Solar Value

[Randolph Kinney]

I just ran a statistical extraction for zip code 92009 for single family detached homes that were between 2000 and 3000 sf GLA for the past 12 months.

There were a total of 239 closed sales with a median price per square foot of $323.69.

183 sales had no solar PV panels and no below ground pool with a median price per square foot of $324.29.

9 sales had solar PV panels and no below ground pool with a median price per square foot of $321.51.

40 sales had no solar PV panels and below ground pool with a median price per square foot of $311.09 .

7 sales had solar PV panels and below ground pool with a median price per square foot of $304.95.

Either solar panels had no contributory value or you could say the value contribution was negative.

Interesting interaction between pool and solar PV panel: really negative.

P.S. Aren't you glad you don't have me for your appraiser?

 

[George Hatch]

"because there are procedures and extra steps the appraiser could have taken to assign a value and that was not done. "

The rub here is that an omission in a report doesn't actually speak to what the appraiser did and didn't do; it only speaks to an omission in the report. So neither you nor me nor anyone else can say whether the appraiser took any extra steps to "assign a value" (which by the way is not what appraisers are supposed to do).

As for exactly which extra steps the appraiser could have done, the requirement is to use the appropriate due diligence for the problem at hand. The specifics of that are generally based on the expectations of the intended users of the report (which in this case starts with the lender). The solution the AI endorsed is in no way binding on ANY appraiser, not even the AI members.

The AI's recommended solution amounts to a discounted cash flow analysis model - inclusive of PV$ elements - that isn't even taught to residential appraisers by anyone, including the AIs own courses. Appraisers don't get exposed to DCF analysis until they are being trained to appraise non-residential properties, which by definition are beyond the scope of practice for appraisers who are licensed/certified at the residential levels.

If an appraiser doesn't understand how the model works or - for the most part - what it's doing then they shouldn't even be using it . That's because using a tool that's doing something they don't understand presents a competency problem that arguably violates one of the dominant appraisal standards rule, the COMPETENCY RULE.

Appraisers are charged with identifying how typical market participants are acting, not with trying to be smarter than the entire market and telling it what to do. How that happens with a process that neither the market participants nor most of the appraisers involved actually understand defies all logic and reason. Use of such a model in appraising homes isn't a minimum requirement because it CAN'T be a minimum requirement.


As a matter of fact, if I was reviewing an appraisal report that included such a model I'd be looking for a complete explanation of how that model works and especially what assumptions were being plugged in, and how those assumptions were supported. Anyone using a tool that they didn't understand would get criticized for that and would be directed back to the drawing board until they could make some sense.


If the appraiser for your home isn't licensed as a commercial appraiser then there's a 95+% chance they probably aren't even competent to be using the AI-endorsed solution. That's just another reason why I don't think it wise to pin your hopes on the AIs position paper in your dispute with the appraiser. Even if the state tried to impose this requirement on the appraiser after the fact that decision would never withstand a judicial review in front of a judge.

 

[Terrel L. Shields]

Let's see what happens, OK?

 

[George Hatch]

I think a complaint is a great idea. Let that Board decide and it gives guidance to appraisers everywhere. But no one has answered my question. What do you think of the Denver study that AI was in on and its conclusion that solar is a positive feature.

Any yes, George, I have vetted energy efficient homes (I don't differentiate geothermal, HERS, LEED, etc., solar, passive solar, nor other rated homes). I would think S. California would have plenty of solar homes. There are somewhat less than 1,000,000 homes with rooftop solar PV panels in the U. S. A quick check shows about 173 of these energy efficient homes sold in the past 3 years in our MLS. But the most casual observation indicates that the median price of these energy efficient homes is well above the average of all homes, and the DOM was around 80 vs. 97 for our last month overall. Intuitively, that may partly be accounted for by the simple fact higher priced homes may be the ones where more people will invest in the most energy savings. But that savings is real, those premiums are real. And they have been for a long time. I remember using a passive solar designed home as a comp and it was higher than anything similar in the school district which was evidence to me that the design was a factor in the price.

The only home I valued with Solar panels actually were on ground stands. They also powered up an array of batteries along with a co-generating windmill. The cost far exceeded my estimate of the contribution, but they were not invisible.

I completely believe you because I know you and respect both your expertise and your approach to appraising. I have no doubt as to the accuracy of your findings because I have no reason to doubt you.

That doesn't mean I'm going to cite your findings in appraisal assignments I'm doing in my region, though. I hope you don't take that personally.

 

[Deleted member 134708]

@ Original Poster

I made 1 comment saying in CA, market participants award additional value relative to no solar.

