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Off grid - Functional Utility?

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sharonp

Thread Starter
Freshman Member
Joined
Aug 10, 2007
Professional Status
Certified Residential Appraiser
State
Virginia
The property I am appraising is completely off the grid. Electric is completely provided by solar, and additionally this borrower has a windmill to help keep the batteries charged. From the market standpoint, I'm thinking that this represents a functional utility problem and there are no comparables that I can find that replicate it. How do I adjust properly for the functional problem? I'm thinking that 10% is an appropriate penalty - is the 10% applied against the sales prices of the comparable sales?
 

sharonp

Thread Starter
Freshman Member
Joined
Aug 10, 2007
Professional Status
Certified Residential Appraiser
State
Virginia
The property I am appraising is completely off the grid. Electric is completely provided by solar, and additionally this borrower has a windmill to help keep the batteries charged. From the market standpoint, I'm thinking that this represents a functional utility problem and there are no comparables that I can find that replicate it. How do I adjust properly for the functional problem? I'm thinking that 10% is an appropriate penalty - is the 10% applied against the sales prices of the comparable sales?
 

Kevin A. Spellman

Senior Member
Joined
Aug 30, 2003
Professional Status
Certified Residential Appraiser
State
Massachusetts
I would not travel down the percentage adjustment arena. I would seek the cost to connect if it is physically feasible. A discussion of market resistance should appear in the report. Do the municipalities assigned a lower land value or lower building value for the absence of electricity? I would call the power company and ask if there are near by residential properties providing power into the grid?
 

sharonp

Thread Starter
Freshman Member
Joined
Aug 10, 2007
Professional Status
Certified Residential Appraiser
State
Virginia
Off grid

Thanks for that suggestion. It is feasible to be connected and I'll find out the cost. The tax assessor penalizes the 10%; that's actually where I got that figure.
 

Lobo Fan

Elite Member
Joined
Nov 28, 2004
Professional Status
Certified Residential Appraiser
State
New Mexico
I think the cost to cure is the correct approach less the value of the generating equipment. In this day of global warming it may gain more market acceptance than you know. I have done a couple of off grid homes and my solution was to deduct the cost to cure. Sometimes the cost to bring in utilities can be enormous which may be why a $30,000 solar system looked good to someone. If electrical is available at the property line then yyou have a much easier problem to solve.
 

Joyce Potts

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Supporting Member
Joined
Feb 6, 2005
Professional Status
Certified Residential Appraiser
State
Florida
After all, the house DOES have electricity, just like the comps, the only difference is the source of power. I would suggest simply view it as a super adequacy and attempt to get some figures on how much it would cost to convert the home to a regular power source, inclusive of getting rid of the windmill and/or solar panels, if the current electrical power source is atypical of surrounding properties.

That said, lets face it, going green is the up and coming thing.
 

Mztk1

Senior Member
Joined
Dec 3, 2006
Professional Status
Certified Residential Appraiser
State
Florida
I am naive about these systems. I've never encountered one. Why would it be an inadequacy problem? Does the electricty not work 24/7? Is there a higher risk of having no power? I thought maybe it was that it was VA and you didn't have enough sun, but then I saw NM and thought, huh, that can't be it. Frankly, with the cost of electricity near me (between $500 and $600 every month) and the cost of water (around $150 to $250 a month), I am very tempted to pay the $35K to $45K to get off the grid and on well water. In my market, I think it might be a positive, not a negative.
 

CANative

Elite Member
Joined
Jun 18, 2003
Professional Status
Retired Appraiser
State
California
I get an off grid property at least once a month. I have found no measurable difference in sales prices attributable to being off the power grid. The state of the art at this time makes operation and maintenance of these sytems less mysterious and difficult than it used to be.

Since the system is already in place a prospective buyer will not have to make a decision to buy and install the system versus bringing in public power. The just have to choose between this property and an suitable replacement with public power. I don't think they would consider costs in their buying decision (that has already been decided). They will just have to decide if they have a strong preference for one system versus the other. In my maket, it doesn't seem like buyers have a strong preference either way.
 

Mike Boyd

Elite Member
Joined
Jan 18, 2002
Professional Status
Retired Appraiser
State
California
After all, the house DOES have electricity, just like the comps, the only difference is the source of power. I would suggest simply view it as a super adequacy and attempt to get some figures on how much it would cost to convert the home to a regular power source, inclusive of getting rid of the windmill and/or solar panels, if the current electrical power source is atypical of surrounding properties.

That said, lets face it, going green is the up and coming thing.

As viewed by many, if not most, appraisers in this forum, solar electrical generating systems are problimatical and not worth very much. So, until attitudes change, you would need to find out how much it would cost to connect to the public utility. Also, a factor to consider is how long it would take from application to completion. It may be a year or more before the power company would get around to the work. As with any "cost to cure," the actual COST is inadequate. Remember, you are appraising this most likely as security for a loan. If the lender has to foreclose, they are not likely to pay thousands of dollars for the connection. A new buyer will resist and, therefore, you must deduct a risk factor as well as an entreprenueal profit.
I would say, double the estimated cost to cure. However, do not limit the market area to one mile searching for comps. I have gone 30 miles or more.
 

CANative

Elite Member
Joined
Jun 18, 2003
Professional Status
Retired Appraiser
State
California
You only need to consider "cost to cure" if you have determined that alternative power systems versus connection to public power is adverse to value or marketability.
 
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