but to the nameless faceless masses, most of whom would hesitate to buy any kind of alternative construction, as most people don't know enough to evaluate for themselves whether alternative methods are actually OK or not. So if I were the appraiser, if I gave any consideration at all to the fact that the house is built with SIPs, I would tend to decrease the value due to perceived risk, unless there were records of other comparable SIP homes in the area being sold for a premium. (Are there? Have you looked or asked around?)

Before anybody bites my head off, I'm not saying that SIPs aren't great. I'm saying that the appraiser's job is not to "understand the benefit of SIPs", but to understand resale value and what affects it in the local market. Now, if you're talking to an insurance agent, that's a different story. If you can show that your structure is less likely to be damaged in a storm, earthquake, or fire, that is relevant to the insurer. But the appraiser (and therefore the lender) couldn't and shouldn't care unless the resale market cares. And, honestly, I'm sorry to say this, but there's very little evidence that the resale market cares very much, as far as I know. Keep in mind also that the lender cares about how quickly they can sell the property, not just how much. If they have to hang on to it for a year until somebody who is willing to pay a premium for SIPs shows up, they lose an awful lot of money.

Idaho,
The way to address appraisals with any "Green" or energy efficient structure is to use both a HERs rater and the Green Addendum. When properly filled out and presented to a "qualified" appraiser. This appraiser should have completed the Sustainable Buildings Professional Development Program. Along with the green addendum, this is your best chance for an accurate valuation of the components or systems that will provide incremental increases in the appraisal process.
In addition, a pre-construction analysis of your home by a rater will often provide the third party verification for other sources of tax breaks, incentives, or improved financing. Beyond that, the rater and software analysis can demonstrate code compliance (Beyond the prescriptive path) as well as how additional insulation or components will provide an ROI. It's a fairly simple process that can yield huge results if you know how to line up the rater, banker, appraiser, code official, and designer. Walking into a permit office without this information in hand is simply a good way to loose money by not having experience in the game of building for maximum energy efficiency.

This process is one that I often help homeowners with as they begin their new SIP build.
Good luck
Al Cobb

There are energy efficient appraiser guidelines from several sources , they could start with Energy Star

FHA offers an energy efficient mortgage that will override appraisals and monthly payment ceilings for homes with "cost-effective" efficiency improvements. You can find the details here:
https://www.energystar.gov/ia/partners/bldrs_lenders_raters/EEM_Fact_Sheet.pdf. Note the phone number at the end to find local HUD counseling agencies. Even if EEM doesn't work, the counselors might be able to point you to friendly appraisers and lenders.

To be honest, you will be hard pressed to get any substantial adjustment amount for a SIP home. Appraisals are done based on market sale comparisons of similar type homes in a specific localized geographic area. Unless you find other SIP homes in the immediate area that sold in past 1-3 years, you will not really see a price adjustment.

If you are paying cash then you don't need an appraisal but if you are taking a loan, don't count on getting a significant price adjustment. Banks are all about risk and value. If they have to foreclose on, the question they pose themselves is will they get more money because it's a SIP home vs. wood frame. The answer is "not likely". They might give you a $10k value adjustment but don't expect a significant value adjustment.

Also new appraisal laws forbid you to talk to the appraiser. So don't count on talking with the appraiser because that is a big no-no. The appraiser works for the bank, not for you, it's all third party and you are not allowed to influence their valuation process.

lbear, Is that a national law about not trying to influence the appraiser or just for AZ?

There are banks , including JP Morgan Chase that have Energy Star mortgage loans that allow additional monies for energy saving costs. They realize that saving money on energy costs allow for more disposable income

Posted By Alton on 11 Sep 2015 07:14 PM
lbear, Is that a national law about not trying to influence the appraiser or just for AZ?

Alton,
The new appraisal laws are to prevent misleading information that would constitute fraud
there is nothing misleading about saving energy costs with SIPS or other legitimate energy reducing products, the savings are well documented

Posted By Alton on 11 Sep 2015 07:14 PM
lbear, Is that a national law about not trying to influence the appraiser or just for AZ?

