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# Real Property Appraisals/Recent Geothermal install not reflected in home appraisal

Question
Hi Mr. Carlson,
I just read your blog from 2009 about a person that saw NO increase in home value after installing Geothermal HVAC.  I'm wondering if any empirical data has been generated since that posting?  I'm in a similar boat today in 2015 with an apprasier as that individual was 6 years ago.
Dave

Dave,

I apologize, somehow I missed your post on the 27th.

Measuring energy efficiency premiums is in its infancy. Primarily, the issue has to do with lack of market data which demonstrates that a premium is being paid by buyer's for energy efficient amenities. The primary method that the  "premium", known by appraisers as the "contributory value", of any amenity is measured involves the following: let's us a pool as an example.

An appraiser finds several comparables without pools, let's say they are selling for \$300,000, and then finds several similar comparables with pools, let's say they are selling for \$325,000. In this made up example, the pool amenity imparts \$25,000 in contributory value in this neighborhood.

As you can see, comparables with other geothermal HVAC would be needed to measure any premium using this technique.

Other valuation techniques are also available. However, these are not known to most residential appraisers and also may not be "allowed" by lenders. One technique involves determining what are the Gross Rent Multipliers (GRMs) in a neighborhood. When a property is rented and sells to an investor, a GRM can be calculated. Let's say a property was rented for \$2000 per month and sold for \$300,000. The GRM would be: \$300,000 divided by \$2000 rent/mo = a GRM of 150x. In other words, properties in a neighborhood are selling for 150x the rent they command.

Now, if you can obtain the energy savings from an energy efficient amenity like geothermal HVAC, you can apply the GRM to estimate the premium for this amenity. Let's say you are getting \$100 per month savings from your geothermal HVAC. Using the GRM, you would take the \$100/mo. savings x the 150x GRM = \$15,000 "premium" in our made up example.

Unfortunately, it gets back to the fact that lenders are going to want to see actual transactions that show that buyers are actually paying \$15,000 more, using our example.

I would suggest that you start researching this on your own. You could start with the company that installed your system asking them for data. I would like you to send me an e-mail at jcarlson@dslextreme.com so that we could keep in touch. If I ever come across any data about geothermal value premiums, I could share them with you.

Good luck to you and hang in there. It will take another few years until data is available to help us estimate premiums from energy efficient amenities

John C. Carlson
CA Certified General Real Estate Appraiser
Victorville and Diamond Bar, CA
www.jccrea.com
Questioner's Rating
 Rating(1-10) Knowledgeability = 10 Clarity of Response = 10 Politeness = 10 Comment Mr. Carlson, Thank you for your prompt response. There's a Home and Garden Show in town this week. I'll go down and ask not only my Geothermal HVAC installer but, any others that might be there promoting their new systems. And, if I'm real lucky, I'll come home with piles of supportive literature ... but, more likely, it will be 1 or 2 vague white papers. Thanks again, Dave

Real Property Appraisals

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#### John C. Carlson

##### Expertise

Any questions regarding commercial and/or residential appraising, appraisals or real estate valuation such as: appraising as a profession, valuation techniques, comparable sales selection & analysis, the new HVCC and how it affects appraisers & Borrowers. Also, questions like: "Why did my appraisal come in low & what can I do about it?" I cannot answer questions about comparable data in areas in which I do not practice. I have expertise in most areas of So. California.

##### Experience

31-years both commercial and residential valuation experience. State of CA Certified General Real Estate Appraiser, licensed to appraise all property types. FHA Approved. Specialized expertise with historic, architectural & luxury residential property valuation. Experienced in industrial building and small commercial property valuation. Experienced Reviewer of appraisal reports and expertise with intensive forensic reviews to uncover fraudulent appraisal reports. Expert Litigation and Expert Witness experience.

Organizations
Associate Member of the Appraisal Institute. Associate Member of the Certified Fraud Examiners.

Publications
Numerous posts to Blogs. Please "Google" "John C. Carlson Real Estate Appraisals" where a list of responses I have made will show up.

Education/Credentials
Numerous classes by the Appraisal Institute since 1978 in the practice areas in which I specialize

Past/Present Clients
First Republic Bank Wells Fargo Bank California Bank & Trust Preferred Bank Numerous Attorneys.