Buying and Selling Homes with Solar Panels

ResidentialCalendarFebruary 21, 2018

With the rapid growth of rooftop solar panels (also known as photovoltaic, or PV, solar) and home storage batteries throughout the U.S. in recent years, the real estate industry is evolving to account for these advancements. Some areas of the country are further along than others, especially where solar is prevalent.

If you're looking to buy or sell a home with a rooftop solar system, this quick guide is for you. Most buyers and sellers begin by asking how a rooftop solar system affects the selling price, so let's start there.

So let’s talk about how you should value a house with solar panels installed on it.

Valuing Rooftop Solar Systems

In 2015, Berkeley National Laboratory released the results of a study that compared homes in six states across the country with and without solar panels installed to determine how much these systems affected home prices. They found that home values increase 0.92% for each kW of solar power installed on a home when compared with the prices of similar homes without solar power. Based on those findings, a home with a 7.5kW solar system could see a 6.9% bump over comparable houses without solar1. Importantly, this only holds true for solar systems owned by the homeowner. 

But it's not as simple as multiplying a system's size by a standard multiplier. There are many factors that influence a solar system's true value, including the age, size, and power output of the system. In reality, no two solar systems are alike, which is why appraisers need to value each system independently.

The Appraisal Institute recently released two resources that you should be aware of as a buyer or seller. The first is the "Residential Green and Energy Efficient Addendum" that appraisers can attach to a standard appraisal. This addendum gives appraisers additional space to account for an increasing number of green technologies and advancements in the home, from water conservation to Energy Star appliances, and of course solar panels. The second resource is a free online calculator designed by Sandia National Laboratories with backing from the Department of Energy and sanctioned by the Appraisal Institute called the PV Value® Photovoltaic Energy Valuation Model. This tool uses the income approach to determine the future value of a rooftop solar system, and allows appraisers to adjust for multiple factors to arrive at a reasonable valuation. You can use this tool to get a rough idea for the value of a system with just a few details.

Important Tip: Appraisers follow a set of operating standards (known as the Uniform Standards of Professional Appraisal Practice) which specifically states that every valuation must be supported with credible evidence. Therefore, an appraiser cannot value a rooftop solar system at $0 without sufficient supporting evidence. You and your agent have the right to refute such a valuation with your lender.

Now let's look at how system ownership affects real estate transactions.

How System Ownership Affects Real Estate Transactions

One of the biggest gotchas of buying or selling a home with a rooftop solar system has to do with who owns the system. Just because a solar system is on a homeowner's roof does not necessarily mean that system belongs to the homeowner. It sounds complicated, but it's actually pretty easy once you understand how system ownership is determined. It all depends on how the system was purchased.

As a reminder, there are four 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 monthly 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 monthly 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 panels 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 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 is well worth the effort. Power Purchase Agreements and solar leases are a great way to take advantage of all the benefits of solar with virtually no up-front costs, and at rates typically lower than those offered by the utility. So don't let the added complexity scare you away.

Now, to pull all of this together, let's go over some tips for buyers, sellers, and real estate agents. 

Tips for Buyers Who Want a House With Solar Panels

  • If buying a home with a solar system already installed is high on your wishlist, make sure your agent knows what you are looking for in a system (an owned system vs. a leased system, aesthetics and placement of the panels, etc.). Not all listing services include these details, but knowing what you want ahead of time will help with the search process.
  • Work with good agents, lenders, and title companies trained or at least familiar with rooftop solar panels whenever possible.
  • When you find a house with solar panels, work with your agent to gather as much information as possible about the system. Ideally, you should have enough information to fill out the solar portion of the Residential Green and Energy Efficient Addendum. With that information, you can use the PV Value® calculator to get a rough estimate of how much a particular system might be worth. 
  • Ask your agent or title company to check if a UCC-1 Filing has been placed on the system. If there is indeed a filing on the system, you will need to work with your agent, the title company, the 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. Remember, $0 valuations must be supported with sufficient evidence.

Tips for Sellers Who Installed a House With Solar Panels

  • Work good with agents, lenders, and title companies trained or at least familiar with rooftop solar panels whenever possible.
  • Collect all of your system's documentation together, along with 4 - 6 months of your most recent electricity bills, and share those with your agent. Reach out to your solar provider if you're missing any pertinent information. At a minimum, you should have enough information to fill out the solar portion of the Residential Green and Energy Efficient Addendum.
  • If you acquired your solar system through a Power Purchase Agreement (or lease) or through a loan, check to see if there is a UCC-1 Filing placed on the system. If there is a filing on the system, you will need to work with your agent, the title company, the solar provider, and the buyer to determine how you will negotiate the UCC-1 Filing as part of the deal. The solar provider may be willing to provide a "subordination agreement" if a buyer is willing to take over the contract.
  • If you're still under contract with a Power Purchase Agreement or a lease, be prepared to buy out your contract if the buyer is not willing to take ownership of the contract. Adjust your asking price accordingly to account for the added expense or search for a buyer willing to take the contract.
  • If you're still making monthly loan payments, be prepared to pay off the loan balance if the buyer does not want to take over the loan, or continue to search for an alternate buyer. Adjust your asking price accordingly to account for the loan payoff amount.
  • Ensure the appraiser accurately accounts for the value of the system. Remember, $0 valuations must be supported with sufficient evidence. You can use the PV Value® calculator to get a rough estimate of how much your system might be worth.
  • Chances are good that potential buyers aren't looking at your house just because of the solar panels. People unfamiliar with solar panels won't know about the added value, so it's important to explain this value. The appraisal can help with that, but a knowledgeable real estate agent can also help convey this. Be prepared to share past electricity bills to demonstrate any savings you enjoy as a result of your solar energy system.

Solar Panels and Real Estate Agents

Sellers and buyers may be confused about how to navigate transactions that involve solar panels and will look to you for guidance. If training is available in your area, seek it out. At the very least, make sure you have a working knowledge of the pros and cons of solar panels and feel free to use this blog as a source for information. If a real estate solar coalition or related association exists in your area, they may have additional resources and contacts to help.

Whether you're buying, selling, or advising clients about properties with rooftop solar panels, we hope you've found this information helpful. More than a million homeowners across the U.S. have added solar panels to their homes, and we are thrilled to be part of this shift toward clean, renewable energy. 

If you have questions or seek more information on this topic, call us today.  

 

Endnotes:
1. Lawrence Berkeley National Laboratory. (2015). Appraising Into the Sun: Six-State Solar Home Paired-Sale Analysis. Retrieved from: https://emp.lbl.gov/.

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