As far as I am aware the appraisal rules and regulations are nationwide, with each state maybe having specific addendum's, but the rules are pretty much the same for each state. The fact is that appraisers are not allowed to discuss valuation to the person applying for the loan. That is 100% not allowed. The appraiser works for the bank.

The valuation given to energy efficient building products is not up to the homeowner. It falls into the appraisers means and methods. Sadly, there is not much given in terms of extra valuation for SIPS or similar unconventional building methods. Actually, the opposite might be true. If it is a non-standard type of building material or if the material is not IRC code approved and noted, banks get nervous about things like that. It all falls back into risk. Banks don't like taking unnecessary risks.

If there are no other SIP structures in the local market area, then it will be tough on the appraisal for valuation. They will probably just compare it to a similar code built home in the area based on square footage.

Banks don't like lending on new construction loans to a builder/owner, especially since the RE collapse. Getting a construction loan is difficult at best and if you are using unconventional building methods, get ready for rejections because most banks will not loan. Sometimes a higher down payment of 50% might sway them.

Energy Star appraisal guidelines do not in anyway "influence" an appraiser, it is not a fraudulent act to provide additional information that the appraiser may not be familiar with. An appraiser does not have to use another SIP house for the appraisal basis, the basis for the appraisal is done by sq.footage value of "comps" in the surrounding area. The appraiser can then use the Energy Star guidelines to adjust upward for any "added value" for the "SIPS" (high performance" walls/roof) , high efficiency HVAC systems, high performance windows and doors, etc.

Fraudulent "influence" would be would be construed as; offering an extra $100. to affect the outcome of an appraisal in your favor.

I have never had a lender question SIPs (an alternative building method) or turn down a loan on that basis

The last job I was involved with that had a construction loan was thru Achieva , they actually were familiar with SIPs and adjusted their bank draw schedule to accommodate the higher upfront costs.

Lenders ask two questions: Can the homebuyer pay the monthly vig? And, if we end up owning it, can we recover the principal? The premise of the FHA's EEM loan is that it's fine to bend the 33 percent of gross income rule if the borrower can establish that energy savings outweigh the added mortgage cost. EEMs then effectively gross up appraisals by the amount of efficiency premiums, given acceptable payback and assorted other limits.

The second question, foreclosure results, is so location specific as to be unanswerable here. Bidding wars are common in DC given the paucity of houses for sale, and appraisals reflecting market value are easily handled. In Detroit, appraisals won't be anywhere near replacement cost regardless of how the home was built. Appraisal are not make-or-break in either area if the borrower can pony up a bigger down payment or take out a second. There are scattered examples of "green" seconds, which is why OP needs to sit down with a HUD counselor or green friendly lender in his market and talk options. Lbear's knowledge notwithstanding, said lender can hire appraisers who know what a HERS analysis is and how its result affects monthly budgets with zero criminal intent.

That said, OP should understand the potentially fatal risks in homebuilding, which are multiplied for alternative methods. No 1, the contractor is learning on the (your) job, discovers an underground horror or runs off with his secretary, and you don't have sufficient reserves to replace him, fix problems and carry on. No. 2, personal circumstances require a sale sooner than appreciation can cover premium costs that may or may not be recoverable in your resale market. With energy costs falling, the answer is probably not.

I never said Energy Star is a fraudulent influence. I don't know where that red herring came from?

What I did state is that the future homeowner who is applying for a bank loan cannot go up to an appraiser and tell them, look I am building with (fill in the blank) which is an unconventional building material that is energy efficient and I believe my house is worth more because of it so you have to adjust valuation higher.

Banks and appraisers realize that the ROI on an energy efficient building is seen in the 10-15 year periods, most people sell and move every 5-7 years. If you spend an extra $25k or more in building an energy efficient building, how many years of utility bills would it have taken to offset that $25k if you just built to code minimum? The answer is usually in the 10-15 year or longer payback period.

