Valuing the Contribution of Solar Panels

Dave Towne

Dave Towne

Certified Residential RE Appraiser at Towne Appraisals
AGA, MNAA, Accredited Green Appraiser - Licensed in WA State since 2003.
Dave Towne on e-AppraisersDirectory.com
Dave Towne

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Valuing the Contribution of Solar Panels

How to value the appraised property with solar panels

Appraisers,

Valuing the contribution of solar panels on homes has become one of the trickiest aspects of our work over the past decade.

Attached is a very well written 45 page report that will help all appraisers better understand this issue, and perhaps lead you in the right direction when you encounter homes with solar panels. I strongly recommend that you print a copy for your library. Oh, and actually read it!

The basis of the report is how to value the appraised property with solar panels, when no comps have them – using paired sale analysis.

By the way, Solar PV means Solar Photo-Voltaic. This panels are designed to convert sunshine (or even cloudy daylight) into usable electrical energy. SPV systems produce DC voltage and current which can be stored in batteries, or run through an ‘inverter’ which changes the DC into 110 volt alternating current – which is what is wired in most homes wall outlets and lights. Solar PV systems can also be designed to ‘back feed’ the utility electric power grid if more power is produced by the installed system than the home consumes in normal usage.

Now, while this report well documents the procedures used to arrive at the conclusions, appraisers need to be very cautious about applying the ‘numbers’ in the report to your local current assignment. The authors are careful to explain this. Secondly, the data used for the analysis is from 2011 – 2013, so it’s not up to date.

Kudos to the 8 different appraisers in 6 different states who provided the paired sales used in the case studies. And to Sandra Adomatis, SRA, who was the primary author, assisted by Ben Hoen from Lawrence Berkeley National Laboratory.

By the way, a different ‘solar panel’ system is designed to heat water. That kind of system is not covered in this report.

Dave Towne

Dave Towne

AGA, MNAA, Accredited Green Appraiser - Licensed in WA State since 2003. Dave Towne on e-AppraisersDirectory.com

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11 Responses

  1. BC says:

    They add no value in my area which is in Boston. They are common in lower income neighborhoods, but are typically leased (which makes sense sine many people live pay check to pay check) in the higher income neighborhoods many people do not like the aesthetic look which makes a multi million dollar home look UGLY! The only people making out are appraisal instructors who now have a new class which they can charge for! (No one buys a house for Solar Panels, it is always comes down to location & condition)

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    • Craig says:

      I couldnt disagree with you more.  I also live in the Boston area (metrowest), and most arrays from homeowners I spoke to prior to purchasing my PV array are also purchased, not leased or part of a PPA.  Although I will grant you that in lower income brackets, lease/PPA is more common as the up front cost of a purchase is high before federal tax credits, SRECs, and so forth.

      I also disagree that PV is not a selling point or that it adds value to the home.  Since my PV installation, I have not paid a single penny to National Grid for electricity.  Quite the reverse, I’m running a substantial credit.  So I can truthfully advertise that a selling point of this home is never having to pay a utility bill ever again.  Factor in SREC payments, that’s an additional $2,000-$4,000 of income per year.

      As for aesthetics, you either love them or you don’t.  I don’t even notice them anymore, and half the people who’ve visited since the installation didnt even notice them and they are in full view facing the street.

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  2. MCV says:

    @BC : It’s not about buying a house for the solar system. It’s about the contributory value in our report, just like pools, 3 car garages, etc… In Calif, Nevada and Arizona it’s a very big deal.

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  3. BC says:

    MVC I’m looking at it in my own little micro world.  I have no doubt that in warm weather sunny states where A/C is used year round they may have contributory value, however in my market area they are USELESS, same as a pool which gets 3 months a year use, but has to be maintained and causes higher insurance premiums and often causes a home to sell for less, than if it didn’t have one.

