Buying or Selling a Home with Solar Panels
More than a 12 million homeowners across the U.S. added solar systems to their homes in 2018. As solar systems have become more efficient and less expensive, they’ve become more popular with homeowners.
If you’re Buying or Selling a Home with Solar Panels, there are unique benefits and challenges you will want to know about
If you’re Buying or Selling a Home with Solar Panels how do you determine what value the solar system adds to the sale price? In a recent study from Lawrence Berkeley National Labs, a research lab affiliated with the DOE, they found homes with solar sell for 4.1% more than homes without solar systems. The study found that home buyers are willing to pay a premium for systems that are owned.
The same is not true for leased solar systems. The home value premium only applies to homes with “host-owned” PV,(aka photo voltaic systems). In other words, if you own your solar system vs leasing the panels from a solar company.
The study also found, just because you spend more on a larger PV system, the premium on the resale value may not scale to match the investment. Smaller systems for more modest homes return a higher margin on the investment when the home hits the real estate market.
When weighing the cost vs the benefit – the determining factor will be the ROI, how long it takes to recoup the hefty up-front investment. Through energy savings, tax credits, and the potential increase in your home’s value at time of sale.
There are many factors that influence a solar system’s true value, including the age, size, and power output of the system. No two solar systems are alike, which is why appraisers need to value each system independently.
One of the biggest gotchas of buying or selling a home with a rooftop solar system has to do with who owns the system and that depends how the system was purchased.
There are for ways to purchase solar panels:
Cash Purchase, Loan, Lease or Power Purchase Agreement.
Cash Purchase
Homeowners who purchase a solar system outright with cash own the system. That’s the simplest scenario in a real estate transaction. A solar system purchased outright is considered “real property,” in real estate parlance, or a fixture of the home, and can therefore be appraised as part of the home’s value.
Loan
The same applies to a system that was purchased with a loan that has since been paid in full. That system belongs to the homeowner. If, however, the homeowner is still making payments toward a loan, ownership will depend on the contract the homeowner signed with the lender. Most lenders allow the homeowner to claim ownership while they make payments. These systems can be appraised as part of the home’s value.
Other lenders may place either a lien or UCC-1 Filing (part of a legal set of rules that allow creditors to secure assets as collateral in the event of default by claiming third-party ownership) on the system. UCC-1 filings are technically not liens, but are often treated by title companies as a lien. If the system is secured with a lien or UCC-1, the lender may claim ownership of the system, which may therefore impact whether or not the system can be included in the appraised value of the home. Appraisal practices and underwriting guidelines continue to evolve as rooftop solar becomes more common, so be sure to work with your lender and title company to understand the specific guidelines in your area.
It’s also worth mentioning that sellers are on the hook to pay off any loan tied to a property prior to a sell. Solar is no different. Sellers are ultimately responsible for paying off their loan obligation as part of the sale or through other means if the buyer is not willing to take over the loan, and may want to adjust their asking price accordingly.
Buyers who are willing to take over the loan on the solar energy system will need to qualify concurrently for both a mortgage and a loan for the system, which may affect their debt-to-income ratio.
Power Purchase Agreement, (PPA) or Lease
Under a Power Purchase Agreement or Lease, the homeowner pays for the right to use the system for a specified period of time, but does not actually own the system. The system is owned by the solar provider, who typically places a UCC-1 Filing against the system as described above. Systems financed in this way are owned by a third party (not the homeowner) and cannot contribute to the appraised value of the property.
Sellers with a solar system obtained through a Power Purchase Agreement or lease must either transfer their systems to their new residence or “buyout” their contract. The specifics vary by solar provider, so be sure to read your contract.
Buyers looking to purchase a property with either of these types of agreements should obtain a copy of the solar contract tied to the property and decide if they are willing to take the contract. This process may add to the timeline, but may be worth the effort. Power Purchase Agreements and solar leases are a way to take advantage of the benefits of solar with little or no up-front costs. The rates are typically lower and fixed for a specified term.
BRINGING IT ALL TOGETHER
Buying or Selling a Home with Solar Panels – Tips for Buyers
- If buying a home with a solar system is high on your wish list, make sure your agent knows that.
- Work with agents, lenders, and title companies trained or at least familiar with rooftop solar whenever possible.
- Ask your agent or title company to check if a UCC-1 Filing (a lien) has been placed on the system. If there is, you will need to work with your agent, title company, solar provider, and the property owner to determine how you will negotiate the UCC-1 Filing as part of the deal.
- If the system is tied to a Power Purchase Agreement or a lease, make certain you understand the risks and obligations of the contract before taking it over. You can also request the system be removed by the seller as part of the deal, assuming the seller is in a position to do so.
- If the seller is still making payments on the loan for the solar energy system, work with your agent to decide if you will take over the loan or ask the seller to pay off the loan as part of the deal. Remember, if you intend to take over the loan, you must qualify for both the solar loan and your mortgage.
- Ensure the appraiser accurately accounts for the value of the system. The appraisal validates the system’s value should you need to sell the property in the near future.
- Allow extra time in your purchase contract for the closing date. There can be a lot of moving parts when trying to completely understand the details, negotiate who will pay, etc
If you have solar installed on your Desert home and unsure how the solar impacts the value of your home for the current real estate market, give us a ring – we’re happy to help.
Buying or Selling a Home with Solar Panels – Tips for Sellers
- Work with agents, lenders, and title companies trained or at least familiar with rooftop solar whenever possible.
- Get a jump start on the process, collect all of your system’s documentation together, along with 4 – 6 months of your most recent electric bills, and share those with your agent.
- If you acquired your solar system through a Power Purchase Agreement, a Lease, or through a Loan; check to see if there is a UCC-1 Filing placed on the system. If there is, work with your agent, title company, solar provider, and the buyer to determine the best way to negotiate the UCC-1 Filing as part of the deal. Rarely, but possibly, the solar provider or finance company may be willing to provide a “subordination agreement”. Taking 2nd position behind a 1st mortgage, if the buyer is willing to take over the contract. This would be an exception not the rule.
- If you’re still under contract with a Power Purchase Agreement, or Lease, or if you are still making loan payments be prepared to buy out your contract if the buyer is not willing to take ownership of the contract. If the market is strong, you may be able to adjust your asking price to account for the added expense or search for a buyer willing to take the contract.
- Ensure the appraiser accurately accounts for the value of the system. Remember, $0 valuations must be supported with sufficient evidence.
- Chances are, potential buyers aren’t looking at your house just because of the solar panels and people unfamiliar with solar panels won’t know about the added value, so it’s important for you and your agent to explain this value. The appraisal can help with that, but a knowledgeable real estate agent will be an important part of this. Be prepared to share past electric bills to demonstrate the savings you enjoy as a result of your solar energy system.
If you have solar installed on your Desert home and unsure how the solar impacts the value of your home for the current real estate market, give us a ring – we’re happy to help.
Final Thoughts
Buying a home with Solar, or installing solar on your home is generally a sound investment; If you live in your home for the duration of the warranty, you can expect a grid tie system to pay for itself 2-3 times over. With tax breaks and energy savings.
Even if you decide to move before the warranty is up, you still come out ahead. The value of the system can translate into a higher sale price when your home hits the market. That premium is typically enough to cover the cost of the hardware; which is a break even on the solar investment.
If you’re looking at purchasing a home with solar, and not sure what the price premium actually is, give us a ring we’re happy to help.