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Does Solar Add Value To Your Property?



I'd been in the Solar Industry on Long Island, New York since 2010. The exponential growth that the industry had experienced in this short time was astounding.


Because of the rapid growth and the lack of education and real knowledge on how solar and solar project financing actually work, there was a great deal of misunderstanding.


That's when I decided I had to learn more.

The solar market grew so fast, in fact, that it wasn’t thought of to train real estate professionals on the different finance methods for solar and how they will arise in the sales transaction of a home.


That's when I decided I had to DO more!


I started training real estate pros on residential solar in 2016 and what I didn’t expect was that they would train me on how solar affects them.

All solar is good solar – we want to see renewable energy everywhere and eliminate as much of our dependency on fossil fuels as possible. Going solar has tax advantages in most states whether it’s owned or leased and it allows the homeowner to have more control over his or her monthly living expenses. In a system that is owned, you lock in your monthly payment and it never goes up. In fact, at the end of the term of your loan, if there is one, the payment goes away but you continue to produce energy (that you’re not buying from the utility) for 25 years or more depending on the panel you chose and the warranty.


The big question everywhere is does it add value to a home?


The short answer is that if the solar is owned (or financed to own) by the homeowner, there is a big added value. When you compare the cost of living in a solar-powered home to that of a utility-only powered home, the solar home wins hands down. You see, because a rooftop or ground-mounted solar PV system generates energy, you don’t need to purchase that amount of energy from the utility.


If you own the system and you’re paying it off through financing, you’re using the same dollar you would have used to pay your electric bill but probably less. Solar can be appraised on the value of the energy it will produce for it’s remaining useful life or the value of the equipment itself. This ONLY applies to owned systems.


When a seller’s solar system is owned by a third party, via a solar lease or power purchase agreement, it can make a buyer uncomfortable. The lack of education and information on this subject is remarkable as there has been little to no education in the real estate community at large.


Buyers may not understand the details and benefits of solar or even energy efficient systems in the home for that matter. Often times a seller with a solar lease or PPA doesn’t necessarily understand the agreement they signed. When a residential solar system is being transferred as part of a real estate transaction, there a few scenarios that we’ve seen.


First, in the case of a third-party owned solar system, the current owner must transfer a lease or PPA to the new owner or completely pay off the contract in order to sell the house. Any UCC1 filings must be temporarily removed when the home’s title is transferred and then reinstated through a UCC3. This is as much for the protection of the seller as it is for the buyer. There are many little pieces requiring a bit of understanding.


When a seller’s solar system is owned or bank financed, it is considered an asset not personal property therefore it can be included in an appraisal.


According to Sandra Adomatis, author and designated as an SRA Member (Residential Specialist) of the Appraisal Institute. “Appraisers should be an unbiased arm of the real estate transaction, and they should also be knowledgeable of the property type and valuation tools. However, in the area of energy-efficient and green residential properties, we have challenges that can result in inaccurate appraised values.


Just as a poorly marketed high-performance property can leave money on the table, a flawed valuation and lending process costs time, money, and stress for everyone involved in the transaction. The borrower has a “bill of rights” to expect competency from alI parties involved in the reaI estate transaction.


Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) all require lenders to hire appraisers who are competent in the property type and geographical area. An appraiser who lacks the required competency must decline the assignment.”


Appraisers generally use the “Income Approach” to value owned, residential solar systems. This is done by calculating the remaining term of the warranty on the components of the solar system (Panels, Inverter, other hardware) and multiplying that by the value of the energy the system produces each year for that remaining term. This is very similar to the valuation of an Accessory Dwelling Unit or a rental apartment.


SO yes, owned solar is a revenue-producing asset and provides value to a homeowner in the form of energy. Every homeowner should read what they sign and in the case of the transfer of ownership of a home, it’s best to make sure the solar is a part of the deal or that the buyer will assume the lease or PPA if applicable.


Solar is considered an asset by the Appraisal Institute only if the homeowner is also the owner of the system.


What does this mean for homeowners who have solar-powered homes and are thinking of selling?


The agent they choose is of the utmost importance because for the first time, something else is attached to the homes we buy and sell. The agent has to be able to understand who owns that solar, how the savings are calculated, how the transfer process is executed and must be able to clearly and concisely consult with the buyer and his or her agent to educate them on the value.


What does this mean for buyers considering buying a solar-powered home? Only the agent who understands all of the dynamics involved can properly advise buyers and negotiate on their behalf.

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