FHA Single Family Housing Policy Handbook 4000.1, Part II — d. Special Energy-Related Building Components (01/06/2018)

FHA Single Family Housing Policy Handbook 4000.1, Part II — d. Special Energy-Related Building Components (01/06/2018)

d. Special Energy-Related Building Components (01/06/2018) i. Special Energy Components (A) Definition A Special Energy System refers to any addition, alteration, or improvement to an existing or new Structure that is designed to utilize wind, geothermal, or solar energy to produce energy to support the habitability of the Structure. (B) Standard Active, passive, and photovoltaic solar energy systems are permitted in this program. Solar collectors must be located where they will be free from natural or man-made obstructions to the sun. Special Energy Systems not part of the real estate must not be included in the appraised value. (C) Required Analysis and Reporting The Appraiser must analyze and report the local market acceptance of special energy- related building components and equipment, including solar energy components, high-energy efficiency housing features and components, geothermal systems, and wind powered components. ii. Other Energy-Related Building Components (A) Definition Other Energy Related Building Components refer to components in the Property designed to reduce energy requirements. (B) Required Analysis and Reporting The Appraiser must note which features are installed in a house and calculate how each component affects the value of the Property. iii. Measurement and Reporting of Contribution to Value (A) Definition Contributory Value refers to the change in the value of a Property as a whole, whether positive or negative, resulting from the addition or deletion of a property component. (B) Standard Measurement of the Contributory Value of the component is accomplished by the application of techniques based on one or more of the recognized three approaches to value: cost approach, income approach, and sales comparison approach. Each of these II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT D. Appraiser and Property Requirements for Title II Forward and Reverse Mortgages 11. Programs and Products Handbook 4000.1 870 Last Revised: 11/26/2025 recognized methods and techniques requires the Appraiser to collect, verify, and analyze all information necessary for credible assignment results. (C) Required Analysis and Reporting The Appraiser must apply all appropriate methods and techniques necessary for credible assignment results. (D) Sales Comparison Based Extraction Method If there is sufficient data based on direct sales comparison to produce credible results, the Appraiser must calculate the adjustment and explain the methodology and analysis supporting the method and results in the appraisal report. The Appraiser must apply the extracted adjustment to the comparable sales and include the reasoning that supports the analyses, opinions, and conclusions in the report. If there is insufficient data to perform a matched pairs analysis the Appraiser must analyze and report one of the approaches below to calculate an appropriate adjustment. (E) Cost Approach Based Method The Appraiser must include the details of the item(s) being valued and measure the Contributory Value of the component(s) to the whole by calculating the cost of the item less accrued depreciation. The Appraiser must include consideration of physical depreciation, functional obsolescence (including superadequacies) and external obsolescence in the estimate of accrued depreciation and apply the resulting calculation of the Contributory Value to the comparable sales. (F) Income Approach Based Methods (1) Gross Rent Multiplier Method If the Property is located in a market where the Appraiser can calculate a GRM, and rental data for properties with similar special energy components is available, the Appraiser must extract an adjustment relevant to the rental value of the feature from the analysis of those similar rentals and apply the appropriate GRM factor to calculate an adjustment for the comparable sales. (2) Net Income/Savings Capitalization Method The Appraiser may use an income approach solution based on capitalization of savings attendant to the alternative energy source. The Appraiser may estimate the present value of the future benefit using the discounted cash flow technique or commercially available tools; however, the Appraiser must be competent to use them and provide an explanation of the analysis. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT D. Appraiser and Property Requirements for Title II Forward and Reverse Mortgages 11. Programs and Products Handbook 4000.1 871 Last Revised: 11/26/2025 (G) Reconciliation of the Approaches The Appraiser may elect to utilize some of the tools and training available from professional organizations and energy-related firms. The Appraiser must provide a credible analysis and reconciliation explaining the methodology and support for the adjustment. As related to special building components, the Appraiser must provide an analysis of the information and conclusions supporting the application of adjustments. The Appraiser must reconcile all the methods utilized and resolve to a final opinion of the adjustment, analyzing both the quantity and quality of available data. iv. Property Assessed Clean Energy (A) Definition Property Assessed Clean Energy (PACE) refers to programs that may provide an alternative means of financing energy and other PACE-allowed improvements for residential Properties using financing provided by private enterprises in conjunction with state and local governments. Generally, the repayment of the PACE obligation is collected in the same manner as a special assessment tax; it is collected by the local government, rather than paid directly by the Borrower to the party providing the PACE financing. Generally, the PACE obligation is also secured in the same manner as a special assessment tax against the Property. In the event of a sale, including a foreclosure sale, of the Property with outstanding PACE financing, the obligation will continue with the Property causing the new homeowner to be responsible for the payments on the outstanding PACE amount. In cases of foreclosure, priority collection of delinquent payments for the PACE assessment may be waived or relinquished. (B) Required Analysis and Reporting The Appraiser must review the sales contract and property tax records for the Property to determine the amount of any outstanding PACE obligation: • if the Mortgagee notifies the Appraiser that the subject Property is subject to a PACE obligation; • when the Appraiser observes that the property taxes for the subject Property are higher than average for the neighborhood and type of dwelling; or • when the Appraiser observes energy-related building components or equipment or is aware of other PACE-allowed improvements during the inspection process. The Appraiser must report the outstanding amount of the PACE obligation for the subject Property. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT D. Appraiser and Property Requirements for Title II Forward and Reverse Mortgages 11. Programs and Products Handbook 4000.1 872 Last Revised: 11/26/2025 Where energy and other PACE-allowed improvements have been made to the Property through a PACE program, the Appraiser must analyze and report the impact on the value of the Property from the PACE-related improvements subject to the PACE assessments being extinguished.

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