How do you value Solar in a home appraisal?

[The Bob]

Here we go again.
A house with solar will sell for the same; more; or less than a similar house without solar. We look at the market to figure that out. It doesn't matter how much you save, what it costs to maintain or how fast it depreciates.

 

[MoistMitten]

You guys are funny.

"Value" has many different definitions. "Market" value considers what the buyers think, calculate and respond to. Value in use, seems to be the "value" definition that is the topic of this thread. But just stop for a minute and look at what the buyer's are calculating on pre-paying the electric bill for 30 years with interest in a mortgage loan:

View attachment 88505

Minnesota Electricity Rates & Average Electricity Bills - FindEnergy​

6 days ago The average electricity bill in Minnesota in 2024 is $111 while the countrywide average is $138. How many electric companies offer service in Minnesota? Minnesota has 167 electricity suppliers operating in the area.

Old average was 250 in summer and 450 in winter. Again its electric heating and cooling. Average bill WAS 330 or so with charging a vehicle. Now its 0. So a mortgage of $1980/m without solar value and with solar $2261. Assuming 300k initially and 350k with solar value. Thats with taxes and insurance included assuming the same rates. Thats an interesting way to go about the valuation if it works like that. FHA says you cant ONLY use the income approach. Again working on it, but 50k would be fair as well as that would allow some savings for the buyer compared to not having them.

Also helps to avoid increases on electric costs which YOY are about 10% around here.

That pretty much sums it up. Someone that spent a lot of money on landscaping would probably think that it significantly increases the value of the home. Ditto for the owner that just installed a $100K in-ground pool, a pole barn, a detached garage, etc.

Absent any good market data IN YOUR AREA there's really no good way to gauge a market reaction. You or anyone else can use a variety of methods to attempt to anticipate a market reaction but in reality, the market is the one that makes the call and eventually, when there's sufficient market data, a reasonable number can be rendered.

Until then, the 4% you noted in the article from the state is probably as good as any. I'm not certain where the $328K number mentioned earlier comes from but if that's your home's ballpark value, 4% seems reasonable. In any case, a $60K system on a house in the $300K range is a serious over-improvement. I know that you didn't spend that much but that may also be the reason that you don't see many such systems.

I remember back to the Peanut Farmer's presidency (he now looks like a genius compared to today's) and all of these solar systems were popping up (not PV but solar rooms, hot water panels and reflectors, "solar windows", etc) and were installed mainly for their tax credits. They were sold by snake oil salesmen and added virtually nothing to the homes' values and nearly all were removed in a few years, which seems to be the fate of PV panels when they get old.

Beauty (and value) is in the eye of the beholder. There may be one buyer out there that wants to appear green and is willing to pay a premium for that luxury. In that case, list the property for what you think its worth and you may find this one special buyer. Keep in mind that appraisers don't value property based on 'one special buyer'.

Bottom line, if you're looking for a high-confidence number for the contributory value, you're likely out of luck.

Good luck.

Exactly. There are some comps Im working on getting the value on to get some accurate data. No matter what I will make money with them thankfully... its just a matter of how much. Shoot I could always sell it as a short term rental at 380k since its cash flowing so well. People will pay over market value for a cash flowing property that has already tested the market.

Theres actually about 5 houses with solar around me, but Im not sure what their sales information was or if they are owned or on lease. ROI for the solar investment is 4 years so regardless its a good spot to be in installing them.

I also am well aware of people overbuilding and expecting there to be more value there... I bought this house for 53k, put in 70k and its worth somewhere over 300k TBD how much over with the panels. Worst case I made 177k. I have another property I got for 290k and will be listing for 525k put in 60k. I normally aim to make around 150-200k per house flip sometimes Im a bit off, but I also undervalue compared to what the locations appraise for... at least so far that is.


When the PV gets old you can just replace them... Panels are a bit pricey, but since the system is already installed and generally speaking... wires dont just go bad it would be about 4-6k to put in new panels. If you need a new inverter its another 1200 or so. The old ones can be recycled and made into new panels just like LIPO batteries can.

When you look at it as a 15 year investment for 7k lets say... The pay back is within 3 years.

 

[MoistMitten]

Here we go again.
A house with solar will sell for the same; more; or less than a similar house without solar. We look at the market to figure that out. It doesn't matter how much you save, what it costs to maintain or how fast it depreciates.

Super helpful. Thanks for providing some logic to find a solution on how to value it. Obviously the market is how you would find it. I asked for how you find the value when its not on a comp... If you read the other replies you would see I had an answer already.

