Follow up on the Solar discussion from an Installer

[PropertyEconomics]

If an appraisal comes in $20k short because an appraiser cannot or will not find support for the resale value in the market a borrower is not SOL. If a borrower really thinks they're that much smarter than all the other buyers and sellers in the market who have been closing deals then all they have to do is pony up the difference in cash.

As an appraiser I never kill deals. I only write the obituaries.

George .. please see my bold .. I believe an appraiser that WILL NOT FIND SUPPORT (which suggests to me refuses to do so) could well be in violation of USPAP for creation of a misleading appraisal report.

Appraisers can ignore solar all they wish, fighting tooth and nail against its valuation, but the simple fact is that money has value (and savings is money), the AI recognizes that green energy valuation is upon us and has created classes teaching how such analysis is done, and the commercial sector of the market is increasingly recognizing the value (including from a socially conscious measure) of solar and other alternative forms of energy.

I would suggest rather than continaully finding reasons to not value alternative energy and green building that appraisers become more familuar with this type of construction and understand its benefits and potential value.

Certainly its not a perfect market yet, and comparables are very few, but in the coming years the green market will ever increase, more building authorities will require it, more lending programs will recognize and encourage it, and those appraisers that take the time to understand it will be much better equipped in its valuation.

For once I think as a profession we should recognize what is in front of us and learn all we can to become proficient in its valuation as part of our services.

 

[airphoto]

Going back to the first several posts, savings are predicated on a net monthly of about $115.00 or so .. in PA a $25,000 addition to the property incurs about a $375.00 annual property tax .. in NY that'd be closer to $750.00. Reduce the monthly savings ($1,380.00 annualized) by that amount and recapitalize. Further, what's the net cost of the solar system? At $46,000 cost the taxes have netted the savings to zero in NY (although the savings might be greater due to NY's utilities the sunlight available for production is far less than southern Cali! However, the A/C load is near non-existent.)

 

[PropertyEconomics]

Going back to the first several posts, savings are predicated on a net monthly of about $115.00 or so .. in PA a $25,000 addition to the property incurs about a $375.00 annual property tax .. in NY that'd be closer to $750.00. Reduce the monthly savings ($1,380.00 annualized) by that amount and recapitalize. Further, what's the net cost of the solar system? At $46,000 cost the taxes have netted the savings to zero in NY (although the savings might be greater due to NY's utilities the sunlight available for production is far less than southern Cali! However, the A/C load is near non-existent.)

Air ... two comments ....

First I am not sure that simply comparing taxes for a $25,000 addition to those of a $25,000 solar system would be correct. That same $25,000 addition would most probably produce more income than $115 ... but in your market I simply do not know.
I believe consideration of the esimtated increased costs associated with the solar improvement would be prudent as you suggest .. ie additional taxes and insurance (perhaps) but that consideration should be measured for the actual improvement not an improvement that is only comparable with respect to its cost.

Second .... Capitalization of the remaining net income would suggest the income stream lasts into perpituity .. which I believe extends beyond that of a pv solar panel and well beyond that of a thermal panel. PV panels typically have a life expectancy of say 25 years (I believe that reflects most warranty periods) understanding there will be additional costs associated with replacement of the inverter during the life of the system.

As I have stated many times in other solar threads on this Forum for these reasons I perfer and suggest a discounted cash flow method is more appropriate. Realizing that savings of $115 a month today may well increase as time continues over the life of the solar improvements ... as was noted in the OP electrical rates, nationally, have increased 6.5% - 7.5% annually over the past number of measurement periods.

It can be a complicated analysis, but one none the less that I believe should be contemplated by an appraiser as the green energy trend continues.

 

[prasercat]

I found this excerpt here:

http://www.solar-energy-connection.com/solar-panels/solar-panels-what-country-uses-the-most-29/

The Winner
But what country uses the most solar panels?
Gloomy-skied Germany seems to hold the record at the time this article was written. Cloudier by far than many other countries, Germany has nevertheless become the global leader in electricity generated through solar panels. It produces about half of the world’s total solar electricity.
Germany adopted a law in 2000 that requires the country’s immense power companies to subsidize new solar companies by buying electricity from them at marked-up rates. In 2002, Germans installed more than 10,000 solar panel systems. In 2003, they installed some 20,000 solar panel systems, almost twice the number installed the previous year. This growth continued in 2004. In 2005, Germany was the fastest growing major solar panel market in the world.
As of May 2007, 15 of the 20 biggest solar panel plants in the world are in Germany, even though Germany has only half as many sunny days as countries such as Portugal. The German government decided to phase out all of its nuclear power plants by 2020.

I'd be curious to hear how appraisers in Germany are valuing this feature.

 

[Cigar]

As I have stated many times in other solar threads on this Forum for these reasons I perfer and suggest a discounted cash flow method is more appropriate.

But appraisers are using the comparable sales approach to value, if you start capitalizing solar aren't you going to have to incorporate the income approach? Back before the crash three of us argued on several threads that the income approach should be used, now some want to use it when it's convenient.

