Solar Panels - a new twist

[CindyR]

A realtor called me this morning to see how she should address solar panels in a home she is listing.

Panels are leased for 20 years but the homeowner paid the entire lease fee up front. Instead of paying $20,000 over 20 years they paid $11,000 in the first year so now the new owners have 19 years of a prepaid solar panel lease and significantly lower electric bills. The lease is transferable and is really somewhat superior to actual ownership because the company handles repairs and maintenance.

Anyone come across this before and any thoughts on how you might address it in an appraisal?

 

[Terrel L. Shields]

The savings between what the bills are and the bills would have been sans solar, are the savings to be capitalized into a present value. The cost means nothing at this point. I would simply "do" a calculation based on the savings in dollars over 19 years, future value of an annuity dollar I believe.

 

[Elliott]

I'm a paired sales kind of appraiser. I think the market should be able to tell you what a leased system is worth compared to a fee simple.

 

[Tim The Enchanter]

Good luck finding paired sales.

 

[hastalavista]

The savings between what the bills are and the bills would have been sans solar, are the savings to be capitalized into a present value. The cost means nothing at this point. I would simply "do" a calculation based on the savings in dollars over 19 years, future value of an annuity dollar I believe.

I agree; the cost is "sunk". The value would be in the utility bill savings, over a reasonable holding period discounted by a safe rate.
Who is responsible for the maintenance?
Who is responsible for removing the system at the end of the lease?

Those answers could affect the NPV.

 

[Meandering]

Amish homes don't have electricity.

Should we give them the ultimate cost savings advantage?

But then I guess you get to deduct it back for not having flush toilets either.

.

 

[ucbruin]

Amish homes don't have electricity.

Should we give them the ultimate cost savings advantage?

But then I guess you get to deduct it back for not having flush toilets either.

.

I look at your profile photo, I read your comments, I look at your photo again, and then I laugh like hell!!!!! I usually have the same reaction with many of Mr. Rex's comments!!:new_smile-l:!

 

[The Bob]

I agree; the cost is "sunk". The value would be in the utility bill savings, over a reasonable holding period discounted by a safe rate.
Who is responsible for the maintenance?
Who is responsible for removing the system at the end of the lease?

Those answers could affect the NPV.

Are you saying that should be added to the "Market value"?

Most of what I've seen posted about solar shows that a good many are leased systems. If they add any value, that should be reflected in the sale price, just like any other significant feature.

 

[Restrain]

Energy efficient items are often not measurable through paired sales due to lack of sufficient data. Further, as the lease is fully paid up, you are essentially looking at a fee item over its economic life, like a AC system, etc.

Capitalize the savings over the life span of the unit.

 

[Mike Garrett RAA]

Let me be a devil's advocate...what is a reasonable time period to calculate the savings? Years ago this issue came up and someone, I don't remember who, suggested using the average term of ownership for residential properties. At that time, as I recall, it was 7 years.

I also recall we never could justify solar hot water in this market. My parents did have six very ugly solar panels on their roof back in the 70s and 80s. Those were used to heat their above ground $35,000 pool. A VA appraiser, now dead, said the pool and solar system had no value when they sold the house to a person obtaining a VA loan.

Why did it have no value? Because he couldn't prove a value as it was the only pool in the neighborhood. Trying to put square pegs in round holes often leads to such decisions. But that is another story.