Prepaid Solar Lease

[erockinaz]

I am doing the purchase appraisal on a home with a leased solar system. Easy, leased systems don't add value to the improvements. However, the sellers have prepaid 20 years of the lease and the equipment stays with the property for the next 20 years. They also are grandfathered in and don't have to pay the SRP charge for solar customers, Looking at the bills last year, they average around $40 bucks a month in electricity, which is low, low, low for Arizona.

How would you approach that situation? Would you pay more for a home that has 70% lower electric bills (over the next two decades) than a model match with similar upgrades?

Since the solar stays with the home (albeit only for the next 20 years), would you include it in the valuation?
or
Since the solar is leased, consider it to be personal property and not include it?

Your input is appreciated

 

[Randolph Kinney]

You should consult both FHA and Fannie Mae guidelines. Both say, if the solar panels are not owned, you cannot value the solar panels themselves because they are personal property.

 

[Randolph Kinney]

PS - Fannie says the lender can count the income stream as additional income to qualify for a loan.

 

[glenn walker]

Agree , the problem is the lease contract is normally a recorded document with the county and if the lease is prepaid for 20 years it should no longer be a lease but a purchased system. In the event the owners decide or were forced to sell the property in the next 5 years how would that get unwound. In my opinion it's still a leased system and I have no idea why anyone would have done this when the system could have been purchased outright for cash.

 

[erockinaz]

You should consult both FHA and Fannie Mae guidelines. Both say, if the solar panels are not owned, you cannot value the solar panels themselves because they are personal property.

Thanks, that supports my initial thought.

PS - Fannie says the lender can count the income stream as additional income to qualify for a loan.

Good to know, I hadn't thought of that

Agree , the problem is the lease contract is normally a recorded document with the county and if the lease is prepaid for 20 years it should no longer be a lease but a purchased system. In the event the owners decide or were forced to sell the property in the next 5 years how would that get unwound. In my opinion it's still a leased system and I have no idea why anyone would have done this when the system could have been purchased outright for cash.

I agree, since they started the lease in 2012, they would have had some tax benefits to buying the system outright. According to the agent, they were not sure if they should buy or lease, decided to lease, and then had the opportunity to prepay at a savings and took it. The lease is transferable for the next twenty years, so the current buyers can sell with the prepaid lease intact.

Thanks for the input, first time seeing a prepaid lease on solar.

 

[glenn walker]

And it will probably be the last and only time you ever encounter a prepaid leased system : ) LOL

 

[Deleted member 134708]

1/2 the solar I deal with is pre-paid 20 yr leases. Market participants have treated them equivalent to owned. I reported and adjusted them as such.

 

[Randolph Kinney]

Personally, after Nevada did away with net metering and hosed the owners of solar panels, I would not pay more for solar panels. Arizona is also of that same policy so you can't count on the savings long term. California also has changed it pricing and tiers with the idea to change from net metering to buying at wholesale / selling at retail.

 

[Howard Klahr]

Just curious, what is the difference in cost between a purchased system and a 20-year prepaid lease?

 

[Vermonter]

Just curious, what is the difference in cost between a purchased system and a 20-year prepaid lease?

Wondering this myself. Solar provider websites have very little if any hard pricing.