High performance sustainable "green" buildings are by definition buildings that conserve land, water, materials and energy. A national non-profit organization, the United States Green Building Council (USGBC), developed the Leadership in Energy and Environmental Design (LEED) System(TM) which has attempted to establish standards for "green" buildings. The System provides not only a guideline but a rating system for "green" buildings. Only a group of states have, however, adopted the LEED standards, so a "green" building in most areas may have adopted only some of the LEED standards. It is incumbent upon real property appraisers to identify how many "green" standards have been meet, and whether or not the building has been LEED certified.

Many appraisers have been faced with building plans that include one or more innovations, like an advanced air conditioning system, that will be included in a new building, and from the information provided they calculate the added construction costs and they formulated an they opine the increase expected in net operating income.

Standard appraisal methods are generally sufficient to appraise "green" buildings, and a short discussion of some notable differences between typical building appraisals and "green" building appraisals has been outlined in the following paragraphs:

Cost Approach
"Green" buildings are generally more expensive to build than buildings with average construction. The cost services that I reviewed indicated that "green" residential buildings are up to 15% more expensive to construct and "green" commercial buildings are up to 10% more expensive to construct than typical or average buildings. Since some items in a "green" building will be atypical you may have to make adjustments to individual components using the Segregated Cost Method.

Income Approach
Since "green" buildings are touted to provide a healthier environment, a rental premium would be expected for them. On the expense side, "green" buildings usually consume 25% to 30% less energy (Green Building Costs and Financial Benefits). The slightly higher potential income and the clearly lower energy costs should generally lead to a higher net operating income (NOI) for "green" buildings.

Market Approach
In most small to medium sized market areas there have been only a relatively few "green" buildings constructed over the last few years, and thus there are generally few sales. Thus, lacking a sufficient quantity of similar buildings to analyze, some appraisers have elected to opt-out of the sales approach. Using comparable sales that are not "green" and making an upward adjustment to inferior building makes more sense, but establishing the size of the adjustment is difficult.

With energy costs increasing, appraisers can expect to see many more “green” buildings in their future, and recognizing the unique differences of these buildings is an important part of the appraisal process.

This article is not meant to be a comprehensive or all inclusive reference for appraisers working on "green" building appraisals. It does provide limited information regarding what "green" buildings are it identifies some differences between typical and “green” buildings.