This is from a valuation, price, market, appraisal side etc.

But consider the lending standpoint too.

Hypothetically say the appraiser gave value to your solar of $20k.

You come to me asking for money...You supply me an appraisal (we both agree accurate) I'm going to instantly reduce $20k from the appraised "price" to come up with "my own value" as the counter party. I am then going to put this asset into a grading model (every line item risk weighted) spits out a beta. Adjust this beta anyway I want. I'm building a traunch that is currently too high in risk, you come along and I'll use your loan to drop my risk with a 0.85 beta on a 1.15 portfolio.


Long story short -- after the long story. Your home can be valued at $500k, yet investors only choose to value it at $475k and only loan on 1/2 of the $475k.

Kind of a stretch but just showing you the other side. After all this, the bank may had an internal target of 25% under appraised price so all moot.

 

[Terrel L. Shields]

No problem, but this issue comes up time and again. And I am convinced most appraisers diss it because they don't want to go thru the effort of estimating the contribution. But is it invisible... NO adjustment? If it is as "bad" as Randolph said, then perhaps a negative adjustment should be made. But to simply ignore it because, well, because we have always ignored it.

Give me those sales above and let me adjust ALL the features that need adjusted and then ley me see if there is a positive correlation or not. ... An ideal issue for a regression analysis. Perfect.

The AI method is the only one out there that is written down. No one has argued in print to "ignore" solar (except here.) And it is supported by the evidence (Denver report)... So, in the next 20 years as solar likely grows to no less than 10 million units; geothermal increasing is used; and LEED and HERS rated homes are selling... we will have plenty of evidence whether or not those items will "pair out" an adjustment. And I suspect many an appraiser is overlooking these items and making no adjustment because they don't even know what LEED or HERS stands for.

 

[George Hatch]

I don't recall anyone in this thread suggesting to ignore the amenity.

Just the fact is telling that there are some highly regarded appraisers in this thread who - based on their own exposure and experiences with solar - disagree with the presumption that the system must have contributory value. It just goes to show that, the AI-endorsed position notwithstanding, the rest of the appraisal profession is not of one mind on the subject.

 

[gregb]

Three major California electric providers are currently seeking changes with the California Public Utilities Commission regarding hookup fees, rebates etc.

 

[Meandering]

That is a poor interpretation - so if a 40 oz. gold bar was embedded in the sidewalk it has "no value"? The Denver study clearly showed that, if fact, Solar does contribute value and reduce marketing time. The fact there are no SOLD solar panels in the market in the past year makes no difference. Again, let's send it to the state and see if they are better read on such valuations.

By the OP's own admission,
he is paying $108 per month just in principal and interest on the loan for the solar panels, to save $75-$100 per month, for 15 years over the life of the loan.

The numbers don't work.

Even if someone turns over a rock and finds a sale with solar panels, you would have to compare costs/expenses of that comparable's use of the solar panels to this one. And because the income is negative, now, not just a comp with solar panels is needed, but a comp with a negative contribution due to the cost/expense of solar panels.

It doesn't matter if this one as a 100MW capacity. If this one is in the shade most of the day, it will not produce sufficient savings to over come the expense of putting it there in the first place and this is the situation at hand.

If a solar powered comp is saving $300 to $400 a month, it is not a comp for one saving $75-$100 per month, even if the comp has a 15MW capacity.

The numbers have to work to add contribution, and, they at least have to break even for it to remain and still be at it's highest and best.

How can you ignore all what the OP posted?
$60,000 to purchase
$30,000 loan principal
15 year loan term
3.5% interest
(below current primary mortgage rates, far below rates for personal loans or secondary mortgage which is mega-unbelievable by it's self unless it has a balloon payment or adjustable rates)
$108 in monthly payments.

None of this math is correct.

It's a story to get what they want and to blame somebody else when they don't get what they want.

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[Meandering]

Well, I certainly agree with the weakness of the explanation given. Now there are basically two possibilities that go with that explanation:

1 - It's a deficient explanation. Meaning, the appraiser didn't adequately convey the extent of their analysis.

2 - It's a basically inaccurate explanation in that the appraiser didn't do the analysis to which they implied, and just pulled their conclusion out of habit or out of thin air..

The appraisal, and required detail in it, are produced for the intended user. The lender. The lender already told the OP they had no problem with what the appraiser did and agree with the appraiser.

How can the board then find that the appraisal lacked sufficient detail for the intended user to understand, after the intended user already stated they understand the report?

Do we expect the board to then say, the report lacks sufficient detail for the lender to understand, contrary to the lender already saying they understand the report?

This is just barking to make noise.

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