 

[Dublin ohio]

FHA appraisal guidelines say you can not only use the income based approach, but it can be used as supplemental

Fannie is pretty much the same. Neither is going to accept the income approach as basis for an adjustment.

 

[The Bob]

Super helpful. Thanks for providing some logic to find a solution on how to value it. Obviously the market is how you would find it. I asked for how you find the value when its not on a comp... If you read the other replies you would see I had an answer already.

I was replying to some of the threads that were talking about alternative ways to value. For example, the cost approach. I can value a garage by the depreciated cost approach because I have market data that clearly shows a garage will almost always add value. If I didn't have that data, the application of the CA, by itself, would not reflect market reaction. You say there are no comps. If that is the case that should tell you something. Or, is it that there are no comps that support what you think it's worth? Others mentioned capitalizing the savings, but again, that BY ITSELF, tells you nothing. You would need to see that the market is recognizing that savings in the prices paid for houses with solar vs those without.
A lot of times a feature that you would think adds value, really doesn't. Take generators. In a rural market where you lose your power a couple of times a year, maybe adds some value. In a urban/suburban market that rarely loses power the market reaction by buyer's is usually... "that's nice", but it's not something they will pay extra for. Based on what agents tell me in my area, none have had a buyer list solar as requirement or "would like to have" in their search for a house.

 

[JTip]

One can say the same thing about other utilities.

Paying several hundred a month for water and sewer, while I enjoy a $0 bill for both with well and septic.

 

[Artemis Fowl]

When the time comes...please come back and let us know how the sale went. Great information for Michigan appraisers.

 

[MoistMitten]

When the time comes...please come back and let us know how the sale went. Great information for Michigan appraisers.

No problem! I would agree as info is sparce around here. Its SE Michigan... about as south east as you can get lol.

I was replying to some of the threads that were talking about alternative ways to value. For example, the cost approach. I can value a garage by the depreciated cost approach because I have market data that clearly shows a garage will almost always add value. If I didn't have that data, the application of the CA, by itself, would not reflect market reaction. You say there are no comps. If that is the case that should tell you something. Or, is it that there are no comps that support what you think it's worth? Others mentioned capitalizing the savings, but again, that BY ITSELF, tells you nothing. You would need to see that the market is recognizing that savings in the prices paid for houses with solar vs those without.
A lot of times a feature that you would think adds value, really doesn't. Take generators. In a rural market where you lose your power a couple of times a year, maybe adds some value. In a urban/suburban market that rarely loses power the market reaction by buyer's is usually... "that's nice", but it's not something they will pay extra for. Based on what agents tell me in my area, none have had a buyer list solar as requirement or "would like to have" in their search for a house.

All good. I received some info on how to extract the system value from a house that is not of the same construction and how to scale the value to my system size. Thats likely the most accurate way to do it as you cant do it by the savings per Fannie/Freddy guidelines. Solar by itself isnt the sell. Its the results of the solar that matter. Having a 0/m bill is the appeal. Normally that is a huge cost so people assume its beyond reason... but as I showed in the +50k valuation the buyer would save money every month and not have to worry about energy increases of 10% year for at least 15 years. Thats with taxes, insurance, and mortgage included. I think the only thing they would pay for is city water around 40/m or so?

That is where the appeal comes from imo. As you said we will see as I get some comps that I can find the solar value per KWh.

Theres around 5 or so in my neighborhood so if my agent cant get me the information Ill resort to door knocking to get the information.

 

[George Hatch]

I already told you in some detail how an appraiser would value an atypical feature in an appraisal.

I'm not local to your area so I don't have access to the local MLS. But I can find properties with a solar install which have sold in s/e MI in Zillow. Just click the "more" button at the top of their search screen and add the word "solar" to their keywords field. Not all the properties which are left from using this filter will have solar, but you only need to find a few of them.

 

[George Hatch]

This is way easier to do in the MLS but even with Zillow it is nominally doable to a certain extent.

Here's what that search turned up in s/e Michigan. All of those yellow flags show sales that remained after filtering for solar. Some might not actually have solar so you'll have to read through them all. I went through about 10 of those sales and a few of them actually have solar for the house (and not for a pool or water heater or some other feature)

In this screengrab the two pics on the right show solar panels on their roof. I'm sure there are others. We can call these our test mules - an appraiser would look for the comps for those test mules and adjust those comps for their other difference. Whatever pricing is left after all that can be attributed to the solar. If the local comps for 2175 Wooded Way (top pic on the right) are selling for $20k less after all the other adjustments have been made then $20k is the number in that particular example. Rinse/repeat with several "have solar" and an appraiser will have identified an adjustment factor that can be used in that area.