Solar impact

[alebrewer]

So what I highlighted in your post is BS?

If you believe emulating the behavior of market participants is BS then..... yes, I call BS.

 

[TerryRohrer]

This is one of few things I think the GSEs have right. Savings equals value is the equivalent of cost equal value. But in the real world, appraisers are reporting it is not consistently or commonly so.

A similar theory some appraisers rely on is that in rentals where the rent includes utilities, the differential is always equal to the utility expense when compared to rents where the tenant pays the utilities on their own. In practice, I have never found support for that. But I do the work rather than make the easy, "logical" assumption.

In the OP case, I would never rely on a DCF alone, for a single component. That approach necessarily requires that a cap rate be fabricated, an approach seldom reliable when market value is the target.

 

[The Bob]

Does a DCF (or a cost approach analysis) not reflect market value?

No. It does not reflect what buyers are paying for that savings. Why do you think FNMA added this part...The appraiser must also analyze the market reaction to the energy efficient feature.

Discounted Cash Flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows. The analysis projects how much money an investment will generate in the future, and then discounts that cash flow to arrive at an estimated current value of the investment.

 

[alebrewer]

In today's world, there is seldom reason to rely on a DCF any longer, as - even here in backwards Texas - there are plenty of sales with which to develop contributory value ratios via grouped sales analysis. 15 years ago, that was not the case. As the GSE's poopooed DCF, appraisers generally just applied '$0' contributory value, even though that was patently false - simply because there wasn't enough data to do grouped sales analysis. A bit like saying, "I couldn't find any sales with gold floors, therefore the contributory value must be zero."

 

[TerryRohrer]

Does a DCF (or a cost approach analysis) not reflect market value?

Without sales, neither can be reliably calibrated to the market.

 

[The Bob]

If you believe emulating the behavior of market participants is BS then..... yes, I call BS.

OK, Einstein if market participants are paying a premium, then shouldn't that be reflected in the prices being paid?

 

[alebrewer]

OK, Einstein if market participants are paying a premium, then shouldn't that be reflected in the prices being paid?

In today's world, yes. Prior to acceptance en masse, not so much. And I prefer the term 'Illustrious Potentate' if its all the same to you.

 

[shrubberyvaluation]

Its interesting that the GSE's won't allow this as a standalone approach to estimating contributory value, when in fact - that's exactly what the market would do.

Realtor: How much additional value does solar add?
Market Participant: That depends on how much money it saves me each month...

But does it reflect in the pricing, there are all sorts of things that can save you money that buyers don't pay more for individually. Many times properties with leased solar panels sell for less.

 

[shrubberyvaluation]

If you believe emulating the behavior of market participants is BS then..... yes, I call BS.

The problem is what buyers say and do sometimes differ.

 

[shrubberyvaluation]

In today's world, there is seldom reason to rely on a DCF any longer, as - even here in backwards Texas - there are plenty of sales with which to develop contributory value ratios via grouped sales analysis. 15 years ago, that was not the case. As the GSE's poopooed DCF, appraisers generally just applied '$0' contributory value, even though that was patently false - simply because there wasn't enough data to do grouped sales analysis. A bit like saying, "I couldn't find any sales with gold floors, therefore the contributory value must be zero."

Around here its not easy as many are leased, PPA, or financed. Yes putting $0 without research is misleading, but using DCF is misleading as well, unless typical buyers use it.