97% of people buy homes based on visual, location, layout and of course price. That's the reality of home buyers. Appraisers realize this and the market is the market.

Energy costs are not high in the USA compared to places like Europe.

There were many failed attempts at building spec homes or subdivisions with ICF, SIPs, etc. and in the end the builders stopped because they were losing money. People didn't see the value in them and the wood frame homes down the street which were identical in size, appearance, but cost much less always sold because 97% of people will buy the less expensive house.

I hope that the mentality of US home buyers changes and that people realize the benefits of energy efficient homes but it's been a very slow process. Some builders have used Energy Star as a selling feature but the valuation is not that high vs a code minimum home. Adjustments are made but they are not huge amounts, what I have seen is around $10k-$15k. Adding a pool in your backyard will bring in more appraisal value $$$ than an Energy Star home.

Posted By Lbear on 12 Sep 2015 12:41 PM
I never said Energy Star is a fraudulent influence. I don't know where that red herring came from?

What I did state is that the future homeowner who is applying for a bank loan cannot go up to an appraiser and tell them, look I am building with (fill in the blank) which is an unconventional building material that is energy efficient and I believe my house is worth more because of it so you have to adjust valuation higher.

Banks and appraisers realize that the ROI on an energy efficient building is seen in the 10-15 year periods, most people sell and move every 5-7 years. If you spend an extra $25k or more in building an energy efficient building, how many years of utility bills would it have taken to offset that $25k if you just built to code minimum? The answer is usually in the 10-15 year or longer payback period.

97% of people buy homes based on visual, location, layout and of course price. That's the reality of home buyers. Appraisers realize this and the market is the market.

Energy costs are not high in the USA compared to places like Europe.

There were many failed attempts at building spec homes or subdivisions with ICF, SIPs, etc. and in the end the builders stopped because they were losing money. People didn't see the value in them and the wood frame homes down the street which were identical in size, appearance, but cost much less always sold because 97% of people will buy the less expensive house.

I hope that the mentality of US home buyers changes and that people realize the benefits of energy efficient homes but it's been a very slow process. Some builders have used Energy Star as a selling feature but the valuation is not that high vs a code minimum home. Adjustments are made but they are not huge amounts, what I have seen is around $10k-$15k. Adding a pool in your backyard will bring in more appraisal value $$$ than an Energy Star home.

Lbear,
a home does not need to approach an appraiser , the the building method and energy savings feature are spelled out in the contract specifications /plans that are part of the loan application package, the loan cannot be processed with out them.
Question: is that extra $25,000 for energy efficiency for a $250,000 house or a $2,500,000. house? not sure how you arrived at that figure?

pools are one of the worst investments as a$40k pool package will only net an additional $15k in value just a few years later
If there were many failed attempts for ICF and SIP's builders that went out of business because of them, please point to just one?
I would suggest that many builders went under because of the housing recession and not to a specific construction type.
We have built exclusively with SIPs for the last 20 years , have turned a profit and managed to survive the recession.
SIPs and ICFs are a consumer driven business, not a builder driven business
while most consumers are only interested in the bottom line, the more informed consumer realizes the value of energy efficiency and are willing to pay for them,
our experience has shown the SIPs only add about 3% to the overall cost in 20 years never had a SIPs house that would not appraise enough for the home loan, which must mean they are at fair market value

"What I did state is that the future homeowner who is applying for a bank loan cannot go up to an appraiser and tell them, look I am building with (fill in the blank) which is an unconventional building material that is energy efficient and I believe my house is worth more because of it so you have to adjust valuation higher."

Jeez, Lbear, yes, you can. It's probably not going to do much good if the appraiser asks "what's HERS?', but lobbying appraisers is not the same as bribing them.

OP, your question can't be answered here because it depends on the risk appetite of lenders in your area, which depends in turn on the health of the local housing market. You need an agreeable lender who will know what appraiser to hire. Asking lenders about FHA's EEM loan is a fine place to start.

