Homeowner Owned Solar System Adjustment

[Deleted member 134708]

It's nice on paper but on a 2 story home, its a real chore to clean the panels from bird droppings etc. And general tech issues with panels, inverters, etc. "It's all under warranty" sure it is....and people are also weary of iPhone X today, iPhone X1 tomorrow in the solar world.

People pay all day long $50,000 for them. They get sucked into the pitch.

Buyer going to be in the house 3 years, they are gonna rent it, they don't want headache of roof leaks, obsolete tech etc. Myriad reasons why people pay $0 - $5,000 for them.

It is one for the record book on depreciation, decision making, actual returns, buying dreams et al.

$50,000 at 11:00AM, $5,000 at 11:00:01AM.

Let's say that $50k is real. It's just not real today. It's locked up in the future distributed through 5 owners.

 

[Terrel L. Shields]

Assuming there is no match pair would it be so unreasonable to adjust on the conservative side of things?

PFA?

I just can’t see why it would not be reasonable to adjust based on what the system generates

It not only that, and it's hard to refute. So you say it saves $2,000. $83 x GRM = what? Here GRM = 120-160 (depends on the rent the particular house would fetch, right?) So that same issue applies for comps. The contributory value will vary with the home price hence you won't find comps that give a tight price range. Like $8,000 to $25,000. Throw darts. But at least with capitalization of the savings you have defensible numbers.

 

[glenn walker]

Here is were the problem starts ? Very few people pay 50K cash for a solar system - In my area of California a $40,000-$70,000 solar system is financed through programs which are a loan at an- interest rate of 7% to 9% amortized over a 8-10 year period - SO IT'S Not really owned it's a financed system and there is also a lien on the property LIKE a second mortgage ? SO when you back out the payment on the system -Often there is no savings but the H/O got screwed - In the last 5 years I have only run into one homeowner that paid-cash for the system because most are sold on the TAX credit and no money down .. X- SUB-PRIME mortgage sales people can sell it all day as long as the owner does not have to take any money out of their pocket .

So the question to ask is did you pay for the system or was it financed ? If it was financed you have to back out the monthly payments and often it's a zero sum game - Until the poor guy-gal goes to sell the home and the new buyers says NO way I am not paying -Off your 50K loan because I can get a new system with no money down or just turn my thermostats up to 78 degrees instead of 60 degrees in the summer and my bill will be $155.00 a month instead of $350.00 a month : ) LOL

 

[Tom Woolford]

I'm sure in some areas it would have a contributory value, which should be discernable via various market driven analysis. Any other approach (income etc) seems to be grasping for a reason to make an adjustment. If they are popular, or even marginally desirable, there should be plenty of data. In the absence of enough sales, personally it would seem to be an unrecoverable waste of money. In completing over 16,000 appraisals during my career, I've never seen a single home with them. Driving around the county, I can think of only three homes that have them. In this market, they are worthless.

 

[Deleted member 134708]

In CA it's as if Phineas Taylor Barnum was resurected.

Solar come one come all. For the cheap price of $50k, you too can have $5k in exchange. (Bright lights, noise ensues) sheep follow to the commotion.

Elon is a real life Barnum 2.0 x 100.

If bubbles are a puzzle of 5,000 pieces. A solar lien against your equity would be 1 piece.

 

[Valueseeker]

Alrighty... I’m taking that advice of looking through MLS for homes with owned solar.

If you exaggerate the example though and say it is a solar array that utilized an acre of his land, and it produced a 5000 a month(assuming it had zoning clearance and /or proper variances), what would someone pay on the effective date? I just feel like the poor guy is slighted on a low end adjustment.

O well. 10k adjustments on a 500k home pricepoint. Makes it feel like those lovely. Porch/patio adjustments

 

[DTB]

Would you adjust for a basement room with a LOT of electricity, ventilation and fans for a Bitcoin mining setup?

I wouldn't, in either case.

 

[The Nightfly]

10k adjustments on a 500k home pricepoint. Makes it feel like those lovely. Porch/patio adjustments

Why do you have to adjust for it in the grid? We (appraisers) run into amenities, external influences (positive and negative), functional concerns, etc. all the time that we can't bracket or reasonably put a specific dollar figure on. Unless you are really called to the carpet on it, a PFA adjustment or some type of forced mathematical conclusion will probably work...but why put yourself out there like that? You are analyzing an amenity that you believe to be worth more than $0, less than $50k. Likely far, far less than 50k. Let's say you have 5 decent comps that adjust to: 500k, 510k, 515k, 520k, 525k, or a 5% spread, without any consideration for the solar panels. Why not just explain that you have no basis for any quantitative adjustment, but it is reasonable that all else being equal a market buyer would consider perceived and/or potential savings on electricity a positive feature, perhaps a notably positive feature, and reconcile to the upper portion of the range? If there is no evidence to the contrary (such as agents telling you that it didn't affect their sales one way or the other, or good quality matched pairs that tell you there is NO adjustment warranted), then (IMO) that conclusion is reasonable and credible, and you haven't put yourself into a corner having to support a specific "market-based" adjustment.

 

[Meandering]

Alrighty... I’m taking that advice of looking through MLS for homes with owned solar.

