Follow up on the Solar discussion from an Installer

[George Hatch]

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.

I'm sure you're aware by now that I seldom post comments without thinking about them. I added the "will not" qualifier so as to sidestep the sure-to-follow debate based on the OPs apparent assumption that appraisers arbitrarily decline to even try to support the adjustment he's looking for. In effect, I'm saying that regardless of whether the appraiser's right or wrong the borrower isn't always automatically SOL - they do have options.

 

[DMZwerg]

The one indisputable fact is that the solar homes sold 20% faster and for 17% more than comparable homes in the same neighborhood.

To an appraiser virtually any "fact" is disputable until they analyze and extract the data for themselves. One of the reasons is that many have had exposure to statistics and thus have a good idea what numbers can mean.

As for starting an argument ... well, let's just say that yelling "Fish for sale" could get a reaction. :icon_mrgreen:

(reference to the movie "Meet John Doe")

 

[George Hatch]

I'm reminded of the bit South Park did on the Prius owners and the unintended environmental consequences of SMUG.

It is my assumption that at some point the resale market will assign some value to these solar systems and it'll start showing up in the sales data. The realty agents will highlight the amenity in their listings and they'll provide feedback to the appraisers about that extra value when the appraisers call them to ask that question.

The adjustments will be necessary because without them the pricing from the haves won't otherwise reconcile to the pricing of the have-nots.

As for the dire warnings that prospective buyers better get on board now or get left behind, I'm sure that's true, but I'm equally sure that whatever price break there is between the haves and have nots will be limited to the costs of installation. I also reckon the per-unit pricing will drop like a rock when the Chinese ramp up production.

Personally, I can't wait to install my very own Mr. Fusion reactor on my DeLorean.

 

[PropertyEconomics]

I'm sure you're aware by now that I seldom post comments without thinking about them. I added the "will not" qualifier so as to sidestep the sure-to-follow debate based on the OPs apparent assumption that appraisers arbitrarily decline to even try to support the adjustment he's looking for. In effect, I'm saying that regardless of whether the appraiser's right or wrong the borrower isn't always automatically SOL - they do have options.

Actually George you NEVER post without thinking about your comments which is why I made the comment.

I fully and completely agree with your analysis. To say another way, appraisers are not the end all of the lending process ... buyers and sellers have options outside the appraisal and may well excercise them.

Thank you.

 

[Michigan CG]

.....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......

And until your industry educates the general public the general public will not see the advantage to the technology. We (appraisers) report market reaction of the typical buyer and seller. So far the buyer seller reactions to the technology is not favorable to your industry.

I have multiple sales of homes with geo-thermal systems that are very expensive. The general public is not willing to pay for this feature and I can prove it many times over.

......The Home owner does not have to recoup the cost after 16 years. Someone said that the average homeowner sells every 7 years, if they are able to sell their house for more than homes without solar they retain all their savings over the 7 years plus the extra with increased value. (thus the reason I was looking on this forum .... wondering why appraisers don't give more value to solar homes, which IMO have a very measurable savings and immense value right away.

First of all, after the system is seven years old the buyer sees an aging system. The buyer if he is interested in solar and reads about it knows that the technology is ever changing and the seven year-old technology is most likely outdated. Therefore the market is not willing to pay for it.

....California is the only state with a Cap and Trade system (as of 2011)........

And California needs to wake up. The radical laws are driving people and business out of the state. Look for California with Governor Brown to ask for federal help in the next two years.

Yup, perception is big.....

Let us assume that everything you say is realistic and makes sense. Perception is still reality and appraisers report market reactions. Market reactions in many markets are none to negative.

I have a feeling that the folks who go solar now and use the incentives available are really gonna make out. Electricity is going Nova and people here in Cali are going to have to do something or they will be paying $300 or $400 monthly for electricity soon. Once the incentives are gone who know's if they will refresh them.

And here is part of the problem. The government is getting involved to entice people to invest in the technology that is, let's face it, at it's infancy stage. keep the government out of the market and let the market determine the value of the improvements. The initial buyer of the technology gets an incentive to install solar, the buyer of the property with the solar installed does not get any government incentive.

Does the wife consider the granite kitchen and ceramic tile to be worth more than the solar system? At this point in time it seems so.

.......If Sally and John can buy 123 Main for $320K w/o solar panels or the identical house up the road for $345K with a solar system, which one do they choose? The seller can ask whatever they like and the appraiser can put whatever number he/she would like on that report, but it isn't a reality until the buyer is willing to recognize a premium benefit and pay for it..........

Best statement in this thread (so far).

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

I will remember that line for a long time.

....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 fully support the AI and it is a proven fact that green energy buildings in commercial are getting higher rents and thus increasing the value of some of those green properties.