You don't mention a contractor; he wouldn't have much of a business if he didn't know how to finance sips. If this is diy, or you think any ole builder will take a sips job and perform well, you have a lot of selling to do before you get to the appraiser.

Posted By cmkavala on 12 Sep 2015 02:03 PM

Pools bring in higher market value than an energy efficient home, that is the market fact especially in climates like Phoenix. Two identical homes, one has a pool and one does not. The one with the pool will sell for an additional $20k or more and will appraise for $20k or more because the market sale set the valuation. The only difference was one had a pool and one did not. The valuation is set and determined by the market sales and in this case, a house with a pool is worth at least $20k more. It's pretty straightforward and undeniable.

The homeowner cannot approach the appraiser because the appraiser works for the bank and is looking out for the best interest of the bank/client. The person applying for the loan has nothing to do with the appraiser. They never meet, talk, discuss, or do anything because they are forbidden from doing so.

People/homebuyers mainly look for location, aesthetically pleasing homes and pricing. Sadly, some of these energy efficient homes are as ugly as sin. That has been a problem in the green building arena for some time and things are being done about it. Architects are stepping up to the plate and creating more palatable designs instead of something that looks like a shoe box with holes punched in it.

99% of homes currently going up are wood frame. One can build an energy efficient home out of wood frame for far less than ICF, SIPS, etc. A mega-builder out here is putting up Energy Star Certified wood frame homes with blown-in wet cellulose and is selling the homes at a fair price. They are charging about $5k-$10k more than a similar home without Energy Star certification. Therefore, the appraiser knows the appraised market value for an energy efficient home is worth about $10k on the valuation process vs. a similar code built home.

When it comes to SIPS, ICF, etc., those are owner/builder specific requests and a very small portion of the market share of homes being built in the US today. It usually involves an owner who is willing to spend more $$ on the home and knows that they might not see a ROI at least for 10-15 years.

If you build a home with cash and therefore don't need an appraisal, you can built what you want, it's your money. If you build a home with the banks money and therefore require an appraisal, you CAN'T BUILD what you want, since it's not your money, it's the banks money. They (the bank) will dictate what you can and can't do but with enough down payment/equity the bank will be more forgiving because it will lessen their risks if they have to foreclose and sell your home to get their money back.

priceless!

Appraisers and borrowers can't meet eh lbear? In the case of a refi, who lets the appraiser into the house? Both of my kids refied this summer. Their lenders instructed them to point out the improvements made after purchase.

Refinancing an already existing home loan is not the same thing as applying for a new construction home loan. The latter is way more complicated and risky for the bank. It also involves a different valuation process. In one case the home is built and is occupied with a current home loan on it, they are just refinancing. Major appraisal difference between a refi and a new construction loan.

Most major banks have ceased or really scaled down lending on a new construction home loan after the RE collapse. Most banks refuse to loan on a vacant residential lot or if they do, it will be a 3 year ARM with a balloon and require an hefty down payment. Vacant residential lot purchases are predominately cash purchases today.

Energy efficient buildings and using non-conventional building materials and methods is something that hasn't caught on. Each method has its pros and cons. SIPS have their pros and cons. Just like ICF and wood frame have their pros and cons. There is no absolute best or one-size-fits-all approach. Climate, geography, building code, goals, and of course budget all play into whether you build with stick frame, ICF, SIPS, etc.  Plenty of stick frame homes out there that are super energy efficient and outperform SIPS.

The reality is if ICF, SIPS, etc., were less expensive to build with and got a good market demand, it would become mainstream. Sadly, it hasn't. It's been an uphill battle for over a decade and while some progress has been made, it still has a long way to go. Code changes and such have helped but stick frame is still the most economical way to build efficiently. Cellulose is the best bang for buck insulation out there. Of course, stick frames have cons but apparently not enough cons to sway builders from pumping them out to the masses.