If you exaggerate the example though and say it is a solar array that utilized an acre of his land, and it produced a 5000 a month(assuming it had zoning clearance and /or proper variances), what would someone pay on the effective date? I just feel like the poor guy is slighted on a low end adjustment.

O well. 10k adjustments on a 500k home pricepoint. Makes it feel like those lovely. Porch/patio adjustments

Get the name of the electric company that is servicing the property.
Get their solar reimbursement policy (usually on-line, depends on the company).
Then question the company, How Long will they be paying Homeowners that rate for electricity generated from the solar panel.

You are going to be very surprised to find out there is no way the electric company is going to tell you they will buy the electricity generated from those solar panels for the next 25 years. More than likely, they are buying it now, because the state is requiring it, or they are getting carbon credits, and are in the process of changing to a different "green technology" so that they don't have to buy homeowner generated electricity, and they can get out from paying retail prices for electricity they have to re-sell at retail prices.

If you search the forum, we have had probably close to a few hundred threads about solar panels since 2008.

Denis might help you with working the AI DCF concerning the income approach, as a contribution to the real estate, but be fore warned that the AI product absolutely did not account for the regulatory risk to the income, or any other risk to the income, or, that solar panels on the roof might increase the homeowners insurance, and, when they are removed they are toxic waste, and that many of the component parts have been recalled due to faulty manufacturing making them fire hazard risks, and that the inverters do no last as long as the panels, and they aren't cheap to replace, provided you can still find the model you need when it goes bad, because the technology has moved forward in leaps and bounds, so, there is no incentive to continue the produce the "old" parts for your "old" system. Those, and other considerations were not addressed in the AI's DCF model, but Denis worked out a way to trade off contribution with other line item considerations of other sales.

PM Denis, perhaps he'll discuss it further with you.

.

 

[hastalavista]

If you search the forum, we have had probably close to a few hundred threads about solar panels since 2008.

Denis might help you with working the AI DCF concerning the income approach, as a contribution to the real estate, but be fore warned that the AI product absolutely did not account for the regulatory risk to the income, or any other risk to the income, or, that solar panels on the roof might increase the homeowners insurance, and, when they are removed they are toxic waste, and that many of the component parts have been recalled due to faulty manufacturing making them fire hazard risks, and that the inverters do no last as long as the panels, and they aren't cheap to replace, provided you can still find the model you need when it goes bad, because the technology has moved forward in leaps and bounds, so, there is no incentive to continue the produce the "old" parts for your "old" system. Those, and other considerations were not addressed in the AI's DCF model, but Denis worked out a way to trade off contribution with other line item considerations of other sales.

PM Denis, perhaps he'll discuss it further with you.

.

Marion-

Thank you for the shout-out.
I'm not familiar with the AI product that calculates the PV of the energy savings (I should be, but I'm not).
What I do recall is that I am more in-line with what your views are: that the payment from the utilities for the excess energy production is so uncertain that any reasonable player in the market would discount it to zero.

My appraisal experience on owned systems is this:

• Does it add value to the property? Usually, yes.
• Is that value-addition especially significant? Not really. Unidentifiable to 3-4% of value (and, as the overall value of the home increases, the percentage of contributory value of the system decreases).
• Do some markets value such systems more than others? Most definitely. But those that do are typically the higher end markets (my experience) and again, as the overall property value increases, the contributory value of such systems... as a percentage... decreases.
• Can one use a DCF to calculate the PV of such systems? Yes. But that isn't how the market does it. So, IMO, such calculations can demonstrate a "reasonable and credible" valuation analysis of such a system, but I wouldn't rely on it to make a grid adjustment.

What I find is the contributory value of such systems is within the adjusted range of the comparables. For example, if I have an adjusted range of $600k to $625k, the math will show the PV of he system is $20k. Rather than adjusting in the grid, I'll use that analysis to refine my value conclusion in the reconciliation. So if I would conclude the subject (without the PV system) is worth $615k, I'd then add the PV system into the mix and value the subject closer (or at) the $625k mark.

Two more comments...

I always look for, and when found, call the agents involved in sales of PV systems and ask them how they think that amenity affected the sales. I've heard everything from "it doesn't move the needle" to "Oh, it was worth $X", to "it helped the sale but I cannot tell you how much it affected the value." I've yet to have a situation where the market participants feedback was inconsistent with my DCF-analysis application as I described above. In other words, the market confirms the reasonableness of how I consider the contributory value of the system.

As a residential appraiser, a DCF is not a typical analysis-technique. While the logic underlying such a technique... especially when the inputs are relatively easy to identify and the duration is limited.. is sound, unless the appraiser has had some training in how to apply it (the DCF), it is too easy to make a mistake or misinterpret the results. I've given presentations of how my DCF works, and I've regretted it afterward because I (a) never had enough time to fully demonstrate how it works, and (b) left the attendees more confused than enlightened. And this has nothing to do with the attendees not being able to grasp how a DCF works; it has everything to do with a CE course on Photo-Voltaic systems is not the place to learn Discounted Cash Flow.
So I'm very hesitant to advise any appraiser to use a tool (DCF in this case) without first taking the steps to understand how it works such that s/he has the ability to recreate it for a relatively simple problem like determining the present value of the future energy-expense savings the photo-voltaic system is forecast to achieve.