    I had a solar panel company come to my house  a few months ago, it would cost 21k to buy, with the tax credit it would be 14k out of pocket, even if it drops my electricity bill $50 per month, that is approx $600 per year it will take 15+- years just to recoup the cost, and if you remember that good old class about the future value of a dollar being worth a lot less 20 yrs from now, it is just a bad investment.  The green energy lobby is really cramming these things down the country’s throughout, but the old adage hold true.  “All REAL ESTATE IS LOCAL”

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  4. Bill Johnson says:

    In CA it seems that every other house now has solar panels, however it seems to be a feature that people install when they plan on being there for the next 30 years (they don’t sale). In other words, even in CA and the micro world I work in, its very difficult to find a closed sale comp that has solar panels like the subject (Refinance). Builders include them and charge a premium, the general public does give them value. The issue becomes the $25,000 gross cost, minus federal, state, local, company give always, etc. and determining the true net cost versus the buyers reaction to the feature. As new, do they add value (worth more than they cost up front) or do they add value to the property while costing more than they add? Agents have no clue as to the value, leased versus owned, and solar companies advertise the benefit of adding value when often they don’t (net cost exceeds market value).

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  5. Craig says:

    @BC.  Pools are worthless in the Boston area, as they are only useful a few months a year.  PV produce power year round.

    I’m not sure what size system you were quoted (details matter), but my PV system reduced my electricity bill by $200/month, which is a complete elimination of that bill.  Factor in SREC payments, and my ROI is approximately 10 years.  My TCO also includes the 25 year warranty on all components.  My house siting is also the worse possible orientation for solar, with the roof facing east-west where of course south facing is optimal.  And I’m still overproducing on the design’s best case estimates.

    What you also did not factor in is the rising cost of electricity.  Pilgrim is going offline, multiple coal/oil plants are shutting down, and this area lacks the infrastructure to import electricity from outside sources such as Canadian hydro.  You must already see that NGrid has doubled its rates this month due to natural gas shortages.  This will even further reduce the time frame of my ROI.

    No green lobby forced this down my throat.  I made the decision based on simple, fact based math.  ANd it’s paid off and then some.

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  6. BC says:

    Wow, I guess some of you with solar panels are pretty sensitive about their worth!  My point is that in my market area, I do not see any contributory value and thus far have never made an adjustment for them.  If your staying in your home for the long term and are getting a nice savings, that’s great. Here in New England, the company told me that from November through March you won’t see much savings as the sun is so low during winter, for me it just seemed like a bad investment.

    I just installed a pellet stove in my family rm which I love, cost and installation was 6k.  If I were to list my house tomorrow, I doubt I would even get that back, but it keeps my oil costs way down provides great heat and is cozy.  If I were to get the panels, I doubt I would be up on my roof admiring my lower electrical bill.  Just my 2 cents.  Good luck out there.

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  7. Craig says:

    You are absolutely correct that in winter months, the sun is weaker/lower and there’s a whole lot less hours of it, and hence production drops sharply.  Add in ~10 days when your panels will be covered by snow and produce nothing, and it gets even worse.

    That said, even in the weaker months starting in October-November, my PV production equals my home’s consumption, and that’s with running a home office which is by far my home’s largest power consumer.  Right about now is when that balance tips and I start to have to net import power from the grid.  However, given the large net metering credit my PV builds up in the summer months when production greatly exceeds consumption even with AC usage, I still have no electricity bill.  By February I’ve used up my credit with NGrid, but by then I’m back to higher production.

    SREC payments made to me are very tangible.  A pellet/wood stove which cuts your heating bills but has no direct income/value.  SREC payments are cash payments to the homeowner in the thousands of dollars range every year.

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  8. BC, Bill, & others.

    1. IF you get the chance, take one of Sandy’s courses. I was a skeptic going in on her three AI courses. In fact, if they had not been free in my area I would not have taken them. AFTER taking them and passing the tests, I am a convert. BTW-though I AM listed in the AI’s Green Registry (non member section) MY AGA does NOT stand for Accredited Green Appraiser; it is and will remain American Guild of Appraisers. Anyway…

    2. Her courses previously did not deal with paired sales nearly as much as surrogates and income capitalization methodologies where there ARE NO nearby COMPS with solar. I’d heartily recommend taking all three of her AI Credit courses. Especially if you can find an energy sponsor underwriting the cost. She teaches all across the country. Get on Rey Cano’s mailing list at http://www.malibuappraisal.com -he always follows this kind of stuff and tells us ways to save money.

