Pre-paid Solar PPA

[OllieGarchy]

Hello again. I've run into something I'm not quite sure how to handle. Hopefully someone here is smart enough to help me out.

I'm going to be doing an SFR purchase appraisal. Normal home except...one of the previous owners pre-paid $40,000 for the solar as a sales perk for the, then, buyer and now seller.

It's a PRE-PAID SOLAR PPA.

Here is what the current seller says in a letter to the current buyer:

As a condition of sale between the previous owner and myself, they pre-paid for the power
produced for the life of the current contract. The cost to do this was a little over $40,000. This
means you will not be charged for the solar power that you enjoy. You are receiving $40,000
worth of free electrical power over the next 19 years. The additional electrical needed over the
past 10 months from PG&E has been right around $5.00 per month. So, you can see your
electrical bill will be minimal if not non-existent until the year 2038.

A solar PPA still sounds like a lease since the homeowner doesn't own a thing.

But, in this instance, it looks like they get an immediate bonus.

Problem is, I have no idea how (or if) to value this.

Anyone have any ideas?

Many thanks,
Ollie

 

[Randolph Kinney]

So I have a Tesla ($100,000 value) that I will throw in to sweeten the deal. How much of the agreed upon purchase price has been influenced by the non realty gift?

Read the definition of market value. Disclose the "extra non realty" gift.

 

[J Grant]

Hello again. I've run into something I'm not quite sure how to handle. Hopefully someone here is smart enough to help me out.

I'm going to be doing an SFR purchase appraisal. Normal home except...one of the previous owners pre-paid $40,000 for the solar as a sales perk for the, then, buyer and now seller.

It's a PRE-PAID SOLAR PPA.

Here is what the current seller says in a letter to the current buyer:

As a condition of sale between the previous owner and myself, they pre-paid for the power
produced for the life of the current contract. The cost to do this was a little over $40,000. This
means you will not be charged for the solar power that you enjoy. You are receiving $40,000
worth of free electrical power over the next 19 years. The additional electrical needed over the
past 10 months from PG&E has been right around $5.00 per month. So, you can see your
electrical bill will be minimal if not non-existent until the year 2038.

A solar PPA still sounds like a lease since the homeowner doesn't own a thing.

But, in this instance, it looks like they get an immediate bonus.

Problem is, I have no idea how (or if) to value this.

Anyone have any ideas?

Many thanks,
Ollie

 

[J Grant]

agree it sounds similar to a lease. In any event, the seller is offering it as a concession, so report it as such, a prepaid electric bill reduction due to passing along the solar PPA.

. If that inflated the sale price, it explains why . If the price as not inflated, it still is an incentive / seller concession, but did not affect price ( above your opinion of MV). You cant' know if the sale price was influenced by the concession until you do your appraisal and derive your market value opinion..

 

[Addie]

Analyzed. Market participants value this item as if it were Real Property due to the average years of home ownership as of effective date with remaining years of solar.

This item was valued as if it was owned, (derived based on market participants value reaction)

$5,000 adjustment applied relative to comps with no solar based on market participants value reaction.

 

[glenn walker]

In California a "Power Agreement" is a fancy word for a 19-20 year Leased system. Also even though the seller supposedly pre-paid the electric bill for 19 years ? The inverter, panels etc still have to be maintained ? So there is a good chance there is still a lease payment on the equipment. If not WHO repairs that bad-boy when those cheap chinese solar panels. Fannie says the Solar panels may "NOT" be included in the appraised value, the property must maintain access to an-alternative source of electrical service " IE must be able to reconnect to a good old standard meter. The other reason some builders do this is they get the tax credit not the buyer and in this case th builder may be getting a $10k-20K tax credit so he really never paid $40K. Also is the power agreement in the new buyers name ? PGE

The "gift" or concession is not real estate. Substitute the pre-paid electricity for 19 years of free grocery's or paying off your $40,000 student loan, or giving you a new Toyota Prius. Worse is did the seller add or stack the $40K on top of the sales price or he inflated the contract price get his money back ? If so you may be short $30 or 40K on your appraisal. That nice letter from the buyer or seller is just a dear John letter hoping that you place value on a non-real estate item. Worse it's all based on 19 years of a Prospective and "hypothetical assumptions. Imagine if the new buyer only lives there for a few years, how does he/she get that $40K back ?

If this is PG&E this is not a company I would depend on for 19 years of cheap electricity ! Because on January 14, 2019 PG&E announced that it was filing for Chapter 11 bankruptcy in response to the financial challenges associated with the catastrophic wildfires that occurred in Northern California. How are power agreements being handled and how many ways can a PG&E Null & Void those agreements ? Not even ten Philadelphia Attorneys have the answer because these are the same guys who have power -poles that in some cases are 80 to 105 years old.

 

[Meandering]

If this is PG&E this is not a company I would depend on for 19 years of cheap electricity ! Because on January 14, 2019 PG&E announced that it was filing for Chapter 11 bankruptcy

AND,

with the new move to cut off electricity on "windy days" to prevent wild fires,

That solar generation is also NOT feeding back, to generate "income savings".

Doesn't matter if the panels are new and at full generation capacity or 10 years old and at half capacity.

When the grid is turned off, so are the savings.

The DCF is obsolete and does not account for this new phenomena.




Solar panels and Solar valuation class value
is dead due to

REGULATORY RISK.

Which so many ignored or did not account for.

.

 

[glenn walker]

AND,

with the new move to cut off electricity on "windy days" to prevent wild fires,

That solar generation is also NOT feeding back, to generate "income savings".

Doesn't matter if the panels are new and at full generation capacity or 10 years old and at half capacity.

When the grid is turned off, so are the savings.

The DCF is obsolete and does not account for this new phenomena.




Solar panels and Solar valuation class value
is dead due to

REGULATORY RISK.

Which so many ignored or did not account for.

.

The new Green-Goddess-and 22 other Wack-Jobs have given us advanced notice that we may only have 12 years remaining. I am sending a memo to the Green-Goddess of DC--- Please create some new regulations including a law that all Solar Systems have to be paid off in full on or before January 2031.

 

[Ariba]

Does anyone really believe that solar system/panels will function for 30-years and outlast the asphalt roof?

 

[CANative]

The new Green-Goddess-and 22 other Wack-Jobs have given us advanced notice that we may only have 12 years remaining.

I've managed to keep my poli-crap out of the forum. Why don't you give it a try?