Taylor Watkins, Certified Residential Green Appraiser
My Editor-In-Chief read glowing words about appraiser Taylor Watkins and offered to sponsor my attendance at a three-day Certified Residential Green Appraiser(CRGA) course he presents semi-annually through a partnership with Earth Advantage Institute in Portland, Oregon. The course focuses on educating appraisers and expanding their toolbox, but it can also be very useful to realtors, builders and investors. Appraisals, a standard prerequisite for institutional residential and commercial mortgages, are generally dependent on procuring recent comparable sales. As ’apples’ are compared to ‘apples’, cutting edge innovation or design of any kind can present a challenge.
Watkins owns a professional appraisal firm in Portland, is a frequent speaker on green appraising techniques and teaches the CRGA course as part of a vibrant, education and awareness campaign. He is also a bit of a local celebrity within the sustainability community. Watkins graciously agreed to an interview and, after our conversation, I was inspired to registered for the CRGA course.
Editor: I understand that you have owned a net-zero home for five years. Doesn’t that make you a bit of a pioneer not only in Oregon but the rest of the country?
Watkins: Yes, it does. My in-laws actually live in the net-zero house which was built as an Accessory Dwelling Unit (ADU) and shares our lot.
Editor: What special features does it have?
Watkins: As it was designed to be a net-zero home, we accomplished this primarily through 8″ thick, staggered stud walls, an air-to-water heat pump, a solar thermal system, and 3kW PV [photovoltaic] array.
Editor: Many people want to know if the hype is real for these building techniques and technologies. Did your green design meet anticipated performance?
Watkins: The performance has been good, but not as well as planned. The heat pump is not performing as specified, but we believe a different heat pump will solve that problem. Once a new system is in place we believe it will be a net [energy] producer.
Editor: Is any sort of back-up energy system required?
Watkins: It is a grid-tied home with net metering, so there are no backup systems necessary. It has also been easy to maintain, and my in-laws, especially, are very happy.
Editor: More and more families are doubling up, living closer together and sharing lots. Based on your own experience, do you think it’s a good or bad trend?
Watkins: Having extended family onsite has been a positive development for the entire family, particularly in sharing many things and strengthening the inter-generational relationships in the family.
Editor: Sort of practicing that “one good lawn mower” heirloom concept as opposed to needing two of everything. That’s a bonus that didn’t occur to me. I am curious, though. Was the cost of the home substantially more than a conventionally built one and were there any issues with financing?
Watkins: The home was built with cash, so mortgages didn’t need to fit into the picture. It was built to be an example of a “low-cost” net-zero home, and I believe the total cost per square foot (psq) was about $127 [2005 US$]. Since we took an integrated design approach, it’s tough to compare it directly to a code-built home, mainly because the designs are so different.
Editor: So I am assuming your best cost-saving advice for green builders would be to integrate the design from the beginning?
Watkisn: That’s right. To clarify, a net-zero house would cost more to build than a less efficient home because of the difference in system costs and practices. For example, two homes that are the same in all respects – except that one has a 3kW PV array and the other doesn’t - of course, the one with the green feature will cost more. It may even cost more to build with that feature than the current market is willing to pay for it.
Editor: Even in Green Portlandia?
Watkins: Even in our area. Most builders want and need to compete in the market. They also have clients with budgets that must be maintained. For that reason cost tradeoffs are made in other design features. Essentially more resources are used in the envelope of an efficient home. Since this is non-negotiable, other areas need to be limited in cost to bring in a competitive project. Many times this savings is in finish materials such as countertops or floorcoverings, so two homes may have similar overall costs and qualities of construction but can look different on the surface.
Editor: Recently CNN.money.com posted an article titled, “Green homes face a red light” . Do you have a reaction to this quote from that article?
“…there’s something holding green technology back: It simply costs more to include it than it adds to resale value. Appraisals for newly built green homes do not fully reflect the cost of green technology, and the lower appraisal values mean buyers often cannot get the full financing they need from banks.”
Watkins: Again, if you are talking about specific improvements rather than the whole home scenario I outlined above, then yes, there can be a negative cost-to-value relationship. However, if an item in a home needs to be replaced - say flooring, a heating system, or countertops - there are many “greener” or more efficient choices with the same or very similar costs as their conventional counterparts. Of course, if something is over-improved or “super-adequate,” then there is always more cost than value, regardless of whether the improvement is green or not.
Editor: Great point. You have been appraising residential properties for 17 years. How long have you given value for green features that a review appraiser and lender accept?
