Solar Panel Adjustment Lack of Data

[CGinMN]

Also, lack of prevalence in the market is an indication that the market will not pay for a feature because it does not bring a dollar for dollas return on investment, but that doesn't mean the feature doesn't have some contributory value.

 

[alebrewer]

My personal opinion is that appraisers should be allowed to capitalize the future income streams/energy savings to a current discounted value based on a reasonable holding period and cap rate - as that seems akin to what a buyer might do when considering purchasing a home with solar, but the agencies disagree with me on that one. And that's ok - I don't agree with everything they do either...

 

[George Hatch]

If you think the reason a feature isn't selling in a market segment is because the price range doesn't support the feature then that would be one example of when searching the entire community by price in search of sales with solar would make sense. Find one and do a comparo with it's comps. If there aren't any then that's a comment worth making.

What's the lowest priced home with a solar install in this area?

 

[J Grant]

My personal opinion is that appraisers should be allowed to capitalize the future income streams/energy savings to a current discounted value based on a reasonable holding period and cap rate - as that seems akin to what a buyer might do when considering purchasing a home with solar, but the agencies disagree with me on that one. And that's ok - I don't agree with everything they do either...

Problem with that it is a rote formula. And we are looking for market value, ( what the total house commands in the open market,) vs the value of one component ( the solar panels ) . The value of the component alone can be based on a rote formula of cost or income stream.

It always comes back to the MV definition which includes the typically motivated buyer...are typically motivated buyers in the open market for a substitute for subject, are more of them looking for solar panels/willing to pay for them...and how does the $ they pay as a contributory value compare to what an owner pays to install them new.

A individual owner who chooses to add on as a new component solar panels can have a different motivation.... and they might have been offered rebates, tax breaks or special financing that they are not able to pass on to the next buyer.

 

[alebrewer]

Problem with that it is a rote formula. And we are looking for market value, (which is what the total commands in the open market,) vs the value of a component based on cost or income stream. of it

It always comes back to the MV definition of the typically motivated buyer... an individual owner who chooses to add on as a new component solar panels can have a different motivation.... and be offered rebates, tax breaks special financing that they are not able to pass on to the next buyer.

No - that isn't the problem. If a 'typical' buyer would discount the future energy savings, then it's not just a 'rote formula'.

 

[shrubberyvaluation]

Also, lack of prevalence in the market is an indication that the market will not pay for a feature because it does not bring a dollar for dollas return on investment, but that doesn't mean the feature doesn't have some contributory value.

Absolutely, just because homeowners might not want to pay $50k (random number) for a feature does not mean they might not be willing to pay say $5k for it.

 

[George Hatch]

My personal opinion is that appraisers should be allowed to capitalize the future income streams/energy savings to a current discounted value based on a reasonable holding period and cap rate - as that seems akin to what a buyer might do when considering purchasing a home with solar, but the agencies disagree with me on that one. And that's ok - I don't agree with everything they do either...

The discount rate to convert the future value of a cash flow over a holding period of limited length into a present value is not the same thing as a cap rate. Moreover, an appraiser basically won't be able to get to a *supported* discount rate (or a cap rate) without sales data. So you're still back to needing sales data to demonstrate the difference in values between the haves and the have-nots.

The nifty online tools that I've seen use a couple assumptions that they don't disclose or explain, but which have significant effect on the results. Appraisers who use DCFs and cap rates on a normal basis will understand exactly what I'm talking about. Appraisers who don't understand what I'm saying here are in over their heads insofar as the use of direct capitalization or discounted cash flow analyses.

It's a pretty safe bet that most participants in the market do not have the competency to use a DCF model for solar. For that matter, I doubt most of the solar sales reps that are using those models have the competency to use them. If people are taking them seriously then the reason for that is because they're dazzled by the black box, and they're trusting the fact that it's on the internet so that must mean that it's completely sorted.

Consider this: solar installs have different contributory values in different locales. Boom!! To a professional appraiser that should demonstrate that the actual discount rate which would apply will also vary. That also demonstrates the point I'm making about appraisers needing to be capable of developing a market-derived discount rate in order to operate the models which are being used by the vendors to market their systems.

 

[J Grant]

keep in mind another aspect when trying to get a contributory value of a component such as solar panels...the competition is NOT just other houses s that have solar panels...the competition also includes THE ABITLITY OF AN OWNER TO EASILY ADD SOLAR PANELS AT A FUTURE TIME )

Some components are very disruptive to add, months of construction, need to get building permits, zoning approval - for example adding a pool or workshop bldg ) But other components such as a adding a whole house generator, or solar panels....call the company, they take care of permits, they make it easy, they come out and typically install it in a day or two. These companies often offer financing, tax credits, rebates, and have the latest tech.

So a buyer may think, why should I pay 10k for these old solar panels, I would rather pay less for a house and in a year or two get brand new panels from that company with those nifty ads on TV

 

[J Grant]

Absolutely, just because homeowners might not want to pay $50k (random number) for a feature does not mean they might not be willing to pay say $5k for it.

But finding out if it is 5k or 3k or 10 k, how do you get that specific....we can round it based on extraction, and decide on 5k. Or we can value the house on the higher end of our value range in the reconciliation. Which avoids the line item amount which some can challenge as accurate or not. BTW I dislike the fact that some seem to think a line item adjustment can possibly be so accurate. But some of those folks are in review depts or on state boards.

 

[alebrewer]

The discount rate to convert the future value of a cash flow over a holding period of limited length into a present value is not the same thing as a cap rate. Moreover, an appraiser basically won't be able to get to a *supported* discount rate (or a cap rate) without sales data. So you're still back to needing sales data to demonstrate the difference in values between the haves and the have-nots.

The nifty online tools that I've seen use a couple assumptions that they don't disclose or explain, but which have significant effect on the results. Appraisers who use DCFs and cap rates on a normal basis will understand exactly what I'm talking about. Appraisers who don't understand what I'm saying here are in over their heads insofar as the use of direct capitalization or discounted cash flow analyses.

Thank you so much for the lesson on discounting.