Solar Panel Adjustment Lack of Data

[alebrewer]

You're digging your hole deeper. Stop digging.

For the edification of the forum - I stand corrected. I was thinking of the relationship between cap rates and GRM's.

 

[glenn walker]

You're digging your hole deeper. Stop digging.

In some cases George may be correct but I in general I disagree that a Cap Rate and A Discount Rate are the same. The main difference between the two is that a discount rate is applied when the discounted future income method is used for valuation purposes- Whereas a Capitalization rate is used when the capitalization-of-existing income method is applied. Therefore the Discount and Cap rates are not the same The Discount rate will always be higher than the Cap Rate, as long as ( income growth is positive )

 

[alebrewer]

In some cases George may be correct but I in general I disagree that a Cap Rate and A Discount Rate are the same. The main difference between the two is that a discount rate is applied when the discounted future income method is used for valuation purposes- Whereas a Capitalization rate is used when the capitalization-of-existing income method is applied. Therefore its rare that both will be the same. Therefore the Discount and Cap rates are not the same The Discount rate will always be higher than the Cap Rate, as long as ( income growth is positive )

I think we're all in agreement.

 

[TerryRohrer]

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...

My objection to this methodology is that, without sales that include the amenity, there is no market support for a reasonable holding period or a cap rate or whether or not the amenity has contributory value (or a negative impact on value). Which leaves the result of such a calculation an unsupported guess!

 

[alebrewer]

My objection to this methodology is that, without sales that include the amenity, there is no market support for a reasonable holding period or a cap rate or whether or not the amenity has contributory value (or a negative impact on value). Which leaves the result of such a calculation an unsupported guess!

Careful on combining holding period and cap rate in the same sentence... that said, do you not think a buyer would - even in a very primitive manner - discount the future savings/income to a current value estimate? If I were buying a home with solar, that is what I would do...

 

[TerryRohrer]

BTW - there really is little difference between a cap rate and a discount rate. Kind of like the difference between exposure time and marketing time. But I know you just can't help yourself - you're one of the ones that make this forum so entertaining.

Well, by that logic, there is little difference between a pitcher and a catcher...they are both baseball players on the same field, after all!

 

[CGinMN]

I have a fiend who is in Solar Sales-- He says you sell the Tax Credit first and them you move them into the we are going to save the earth from climate change. Once you have them emotionally invested the greed of the tax credit and the moral high ground now they are going- green always makes the sale. He say without the Fed tax credit he can't give them away. I said whats next after your Solar career dies ? He looks at me and says well Electric Vehicles or maybe Sub-Prime loans will come back

Literally crying laughing at how funny this **** is lol. “Maybe sub-prime loans…” You know how to spin a yarn!

 

[TerryRohrer]

Careful on combining holding period and cap rate in the same sentence... that said, do you not think a buyer would - even in a very primitive manner - discount the future savings/income to a current value estimate? If I were buying a home with solar, that is what I would do...

I have appraised homes that have sold several times, some having solar panels, propane generators, public electricity, wells, and cisterns, and found no impact whatsoever compared to homes with a single, adequate supply of water and electricity. Thus, I'm leary about attributing my motivations to others. Having studied solar for my own purposes, I have never found someone knowledgeable of all factors and not selling "something" that recommends investment in solar when grid power is readily available.

 

[George Hatch]

...the relationship between cap rates and GRM's​

Agree completely, cap rates effectively do the same thing GRMs do; they convert a single cash amount in the present into a present value. Conceptually they're an aggregate of several unstated assumptions going off into the future. You don't need to know or understand any of those assumptions in order to extract and apply the overall rate or multiplier.

For that matter I think it would be easier to for appraisers to develop and for readers to understand the application of a multiplier to a single month's savings. The assumptions for the rate of savings to remain consistent after consideration of the effects of inflation and the remaining economic life would be baked into that multiplier instead of being broken out and handled separately as is done in a DCF.

 

[J Grant]

My objection to this methodology is that, without sales that include the amenity, there is no market support for a reasonable holding period or a cap rate or whether or not the amenity has contributory value (or a negative impact on value). Which leaves the result of such a calculation an unsupported guess!

Solar panel sales people use this method because they are selling a component.

The appraiser is trying to find out the contributory value ( if any) of the component to the whole.

Solar panels as a component can cost X $ to buy new . As a component it might delver X $ in future energy savings. But what will a buyer pay for its contributory value as part of the whole on the open market,, when the subject is competing against other houses that offer various amenities.?

Your subject has solar panels , but the other house has a pool and another house has a new kitchen. Which is the buyer more likely to want ? Which one is a buyer going to pay more for ? That is what makes appraisal complex - applying a rote formula while time consuming, is easy )