Anybody Else Frustrated By Solar Electric

[BOBBYGINE]

House 1 and 2 are the same except, House 1 has a 60K solar system on it, and has electric bills.

Can these houses be the same value in the real world? I say no.
Can these house be the same value in economic concept world defined by Fannie Mae? I say yes.

Don't hate the appraiser, hate the game, we are just minions of the forms our clients choose to use.

 

[c w d]

So a solar system has no value, even though it cost 35K-45K to install and the home now has no electric bill.

Did I say that? And a home that has no electricity bills will have a much more expensive system than $35K. I don't have the luxury of living is CA. I live in FL. There are no state or municipal government incentives to offset a home owner's costs. No buy back plans in my area. No nothing. From what I've seen there is a $2K federal tax deduction. I wouldn't exactly call that an incentive. It's more like lip service.

My argument about lack of market reaction is limited to average people......you know.....folks that work for a living. When a home purchase is stretching their financial potential close to its maximum potential I seriously doubt they're going to pay significantly more for a system that provides nothing more than a "feel good" benefit. Some extraordinary individuals will. But, they would not be considered a typical buyer. Would they? Compound that with a lack of data to examine and it's not surprising that there is a lack of measurable market reaction.

But, don't believe me. Metamorphic is the one asking why he's not seeing a market reaction. I'm just postulating probable reasons why.

 

[Metamorphic]

So if you decide to ignore the Solar in the Comp. method do you get to ignore it in the Cost method too?

Seems like not.

Maybe include it for Reproduction Cost but not Replacement Cost?

 

[CCAAMO]

So if you decide to ignore the Solar in the Comp. method do you get to ignore it in the Cost method too?

Seems like not.

Maybe include it for Reproduction Cost but not Replacement Cost?

If it's market value is less than its cost then you show the difference in the functional deprecation section. Just the same as you would for a pool thats costs more than it's contribution to the market value of the home.

 

[c w d]

So if you decide to ignore the Solar in the Comp. method do you get to ignore it in the Cost method too?

Seems like not.

Maybe include it for Reproduction Cost but not Replacement Cost?

I wouldn't ignore it in the sales or cost approach. If I couldn't determine the market reaction to the panel in the sales approach I would state as much and postulate reasons why there may not be any reaction. There's nothing magic about how we determine market reaction. In cases when there isn't any then there isn't any. It's hard to swallow sometimes. But, if you can't find it how is another appraiser going to find it? They're not. Or they're going to pull an adjustment out of thin air because they "know" the market has to be reacting by paying more even when the data is telling them the contrary. In the cost approach I would add it to the cost of constructing the house since we are talking about utility for replacement cost. Obviously the panels are providing additional utility.....literally. Some would say you then need to depreciate the panels as a super adequacy. I'm not sure I agree with that. In doing so it feels like someone is trying to get their cost and sales to jive. I don't think it's necessary that they jive when there are obvious reasons that they should not. But I don't want to get into a discussion on the finer points of the cost approach. It's up to you to decide how to handle it. Then reconcile the differences and be prepared for the UW to flip out because this round appraisal doesn't neatly fit into her square box. "Need 2 comps and 2 active/pending listings with solar panels within 1 mile and 6 months. Value is not justified."

 

[Managing Prime]

I was hoping that you guys and gals would have a better grasp on the value. I have two documented sources for valuation of solar and other energy efficency improvements, but I was wondering how you all approach.

The bottom line is that with a Home Energy Rating Report in hand you can adjust the value based on the annual utility savings of the home as compared to other homes of a like nature that do not have the energy improvements.


Here are the sources:
http://www.ongrid.net/AppraisalJournalPVValue10.99.pdf

http://www.resnet.us/standards/mortgage/RESNET_Mortgage_Industry_National_HERS_Standards.pdf
303.3.3.3 The Energy Value for the Rated home (e.g., present value of the energy cost savings) shall be calculated as follows:

303.3.3.3.1 For Fannie Mae energy efficient mortgages the present value factor shall be calculated as:

pvf = [1- (1 + r)-n] / r
where:
pvf = present value factor
r = prevailing mortgage rate (i.e., Assumed Rate)
n = weighted life of the measures (23 years)
To determine the Energy Value for the Rated home, the present value factor (pvf) shall be multiplied by the annual energy cost savings.

303.3.3.3.2 For Fannie Mae energy efficient mortgage products, the prevailing mortgage rate (i.e., Assumed Rate) shall be provided by RESNET annually from the information provided by Fannie Mae.

303.3.3.3.3 A weighted lifetime of 23 years shall be used in determining the present value factor for the energy cost savings.

 

[Restrain]

Here's something else. A homeowner in Saginaw, TX, a suburb of Ft. Worth, installed a wind turbine to help power the home. Now, we've got wind. Man, do we ever have wind. Never stops blowing.

However, the small turbine is not like the big ones that are relatively quiet. This thing puts off a high-pitched whine in operation. It can actually cause nausia, tinnitus, etc. Homeowners aren't botherered, but the neighbors are, and it may actually cause a negative from the noise when the home is sold.

Just a thought that you have to look at all sides of an issue, not just the energy savings aspect.

 

[Caterina Platt]

Here's something else. A homeowner in Saginaw, TX, a suburb of Ft. Worth, installed a wind turbine to help power the home. Now, we've got wind. Man, do we ever have wind. Never stops blowing.

However, the small turbine is not like the big ones that are relatively quiet. This thing puts off a high-pitched whine in operation. It can actually cause nausia, tinnitus, etc. Homeowners aren't botherered, but the neighbors are, and it may actually cause a negative from the noise when the home is sold.

Just a thought that you have to look at all sides of an issue, not just the energy savings aspect.

Exactly. Nothing beats true market response in resale. Granted, we don't always get afforded that luxury and have to opine the best we can, but one man's treasure......

 

[Metamorphic]

I was hoping that you guys and gals would have a better grasp on the value. I have two documented sources for valuation of solar and other energy efficency improvements, but I was wondering how you all approach.

The bottom line is that with a Home Energy Rating Report in hand you can adjust the value based on the annual utility savings of the home as compared to other homes of a like nature that do not have the energy improvements.


Here are the sources:
http://www.ongrid.net/AppraisalJournalPVValue10.99.pdf

http://www.resnet.us/standards/mortgage/RESNET_Mortgage_Industry_National_HERS_Standards.pdf
303.3.3.3 The Energy Value for the Rated home (e.g., present value of the energy cost savings) shall be calculated as follows:

303.3.3.3.1 For Fannie Mae energy efficient mortgages the present value factor shall be calculated as:

pvf = [1- (1 + r)-n] / r
where:
pvf = present value factor
r = prevailing mortgage rate (i.e., Assumed Rate)
n = weighted life of the measures (23 years)
To determine the Energy Value for the Rated home, the present value factor (pvf) shall be multiplied by the annual energy cost savings.

303.3.3.3.2 For Fannie Mae energy efficient mortgage products, the prevailing mortgage rate (i.e., Assumed Rate) shall be provided by RESNET annually from the information provided by Fannie Mae.

303.3.3.3.3 A weighted lifetime of 23 years shall be used in determining the present value factor for the energy cost savings.

Those articles dont make a very compelling case for valuing houses in general and solar electrics in particular.

The first one basically concludes "home value increases by about $20 for every $1 reduction in annual utility bills". So that $50k PV system that saves $100 month is supposed to be worth $24k to the value of the house. I'd say that its pretty rare that a person ties up more than about 5% of the total value of their home in PV's or other energy efficient items . So, a $24k feature on a $500k house,..... not such a big deal really. That's inside the margin where reasonably opinions of value could differ when appraising a high end custom home with few good comps.

The second article is not really even trying to define market based reactions to PV's or other energy related amenities.

Even if those did have some sort of concrete way of valuing these amenities in the market, as appraisers, we'd still be stuck with the problem that the buyers in the market are not playing along with the these value indications.

 

[Vermonter]

Same here. Although, in some areas we're starting to see increased sales on properties with some kind of alternative energy....wood boiler, biomass boiler, solar pv, solar hot water, wind gen., back up gen....seems like every comp has got something weird.

Can't really extract a reaction...yet, but it's coming.