The residential side of appraising is still reporting what it sees. Corporations and businesses are not buying green properties just to be green. Many are doing so to give a good public perception. They may pay $30/more per SF to build that office building but are banking not only the energy savings but also the goodwill that the green perception will give them in terms of sales and profits.

 

[PropertyEconomics]

I'm reminded of the bit South Park did on the Prius owners and the unintended environmental consequences of SMUG.

It is my assumption that at some point the resale market will assign some value to these solar systems and it'll start showing up in the sales data. The realty agents will highlight the amenity in their listings and they'll provide feedback to the appraisers about that extra value when the appraisers call them to ask that question.

The adjustments will be necessary because without them the pricing from the haves won't otherwise reconcile to the pricing of the have-nots.

As for the dire warnings that prospective buyers better get on board now or get left behind, I'm sure that's true, but I'm equally sure that whatever price break there is between the haves and have nots will be limited to the costs of installation. I also reckon the per-unit pricing will drop like a rock when the Chinese ramp up production.

Personally, I can't wait to install my very own Mr. Fusion reactor on my DeLorean.

George .. apparently those solar panels currently constructed in China are among the poorest performing there are. They will have to increase quality a great deal ... and frankly among the "solar set" there seems to be some preference for American constructed panels at the current time .. their social conscience, as best I can tell, also extends to buying American.

Thanks again for the post and good luck with your DeLorean ... :new_smile-l:

 

[DMZwerg]

After 8 years the homeowner would have avoided $16,513 in electricity costs and there would still be 17 years of "guaranteed" life left in their panels. All they would need is an increase of 3.5k in their home to break even. If they got even half of what they paid for the system, they would be making a profit of $6.5k (plus any checks they got back from the electric company across the years).

IF AND ONLY IF they are able to get any of the money back.
Let us say house A sold for $320k and house B sold for $320k. If they are identical make, model, floorplan, condition, etc., and the only different was that house B had solar panels then, if you were the appraiser, what would you opine the adjustment for solar panels to be?

What if the solar panels were visible from the street and house B sold for $315k?

The reality is a local market may pay more, the same, or even less for a house with a particular (or peculiar) feature. It really doesn't matter if we are talking solar panels or in-ground pools, they way the local market reacts is the way the local market reacts.

After 12 Years they would have avoided $29,959 in electricity costs and would have already made all of their money back plus almost $10k more with still 18 years of "guaranteed" life left in their panels. Any increase in home value is just frosting on the cake.

So, what guarantee does the buyer have that the panels were installed 12 years ago or only 2? Even if they are well informed about when they would need to be replaced, and are interested in owning a home with solar panels, would they pay more for them already being there or would they want to pay "zero" extra and replace them immediately?

See, there are a number of potentialities and the bottom line is that the local market will pay what the local market will pay.

Around here buyers will often pay a 20% premium for a Prairie-style home but they typically take 2x-3x longer to market (small group, timing has to be right) and therefore new built Prairie-style homes are very rare because they take longer to move and typically cost much more in materials, high craftsmanship demands, and so forth (making them a wash for builders except for increased marketing time). I mention them because pools and Prairie-style homes are at least as common as solar panels around here (probably much more so, but attached green houses tend to be a bit more rare). As I stated before outdoor in-ground pools are almost entirely a wash around here and in many markets are actually a negative adjustment. Due to solar panels being rare, snow being common, and perception being everything, it is very likely that solar panels add little to no value in Wisconsin.

Welcome to the wonderful world of appraising!

 

[DMZwerg]

DMZ and Spartacus,

The following are links to all properties in Scripps Highland in San Diego that are listed, pending or sold through Sandicor MLS over the time of 2000 through today for you to view the detail data.

Irrelevant as it is not my market.

Now, if you want to hand me a list of all the sales of houses with solar panels in SE WI only then would it be worth MY time to analyze in depth. If you want to, enjoy!

 

[Randolph Kinney]

Irrelevant as it is not my market.

Now, if you want to hand me a list of all the sales of houses with solar panels in SE WI only then would it be worth MY time to analyze in depth. If you want to, enjoy!

Being a whiz-bang in statistics is only relevant in Wisconsin for you. The raw data is posted - with and with out solar - from San Diego, California in the same neighborhood that is referenced in the OP report. Spartacus keeps citing the statistics in that report as "... indisputable fact is that the solar homes sold 20% faster and for 17% more than comparable homes in the same neighborhood."

Looks as if you have defaulted to Spartacus as the expert statistician.

 

[Lee Lansford]

... wondering why appraisers don't give more value to solar homes, which IMO have a very measurable savings and immense value right away.

Appraisers are looking for other market evidence in the form of re-sales of dwellings with solar vs. sales of similar dwellings but lacking solar. From this is the market evidence of which appraisers have interest.

The fact that a particular buyer of new construction will elect to incorporate solar-power into the construction of a new residence does not, by itself, indicate what the market will pay for this amenity.