Watkins: I have been focusing on green construction for about 6 years. If I have the opinion that efficiencies or qualities of construction add value to a property - and I have evidence to support that opinion - my conclusions will state that. I have not had any push back from underwriters or reviewers on well-supported opinions, but rather from bank-mandated appraisal requirements not directly related to the subject property. However, it needs to be said that just because something is considered to be “green” does not mean that it’s worth any more than something that is not green.
Editor: Does the ADU solar installation provide any power for your adjoining residence?
Watkins: Actually we have solar thermal systems and a PV array on the main home as well.
Editor: Wow, your family really is an example for the rest of us. Let’s talk about the U.S. Green Building Council (USGBC) and some of their prerequisites. What advice or thoughts would you have for siting a new multifamily building?
Watkins: If [energy] efficiency is a major consideration, then I would advise that passive solar design elements be included in the design, such as southern orientation and proper shading and ventilation. This would be especially important if the owner was going to be responsible for utilities. If there was a significant measurable savings in operations and maintenance that would affect cash flow, a commerical appraiser would likely consider that valuable.
Editor: ecoFLATS is an innovative mixed use project underway in Portland and in pursuit of a net-zero rating for the residential portion. It is being developed at the same cost that a similar-sized conventional mixed use development would require. Your ADU and this project undermine the current prejudice that green building is much more expensive than conventional. Have you found other projects that are built for similar cost, or are these both anomalies?
Watkins: Actually, I don’t believe they are. It goes back to the competitive nature of the construction business. [To document value] I have used present value of future savings formulas of different kinds, quality of construction adjustments, and functional utility adjustments. However, there are many studies of completed buildings that compare conventionally built costs to green costs. There is usually none to a very small difference to build green. If, however, you are building conventional and want to add something, then you will increase your cost for what may be little or no benefit.
Editor: The ecoFLATS project combines low tech and high tech in pursuit of a net-zero rating. Everyone seems to have some green features, but how common is the net-zero approach?
Watkins: I have seen more developments recently that aspire to it, but green construction is still only about 3% of the entire construction market, making net-zero a niche within a niche.
Editor: As energy savings often benefit the apartment occupant rather than the owner, would consideration of these proposed savings allow an appraiser to increase estimates of rental income?
Watkins: I am a residential appraiser, so commercial appraising is a bit out of my realm, but there is some market evidence that green properties are capturing slightly higher lease and rental rates than conventional properties. Some of this has to do with indoor air quality and some has to do with utility savings – by either the occupant or the owner.
Editor: Is it logical to assume that energy efficiencies increase market value?
Watkins: They can but it depends on the local market’s reaction to energy savings. Every market is different. There are several different methods to try to value it - all of the accepted strategies are outlined in the studies I referenced for you - but again, each market is different. [Study titles are listed at the end of this article.]
Editor: Some utilities as well as energy professionals are performing energy audits. Do green appraisals ever include these audits?
Watkins: If the audits are made available to us, of course. They can be very helpful to the appraiser in putting a specific number on the anticipated savings in utility costs. Many existing homes do not have this documentation though.
Editor: You have become somewhat revered as an experienced residential green appraiser and certainly for the CRGA course you teach. It is rumored that becoming certified in the states of Washington and Oregon to teach continuing education (CE) is an arduous process. Your course provides a whopping 21 CE credits for licensed professionals. Was certification a lengthy and difficult process?
Watkins: I developed the three 7-hour courses over about a year and a half and submitted them to the states as would any other educator seeking continuing education approval. Actually, the representatives of the WADOL and ACLB in Oregon were clear in their expectations and processes, which made the process less daunting. The certification itself is conferred though Earth Advantage Institute.
Editor: What do you see as the most challenging aspect of green appraisal valuation?
Watkins: The most challenging aspect is trying to find competing properties to support value on a deep green subject property, as there are so few of them. This is the most difficult part of appraising any unique property though. The appraiser simply has to do the best job he or she can do given the [market] situation. However, knowing a lot about the changing face of residential building science goes a long way toward understanding these properties better.
Editor: What’s your actual process when you receive an appraisal assignment?
Watkins: Study, understand the subject property thoroughly and report and support all findings and opinions clearly.
Editor: Thoroughness and clarity. You’re obviously good. So what green building features are the most popular today and which do you think will have lasting value?
Watkins: Interior finish materials with low-VOC content are far more popular today than even a few years ago. High-efficiency furnaces have taken over a large portion of the market as well. As far as lasting value, passive solar design that conforms well with other development in neighborhoods. That continues to pay back in efficiency over time and paired with efficient, long-lived systems will probably have the most lasting impact.
Editor: With regard to the European fenestration methods, green roofs, earth mounds and other international and experimental green building techniques, are any of these applicable or being used by U.S. builders to advantage?