    3. When we say a pool (or solar) contributes NO, or ZERO  value, we are not saying we couldn’t find any comps to support it. We are saying that we KNOW that the market does not pay or recognize ANY premium for solar similar to whatever our subject is; and that the absence of comparables is related to that ‘fact.’ Simply not being able to find data to support an adjustment does not mean that the market does not recognize a feature. As she points out it is just as wrong under USPAP to state “zero value” without adequate support as it is to make specific dollar adjustments without adequate support.

    Like BC says if the savings are only $50 a month there may NOT be contributory value . On the other hand if the savings are $150 a month ($1,800 a year) then there could be. Say you have a GRM of 200. That’s potentially $30,000. Its more complicated than that though. I’ve over simplified it. She teaches a particular discounted cash flow approach in her classes along with the FREE software and data sites to get the necessary information. I just think a GRM is an easier method to explain OR use. The DCF looks more impressive though.

    One of the reasons we find so little data in  many areas is that MLS and agents have not yet learned what is significant solar information for solar yet. As they do; and as the market gains greater acceptance of owned systems I think we’ll see better data. Heck, I think I can even make an argument for LEASED systems-though it becomes far more complicated; and before this article FNMA would not allow credit for them. I’ll have to go back and check now.

    As for PPAs, (Elon Musk hustle?); BEWARE! Same with any financing that is Bond or direct assessment based and becomes a superior lien to the first TD. A lot of the marketing for solar is similar to the aluminum siding hustles of the 1950’s. Essentially a good product with a lot of benefits, subjected to so many variants and cons that its actual benefits became lost in the concerns over consumer fraud associated with it. The PPA I looked at required me to buy ALL the power produced from the system regardless of usage and had a built in annual 7% increase. No thanks!

    I dare you to take her course and then drive down a street with PVAs or SPVs as they are now calling them. You will no be able to stop yourself from looking to see if they are monocrystaline or polycrystalline cells. Downright distracting!

     

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  9. JH Colorado JH Colorado says:

    Paired sales and economic savings analysis is worthless for leased systems vs owned systems.  If the appraisers do not identify and match based on that core difference, they’re doing it wrong from the start.  Solar represents personal savings if the systems are leased, and does not represent anything near the similar real property value boost, as if they were owned systems.  It’s poor form to even consider them contributing to real property value, if they’re leased.  Don’t pay the bill and you’ll have holes in your roof instead of panels.  Like what’s the contributing value of a shed I still make payments on, from the rent a center….  Leased system solar homes are rolling the dice that product costs, banking allowability, and tariffs related to this technology will continue on within a narrow range of consistent consideration.  Just look at what’s happening in New Zealand and Hawaii as a good example of things to come.  When solar goes gangbusters, the energy companies propose awesome new legislation like charging customers based on traditional use, even if they’re now completely off grid.  Got to maintain the service infrastructure, for public well being, and all of that.  The only solar system which deserves a boost in the appraisal analysis, is an owned system.  Otherwise, it’s as much of a leased responsibility as it is a benefit, given the uncertainties over the long term.  How many appraisers have boosted for solar, on leased and non transferable systems?  I stopped by inverters r us the other day, and it makes a lot more sense to have non integrated solar, and build up your system over time.  Me and this other appraiser were joking around if we should look for a submarine or a tank deep cycle battery second hand.

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  10. The big problem right now with paired sales is that real estate agents don’t know what they are doing when pricing homes with solar PV systems. When they are not pricing in PV systems, there will be no discernible contributory value.

    But once Realtors understand that there are logical methodologies, based upon the income approach, and apply them, we will begin to be able to extract a system value from paired sales. The best option for Realtors today is to hire an appraiser with the education and experience in valuing PV systems for estimating a contributory value for the system based upon the present value of energy savings over the course of the economic life.

    With regard to leased systems and PPAs, people are just signing long term contracts to buy power at a specific price, from a specific power company for a 25 year period. You will have to sell a new buyer on the benefits of buying power this way. But the benefits are very different from an owned system that transfers ownership with the home that does not require monthly payments to a third party for an extended period of time.

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