A Day in the Life of Appraising Iowa-Nebraska-Florida

December 8th, 2022 2:38 PM

As a Certified Appraiser in Florida, I have had several occasions to appraise homes with solar panels.  Solar panels are becoming more and more common.  First, before valuing a solar system it is key to determine the ownership of the panels.  Most mortgage lenders, secondary market participants, and government mortgage insurers/guarantors have specific guidelines on giving value to Solar Panels. If the homeowner does not own the solar PV system, or it is leased, used as collateral for a personal property loan, or subject to a power purchase agreement (PPA) they are not considered real property and should not be "valued" as part of the real property. If the panels are owned and unincumbered, there are three approaches to determining the contributory value to the property. Income (GRM,Discounted Cash Flow), Cost, Sales Comparison.


The income and cost are relatively simple if you have all the data you need. The problem is getting the data. I use the homeowner, past utility bills, manufacturer, utility companies, county permits and a website called SEIA.  A great website PVValue.com does all the calculations for you. You simply plug in the data/factors, and it calculates the cost and income for you.  If we could base adjustments on these approaches, it would make valuing a home with a solar system very simple (as long as you have the factors). 

Keep in mind, appraisers are regulated by state and federal guidelines, and in addition appraisals are reported using lender guidelines.  The amount of electricity a PV system produces over its lifespan can be estimated by the appraiser by using the exact specifications of a specific PV system or obtained from the installer. It is not always possible to get the exact specifications of the subject or comparable PV systems as it is usually not disclosed by realtors in the MLS listings, and often not retained by a homeowner. If the details of a specific system cannot be obtained by the appraiser, the appraiser must outline the steps taken to attempt to collect the information and make extraordinary assumptions regarding the system or comparable homes. Fannie Mae and Freddie Mac regulate most of the mortgages and the guidelines are very clear that value cannot be given by these approaches alone and must be supported by the market. The market value approach requires that the appraiser demonstrate the impact on value based on paired sales analysis.  This can be a challenge given the lack of data.  There is an exception to this guideline, and that is FHA Insured loans.  In fact, FHA has a policy that a Solar System Purchase can be added on to the loan outside of the home’s value.  They also recognize there is a lack of data, and FHA guidelines support using the cost or income method.

If you are a homeowner or a real estate professional and want to include the contributory value of the subject’s system, please have a record of these items for the appraiser to assist them in the appraisal process.

PVValue.com in put factors: Address, Ownership type, System Watts, System Age, Warranty Period, Derate %, Degradation %, Discount %, Rebate % Array Type, Array Tilt, Array Azimuth, Inverter Size, Inverter Warranty Period, Age of Inverter, Replacement Cycle

Website Link https://www.seia.org/us-solar-market-insight

Posted by Alycia Hamaker on December 8th, 2022 2:38 PMLeave a Comment

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Fannie Mae announces adoption rule of ANSI Z765 residential real estate measuring standards. What does this mean for appraisers and real estate professional? 

Per Fannie Mae Announcement Letter SEL-2021-11.  Lenders may begin accepting appraisals using this standard immediately, but compliance is required for all applicable appraisals with an effective date on or after Apr. 1, 2022.
When I began my appraisal career in 1999, ANSI standards were fairly new to the residential real estate appraisal industry, and were not widely adopted yet by appraisers.  The process for creating a residential measuring standard didn't begin until 1994, and ANZI Z765 was official in 1996.  The standard has since been updated, the latest version is ANSI Z765-2021.  To this day, it is the only nationally recognized standard for measuring residential properties. 

This standard has been "voluntary" for residential appraisers and real estate professionals up until now.  For those who adopted it, it brought credibility when calculating square footage per a national recognized guideline.  Professional organizations have recognized these guidelines since its inception; Fannie Mae, Freddie Mac, HUD, VA, Appraisal Foundation, National Association of Homebuilders, Manufactured Housing Institute, American Institute of Architects, National Association of Realtors, Marshall & Swift Cost Guides and the Employee Relocation Council. (Distinctions of above grade and below grade, are broken down in the Marshall & Swift cost manual, and are consistent with the standard).

A quick summary of general rules and guidelines

Measurements of each are made to the exterior finished surface of the outside walls.  When measuring a second floor from inside the residence, the thickness of the walls is included in the calculations.

Areas protruding from a finished area may be included as finished, provided they have a floor on the same level and meet ceiling height requirements . (A fireplace would not be included in GLA calculations, a bay window could be). A window box, which protrudes from the exterior but does not have a floor is not included as gross living area. 

When finished and unfinished areas are adjacent to one another the finished area should be calculated by measuring to the exterior surface of the inside wall separating the two areas. The measurement of the unfinished area should be from the exterior finished surface of the outside wall to the exterior surface of the inside wall.

Sloping Ceilings and Open Areas; No area is considered “living area” if it does not have a ceiling height of at least seven feet.  There are two exceptions; Areas under a sloped ceiling may be included as living area as long as they have an average ceiling height of seven feet, however no portion of an area that has a ceiling height of less than five feet may be included as finished. (so sloping ceilings with average of 7 feet high and area 5-6 ft high can be included). Exception; Finished areas with sloped ceilings underneath stairs may be counted as finished area, regardless of ceiling height. *See note regarding stairs. 

Areas open to the floor below are not included in the calculated area. So in the case of a two-story foyer, only the actual floor area is calculated.

All area calculations are broken down into the specific levels of the residence, either above or below grade (i.e. first floor, second floor, below grade/basement).  Furthermore, areas must be designated as finished or unfinished.

"Grade" is ground level at the exterior of the residence. For any level of a house to be considered above grade, the entire level must be above ground level. Likewise, if any portion of an area is below ground level, then the entire level is considered below grade. Finished is defined as “An enclosed area in a house that is suitable for year-round use, embodying walls, floors and ceilings that are similar to the rest of the house.”  Also, implied in this definition, is that a finished area will be climate controlled in a manner consistent with the rest of the house.

GLA is understood to mean above-grade, finished area.  It is clearly differentiated from below grade areas and finished below grade areas.
Finished areas not connected to the main part of the house by means of a finished hallway or staircase should not be included as a part of the finished area at the same level.  Therefore a bonus room over an attached garage, a detached guesthouse, an apartment over a garage, etc should be described as a distinct area, not gross living area.

The updated edition of the ANSI standard allows for some decorative concrete floors to be considered finished floors.  Enclosed, climate controlled patios and sun porches may now be included as living area.

Garages, whether attached or detached, are not considered living area because they do not meet the previously stated requirements for finished areas.  The principle also applies to utility/storage areas, decks, open porches and open patios.  

*Calculations for stair area should be attributed to the level from which the stairs descend. This is true regardless of the degree to which the stairs/stairwells are finished. The area attributed to the stairs includes the treads and landings but should never exceed the size of the floor opening. For example, a typical stairwell may be four feet wide where it begins its decent from a second floor.  If the stair flares to six feet wide at the main level and the opening at the top and is no wider than the treads, then only the dimensions consistent with the opening can be used.

Tags: ANSI Standards, gross living area, appraising education, appraiser training, appraisers, cost approach, Employee Relocation Council, ERC, finished, GLA, above grade, gross living area, measuring, standards.