Watkins: Yes, but the use is limited. There are movements in different areas of the U.S. for green roofs, especially in Chicago. Superior windows are being made here and also imported for use in Passivhaus design, but again, the use is limited. Generally, for a property to be viewed positively by the market, it should conform or ’fit in well’ with other properties in the area. Mound homes, for example, usually don’t meet that criteria.
Editor: Using Marshall and Swift’s guidelines for replacement costs has been an industry standard for appraisers. Have they updated to include green building, and if not, where does anyone find the data?
Watkins: Yes, Marshall & Swift as well as RS Means, two major cost data suppliers, both have green replacement cost guides. However, there is so much change in the materials side of green building that these new guides are not very far reaching.
Editor: How do you document green value if there are no comparable sales in a property’s neighborhood?
Watkins: Standard distances from the subject property are usually determined by a lender, investor, or secondary market participant of some sort, not the market itself. Appraisers generally expand comparable search criteria in order to get the data they think is necessary to formulate an opinion of value. It is no different for [energy] efficient homes.
Editor: Urban growth boundaries and urban infill are encouraged by the DOE, the EPA, the USGBC and municipal governments. Do you expect most green building will remain essentially urban?
Watkins: Great question. That is probably accurate. There are many cases of green residential construction in suburban and even rural areas, but the majority will likely be urban if looked at as a unit to unit comparison of urban-to-suburban.
Editor: Voluntary energy audits are being done for LEED certification and other purposes, of course, but I heard a rumor that lenders in San Francisco have started requiring energy audits on existing homes. Is this just urban myth?
Watkins: I can’t speak about San Francisco specifically, but there are energy performance labeling movements in many areas of the country and at the federal level. It appears likely that energy labeling will become mandatory within the next few years. One of the main questions is when a home will be labeled and what that label will look like. As point of sale is a transition time for a property, that may be the most logical point to implement labeling.
Editor: Can you give us an example of a case study you use in your course and the process?
Watkins: One case study presents a home in the context of an appraisal assignment. The appraiser gets an appraisal order, plans, and specifications for the home, then analyzes the site, county records, and other sources of information, then searches for comparable sales. Finally, the rest of the appraisal process is carried out on the property. In this way, the class goes through an assignment together, and the opportunity to read plans and specs adds value to the process.
Editor: How do you apply energy efficiency adjustments?
Watkins: There are places on standard appraisal forms in which appraisers can add information on energy efficiency and make adjustments. These brief statements can be expanded on in narrative sections of the appraisal report.
Editor: Which lenders do you find accepting of green valuation techniques? Who are the dinosaurs?
Watkins: Crickets . . .
Editor: Obviously this is not going to be a tell-all interview, but I had to try. Has being a green appraiser driven any new business to your appraisal firm?
Watkins: Yes, but more importantly, it has expanded my knowledge and increased my interest in my work. It has also opened up professional contacts that I would not have made without delving into green building.
Editor: What advice would you have for homeowners thinking of going green?
Watkins: When it comes time to make updates or improvements to a home, people should do what makes the most sense for their particular home, how they live in that home, and their budget.
Editor: What advice would you have for other appraisers considering obtaining the CRGA designation?
Watkins: Green construction is the only growing part of the construction industry. With changes to building codes, increased pressure from local, state, and federal sources, what today is considered green will likely be industry standard soon. Keeping abreast of the changes in the construction field will be necessary for appraisers to understand this new housing stock and their local markets.
Editor: I cannot thank you enough for educating us on this subject. I’ll look forward to learning more at your course in April.
Watkins: It was my pleasure.
Watkins suggested reading on green-vs-conventional cost comparisons includes the following studies:
- Kats, “Greening Buildings and Communities: Costs and Benefits”;
- “Greening Buildings and Communities: Costs and Benefits,” “The Cost of Green Revisited: Reexamining the Feasibility and Cost Impact of Sustainable Design in the Light of Increased Market Adoption” Lisa Matthiessen, Peter Morris, Davis Langdon, 2007;
- “The Cost & Benefit of Achieving Green Buildings” Davis Langdon, 2007;
- “Sustainability Offices” Simon Rawlinson, Davis Langdon, 2007;
- “A Business Case for Green Buildings in Canada,” prepared for Industry Canada, 2005.
Taylor Watkins, Watkins & Associates, is a certified residential appraiser licensed in Oregon and Washington who can be reached via his website, or email at taylor.watkins@comcast.net He will be speaking at Clackamas Community College on April 14, 2010 and will be offering the Certified Residential Green Appraiser course twice in 2010: April 29, 30th and May 1st and October 7, 8, and 9th. Contact Earth Advantage Institute to register.
Other Articles of Interest:
