Follow up on the Solar discussion from an Installer

[Randolph Kinney]

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.

The data and anaylsis is shaded to make it look better. The conclusions are bogus.

For example: "However, we believe the lackluster sales of optional PV systems was the result of sales staff failure to offer the optional PV systems to buyers of PV-eligible homes." ... "Neither qualitative nor quantitative data identified aesthetics as barriers to purchase of homes with solar panels. However, because we primarily studied homeowners who bought such homes, we cannot conclude that no one objects to the aesthetics of solar panels." ... "Concerns about the San Diego 2001 electricity crisis did not influence home purchase decisions. Energy was not an important factor in the purchase decisions of most of the study’s new homebuyers."

For example: "The findings on willingness to pay (WTP) more for PV systems suggest that $5,000 may be a threshold for 1.2 PV systems. More than one-third of non-PV-purchasing homebuyers indicate a WTP at least $5,000 more for PV systems that could replace 50% to 70% of their electricity needs. This level of savings would require a larger PV system." ... "Reasons for not purchasing PV systems tend to center around the expense. Subsidies and amortization would be required to permit installation of larger 2.4 to 3+ PV systems that would be needed to reduce electricity costs by 60% to 70%."

For example: "In essence, buyers of homes with PV systems standard had their PV costs rolled into the prices of the homes and did not have to make separate purchase decisions about solar PV, except to determine if they wanted to upgrade their systems." ... "In the context of hundreds of decisions homebuyers had to make at the time of home purchase on all manner of options, such as paint colors, flooring, rooms, window sills, and counter tops—all of which are well-understood choices—the purchase of PV was a difficult decision to make.

For example: "Green had not understood at the time that the field experiment he had designed stacked the deck in such a way as to make it difficult for buyers to opt for PV systems. He also had not fully comprehended the implications of the fact that sales staff—who are there to sell new homes— would also have to sell optional PV systems one buyer at a time and would receive no financial reward for doing so."

For example: "A key question of the research is how attractive high-performance homes, near-ZEHs (cutting at least 50% of utility bills) and ZEHs are to new homebuyers and whether they represent a marketing advantage for builders. Although the homes built by SheaHomes at Scripps Highlands are not, strictly speaking, ZEHs, it was estimated when they were planned that they would save 38% of heating, cooling, and water-heating energy beyond the strict California Title 24 guideline."

For example: "Although much of the focus of this study is on the performance and market acceptance of high- performance homes compared with conventional homes, a subinnovation is solar PV systems tied to the utility grid with net-metered electricity. Consequently, some of the study focuses on the response to the solar PV subinnovation. Certain homebuyers may have desired to adopt the solar PV system more than the high-performance home as a whole. However, separating the adoption of solar PV systems from the adoption of high-performance homes is difficult."

The data is "massaged" to state higher percentages for the PV houses.

Clearly the element of choice based upon cost-benefit is missing on the original purchase. A better study to find out the desirability of PV systems is to examine a large existing neighborhood for the number of homeowners that are retrofitting a PV system. It would be easy taking satellite photos over time to count them. Compare that with the stated conclusions of this report. Also track the resale of homes before and after retrofitting PV systems.

But, this report is really done to present a false impression. And you have someone like Eric trumpet the findings with out reading or understanding the report.

 

[CANative]

Much better way of putting it. Thanks for the correction.

But as I have learned from reading different threads here, there are different ways of making the case for increased value other than just comps, right?

Yes. But the results should be the same (or near the same) no matter which of the valuation approaches are used (Cost, Sales, Income approaches which are used in combination).

Will renters pay more rent if they live in houses with solar power?

 

[Scott R Marshall]

As many people have noticed, the solar market has the perception that things have not changed in the last 30 years for solar ... so it is not like a stereo or TV. People don't expect to need the latest and greatest in Solar because they don't think it has or will change much.

The biggest reason not everyone has solar is because there is a HUGE mis-perception on how it works and how it can save. My neighbor thought they had be replaced every 5 to 10 years and that they could never last 25 years. Even here with Y'all who are experts in housing and deal with it daily, some thought wind would blow it off the roof, others that hail would hurt it. People don't understand it and that is the biggest roadblock. The thing is .... Solar is not just for hippies anymore.

There is an up-front cost issue, but when it is incorporated in the loan for the house that is negated. There are also 0 down loans that are available and other loan programs. In this economy it is difficult to get credit but the programs are there.

Spartacus,


Your problem is you see the additional cost but appraisers are not giving an increase in value. Appraisers see an issue because everyone involved in the solar industry and green building in general is pounding on us that these additional costs must translate to additional value. In order for an appraiser to make such a determination it HAS to play out in the market. There is some hesitation among appraisers to simply take an installers word for it, especially among the old-timers, as the last time this came about in the late 1970's-early 1980's it did not pan out.

I cannot speak for your market as every market is different. In my market currently it is difficult to substantiate. Some of my peers and myself included have utilized a discounted cash flow analysis as the state electric company offers an on-grid system which actually pays the owner money for the electricity generated. But we are talking about a method which is only supportable by math calculations and not supported within the market. This is still considered somewhat acceptable within my local market as the data pool for these types of systems and the amount of time the program has been in place is limited but I will tell you that as more and more time passes and the data pool increases there is more an more evidence to support a minimal to no additional value. At some point the time passed and the data available will either support your position or mine. All I am saying is that in my market at this point it is leaning in my direction on resales and leaning in your direction on new construction.

 

[Terrel L. Shields]

Please y’all … given that all this information is correct, why shouldn’t the appraisal come out higher than a home without solar?

I have long argued that the proper way to adjust for solar power is to capitalize the savings into a value. I see insufficient sales in my area to make a reliable estimate from paired sales. Further, solar typically retrofitted is possibly less valuable in the marketplace whereas a good system built in would also incorporate passive solar items that are basically "free" - i.e. - based on design smarts not any costly system.

So long as appraisers go into the assignment with the bias that the system adds no value, then they likely are to conclude that it has no value... an anchoring bias which is impossible to overcome and a bias which the appraiser can rarely recognize in others let alone themselves.

This is like the invisible "illegal" garage conversion; or the log home bias which relates to secondary market lenders dissing it; etc. Appraisers are invarably biased and the sad part rarely admit nor recognize it. If they would at least acknowledge their bias, then they might be able to do something about it. But when you are in complete denial and myopic....hit Shappens.

 

[CANative]

I have long argued that the proper way to adjust for solar power is to capitalize the savings into a value.

Income capitalization is not a direct reflection of market activity. How would you derive a cap rate for this specific feature without some market data?

 

[Randolph Kinney]

For example: Hypotheses and Research Questions
"These findings refer to the retrofit market for PV; that is, the potential interest of Colorado homeowners in retrofitting their homes with solar electric systems tied to the utility grid. The current study focuses on the new home market. Also, unlike the Colorado respondents, all of the San Diego respondents have the demographic characteristics associated with early adopters. Thus, we anticipated that distinguishing early adopters from later adopters within the San Diego study would be difficult. We hypothesized that, in the unlikely case that such differences could be measured, early adopter characteristics would more likely be found among the SheaHomes buyers than buyers of conventional housing.

Environmental concern has often been linked to interest in renewable energy (e.g., Buhrmann and Farhar 1998; Farhar 1993; Farhar and Coburn 2000). This study hypothesized that environmental concern would be linked with purchase of PV systems and possibly of ZEHs.

The questions were completely focused on the buyers of SheaHomes’ high-performance homes."

This should make it clear that the study really wasn't about PV systems and their desirability or cost-benefit. It was about the marketing of the phrase "high-performance homes".

Intel used to privately refer to "blue crystals" when marketing their processors based upon speed at which the core CPU is operating at for CREATING a consumer impression of a computer's performance. The consumer is that ignorant.

 

[Terrel L. Shields]

Income capitalization is not a direct reflection of market activity. How would you derive a cap rate for this specific feature without some market data?

What the (*&^ do you think cost savings, cost, rents, GRMs are? Cookie dough? All that is "MARKET DATA"...not just cash in exchange for a whole property.

That's where a lot of you fall on your face. READ THE FN TEXTBOOKS..!!! MARKET DATA are cost, income (and income savings) info as well as sales information...

 

[Randolph Kinney]

Here is a satellite photo of Shea high-performance homes at Scripps Highland that is mentioned in the report.

Notice all the PV panels on the homes in a block. I could do the exercise of examining the resale of these homes but that is not my job to prove what difference it makes. If there is a difference, maybe Eric can provide that information.

Notice how jammed together these homes are and how large they are.

 

[CANative]

The income approach requires careful application because small variations in its key variables
(capitalization rate, duration of income stream, estimated income and expenses, etc.) will be
mathematically leveraged into a wide range of estimated value. This is particularly true for the
capitalization rate variable. The accuracy of the income approach is no greater than the validity of
the assumptions used to estimate the key variables. The mathematical techniques used in the
approach, while sometimes complicated, are merely tools for converting these assumptions into
an estimate of current market value.

Once again: How would you derive a cap rate for one specific feature of the property? I suppose you could use rental rates... if you somehow found the data. And keep in mind that we're discussing residential property in general and probably single family residential property specifically. Not industrial property or poultry operations.

 

[Terrel L. Shields]

Are you doing an entire income approach? or making an adjustment? Ever do a single paired sale? Sometimes you are lucky to even have that one pair... Making an adjustment to a property is not the same as "doing" an Income approach on some individual item.

The class that AI teaches EXPLICITLY uses the income capitalization method of making an adjustment. I rest my case.... Did your paired sales tell you to adjust for SF at EXACTLY $48.12.. did any paired sales suggest perhaps $74.13 or $21.98 was the "correct" GLA adjustment... Are we talking "accuracy" or "precision"? Forget judgment. That's been thrown out the window long ago....you prejudge something is worthless then you'll never see the forest for all the trees.