 

[PropertyEconomics]

But appraisers are using the comparable sales approach to value, if you start capitalizing solar aren't you going to have to incorporate the income approach? Back before the crash three of us argued on several threads that the income approach should be used, now some want to use it when it's convenient.

The income approach should always be used when its appropriate .... i dont see much in convenience in this situation .... and my argument is not for capitalization but for discounting.

 

[prasercat]

But appraisers are using the comparable sales approach to value, if you start capitalizing solar aren't you going to have to incorporate the income approach? Back before the crash three of us argued on several threads that the income approach should be used, now some want to use it when it's convenient.

I don't see a problem, when there is a lack of data otherwise with the sales approach, to have inputs into the sales approach that are not derived strictly from paired sales. If you do the cost approach and derive the land value from sales, the cost approach is a combination of cost combined with market information derived in a different manner than the cost manuals.

In doing the sales approach, if you have an important component of value in the subject or comparable that is not derivable using pair sales (too much noise in data, lack of comparable sales, etc.), then using the cost approach to derive a depreciated cost value and integrating it into the sales approach is better than ignoring it [The key is depreciation/ obsolescence and proving via market evidence the acceptance of that particular item empirically].

We all want to be purists, but all these approaches are different aspects of the same market, and in the end, we do combine the applicable approaches into reconcilation. In effect, our valuation approach is an appraisal stew, and hopefully, it is properly balanced and well seasoned.

 

[PropertyEconomics]

I don't see a problem, when there is a lack of data otherwise with the sales approach, to have inputs into the sales approach that are not derived strictly from paired sales. If you do the cost approach and derive the land value from sales, the cost approach is a combination of cost combined with market information derived in a different manner than the cost manuals.

In doing the sales approach, if you have an important component of value in the subject or comparable that is not derivable using pair sales (too much noise in data, lack of comparable sales, etc.), then using the cost approach to derive a depreciated cost value and integrating it into the sales approach is better than ignoring it [The key is depreciation/ obsolescence and proving via market evidence the acceptance of that particular item empirically].

We all want to be purists, but all these approaches are different aspects of the same market, and in the end, we do combine the applicable approaches into reconcilation. In effect, our valuation approach is an appraisal stew, and hopefully, it is properly balanced and well seasoned.

Such a good post it should be posted twice .... so I did my part and quoted .....

 

[NORTON]

This study shows that Homes with solar sold 20% faster and at 17% more than comparable homes without solar in California.

http://cleantechnica.com/2010/10/23/solar-homes-sold-20-faster-and-for-17-more-nrel-study-finds/

A purified water system does not really compare because it provides no payback to the consumer. It may be something some people want, but solar can put money back in your pocket right away.

Spartacus...I appreciate your dedication....I recently did an appraisal in a retirement community in Lincoln CA....the subject property was beautiful and the borrower supposedly had spent 23k after tax credits on the solar system...I found 2 sales and 1 listing in the community, spoke to agents involved in all the transactions..the conclusion was the solar home was considered more desired / marketable although it did not translate to a single dime of increased price.......I didn't conclude quicker either although more desired should make that home sell quicker in theory when compared to its competition...the long and short of it was sure, a buyer if given the solar option would take it, but not willing to pay additional....so knowing that, I / we as appraisers could conclude it provides incentives to purchase but, it doesn't conclude a guaranteed adjustment.....the best comment I read on this thread was that people aren't sure they will live in their home long enough to make it pencil out... especially in a retirement community....the home may out live the owner.

 

[George Hatch]

Personally, I have a problem with the idea of arbitrarily assuming an amenity has a contributory value, especially when considering the fact that I've never previously seen any evidence of it anywhere else. Show me some examples of market segments that have been paying for the amenity on a regular basis and I'll give serious consideration to the idea that whenever that amenity is present it automatically warrants an adjustment.

Sorry, but one willing seller and one willing buyer doesn't represent a trend to me. Cost doesn't equal value, either.

That may not be a socially responsible attitude for me to take in the era of peak oil, but the last time I looked the definition of value we're using speaks to probability and the actions of typical buyers and sellers, not the exceptionally enlightened buyers and sellers. I try to look for what is, not what should be.

I don't see any difference between starting off with the assumption for this factor and using "the list* for other variables. In general, and not specifically in regards to this particular problem, I think many appraisers spend way too much time working the mechanics of adjustments and not enough time looking to see if there's even any need for an adjustment in the first place.

If my comps start off with a fairly narrow range of unadjusted sale prices to begin with, I'm not going to be real interested in arbitrarily assuming that each one of their variables is in need of an adjustment. Just because I have SFR values in the $300k range doesn't mean I'm going to stick to a (lets say) $50/sf adjustment factor for GLA - I test various factors using a series of iterations to see which factors produce the tightest range. If the factor that works best turns out to be $10/sf I'd use that; if it turned out to be $100/sf I'd use that.

Occam's Razor, baby.