Portland Area Real Estate Appraisal Discussion

There may be no Comparable Sales but there could be Value
May 14th, 2015 3:06 AM

There are no comparable sales, so I cannot give it any value.

I received a call yesterday from a homeowner who had just acquired an appraisal from another appraiser.  She was upset that the appraiser had not made any value adjustment for her new and very expensive owned (not leased) photovoltaic (PV) solar system.  When she contacted the appraiser to ask why, in her words, the appraiser said, “There are no comparable sales, so I cannot give it any value.” 

This statement bothers me and should be troubling to other professional appraisers.  I understand that this is a secondhand quote and that the homeowner may have gotten it wrong, but I have heard similar words from other appraisers before.  Let’s assume, for the sake of this article, that the quote is accurate. 

First, appraisers do not give value; appraisers estimate value.  This is an important distinction to understand.  An appraiser giving value sounds just as silly to me as a meteorologist who says he/she will give us rain tomorrow.  Just as weather forecasters do not give rain, appraisers do not give value.

With that said, it would be appropriate for the appraiser with no PV comparables to study the market and conclude that the market is not willing to pay anything additional for the PV system.  However, just as a statement of value requires evidence, a statement that there is no value also requires verification.  In this case, there is already evidence of at least some cost value in the PV system and a diligent appraiser would need to have additional evidence, or at minimum sound logic to the contrary.

Appraisers have three approaches to estimate value for any given property or feature- the sales comparison approach, the cost approach, and the income approach.  If the appraiser finds no comparable sales (common with owned PV), and has ruled out looking a greater distance from the subject or further back in time, then the appraiser could look to the cost approach and the income approach for other evidence of value.

The cost of a PV system, minus government subsidies, is an indicator of value for the system.  Cost does not always equal value because profit could be built into the market (entrepreneurial incentive), or there could be depreciation from wear and tear or reduced functionality.  Street appeal could be a factor with PV systems given that some people do not like the looks of PV systems and some people love the look.  I think it depends on the house and the acceptance in the location.  Modern homes in the “Green Hip” city of Portland, Oregon are a good fit, but a Victorian in Portland’s suburbs might not be.  Regardless of the outcome, the appraiser could analyze the cost and depreciation of the PV system to help estimate value.

The present dollar value of future income from the energy savings is also an indicator of value for the PV system.  An easy way to calculate this is by accessing pvvalue.com.  Income does not always translate to value, particularly on a property that is purchased by someone who is not looking for income.  However, there is evidence from several published studies that energy savings do translate to at least some increased home value, just that it may not be on a dollar per dollar basis.  Regardless of the outcome, the appraiser could analyze the potential income from the PV system to help estimate value.

When there are no comparable sales, the appraiser still has a professional obligation to analyze value.  The mere lack of comparable sales does not mean a corresponding lack of value.  No comparable sales simply indicate that there is less evidence for the appraiser to estimate value and consequently, the appraiser’s estimate might be more subjective.

Did I leave anything out or do you want to join in the conversation?  Let me know in the comments below.

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Thanks for reading,

Gary F. Kristensen

Great article - loved the point that "appraisers do not give value"

Posted by Casey Lyon on May 14th, 2015 5:58 AM
Nice job, Gary. I like your distinction between giving value and estimating value. Appraisers are like rulers in that they measure value rather than create value. I always tell people appraisers don't make value increase or decrease in a market, but they rather interpret the market. They're not a gas pedal or a brake pedal. Okay, enough metaphors. :) Sometimes there is data out there, but it might be really hard to find. Do you think the appraiser could have found something in Portland somewhere if the appraiser was going to rely on the Sales Comparison Approach? Is there anything out there?

Posted by Ryan Lundquist on May 14th, 2015 6:40 AM
Thank you Ryan and Casey for following and the comments. Ryan, I think the appraiser could have found a sale with PV somewhere further away, further back in time, or at least consult the various studies available that analyze many sales throughout the country. Just because there are no comparable sales, it does not mean that the appraisers job is done.

Posted by Gary Kristensen on May 14th, 2015 9:38 AM
Good topic. A follow-on article might be how an appraiser analyzes a leased system vs. an owned system. Perhaps a little more in-depth on how subsides affect the valuation process.

Posted by Mike Turner on May 14th, 2015 10:11 AM
Great information Gary. I think another way to get a feel for the market however that may be more empirical, would be to just talk to agents that have either listed or sold homes with PV systems. Sometimes knowing what potential buyers say about things can be important too. What if a house did not sell because they couldn't get over the ugliness of the PV system on the roof. While we may not be able to get a dollar adjustment out of that we may be able to measure the markets emotional reaction. Thanks for adding the link to PVValue.com.

Posted by Tom Horn on May 14th, 2015 10:17 AM
Great idea Mike Turner for a future blog. PV systems are becoming much more common. Thank you Tom Horn for adding the interviews as another way to estimate value. Parties to the transaction are a great source of information that cannot be overlooked. In the above example, the other appraiser said there were no sales, so that would imply that they could not talk to someone about the sales, but I tend to believe that there are sales, appraisers just have to be willing to look hard. I have heard a lot of buzz coming out of other parts of the country about PV solar being rejected due to street appeal. In Portland, in many cases and for certain properties like I explained above, there seems to be a solar cache, where people are drawn to owning solar in the same way they are drawn to driving a Prius. In Portland, it is hip to be green.

Posted by Gary Kristensen on May 18th, 2015 9:55 AM


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