Solar Value

[Mikeyvee17]

Hello Appraiser Community,

I recently had an appraisal done on my home where the appraiser specifically mentioned in the report that there was no value given to my solar PV system. I have read numerous articles and case studies, including an article on the Appraisal Institute website that states if there is no comparable sales to value a solar PV system, the appraiser has resources available to assign a value. My home is located on the North Shore of Long Island, New York. I am just wondering, did the appraiser truly do his job by saying my solar system has no value because he was unable to find a home sale that had a solar system? I have tried speaking with the appraiser who told me "no, you are wrong, this is how it is" I have also tried speaking to the staff appraiser at my bank who also said "No, what you are saying is just not accurate" Please help - I very well could be wrong but I do not understand how no value can be given to a 7.5 KwP rooftop Solar PV system which generates over 100% of my electricity. Thank you in advance!

 

[nstanbru]

Do you own the system or lease it?

 

[Mike Kennedy]

Cost of an improvement (permanently attached i.e. real property) has no bearing on Market Value. An improvement may return more than, less than, or equal to the sum it Cost. Market Value of site improvements is based on the competitive market's indication of Contributory Residual Value. The competitive market = the most recent, similar, and proximate properties which would directly compete with, and serve as a Substitute for a Subject's Site As-Improved. The Market ( buyers of local properties) demonstrate demand for, or functional obsolescence (superadequacy/overimprovement AS OF an Effective Date of Appraisal) of an element. The Market may indicate buyers pay more, equal to, less than or zero additional money for Solar or any other characteristic or physical improvement. This is demonstrated by actual closed sales, or the lack of sales, in your local market which would compete with your property.

 

[Mikeyvee17]

Do you own the system or lease it?

Sorry, I forgot to mention - We OWN the system

 

[Mikeyvee17]

Cost of an improvement (permanently attached i.e. real property) has no bearing on Market Value. An improvement may return more than, less than, or equal to the sum it Cost. Market Value of site improvements is based on the competitive market's indication of Contributory Residual Value. The competitive market = the most recent, similar, and proximate properties which would directly compete with, and serve as a Substitute for a Subject's Site As-Improved. The Market ( buyers of local properties) demonstrate demand for, or functional obsolescence (superadequacy/overimprovement AS OF an Effective Date of Appraisal) of an element. The Market may indicate buyers pay more, equal to, less than or zero additional money for Solar or any other characteristic or physical improvement. This is demonstrated by actual closed sales, or the lack of sales, in your local market which would compete with your property.

Thank you for the reply, it sounds like you are saying that the appraiser is correct? My research brought me to this: http://www.appraisalinstitute.org/appraisal-institute-announces-support-for-new-solar-valuation-form/

why would the appraiser not use this type of form to put a value on it?

 

[Elliott]

Mikeyvee,
How much did it cost? How much electricity does it produce annually? What is your cost of electricity? What is its expected life? How much does it cost to maintain annually?
I'll be willing to venture a value contribution.

 

[Mike Kennedy]

Thank you for the reply, it sounds like you are saying that the appraiser is correct? My research brought me to this: http://www.appraisalinstitute.org/appraisal-institute-announces-support-for-new-solar-valuation-form/

why would the appraiser not use this type of form to put a value on it?

from the link Scandia labs
Valuing a PV system is done using an income capitalization approach, which considers the present value of projected future energy production along with estimated operating and maintenance costs that are anticipated to occur during the PV module power production warranty timeframe.

The Sales Comparison Approach to Value is based on actual, confirmed Sales of competitive properties. Assuming the scope of work for the mortgage appraisal required utilization of the FannieMae report form and guidelines - refer to the Appraisers certification re FNMA's requirement of reliance upon the Sales Comparison Approach to Value. SHOULD LOCAL directly competitive Sales exhibit similar Solar Capability - their features would have appeared in the SCA comparison grid. Should those sales have realized additional value on sale for that feature versus similar local sales which did not exhibit similar Solar Capability - the comparative analysis would have isolated a credible contributory value upward adjustment to comparables which did not have similar solar. P.S. the SCA is based on realized (or unrealized) confirmable value of site features and improvements - NOT Projections.

 

[George Hatch]

There are a lot of partisan politics involved with this subject. That's not a personal opinion, it's a fact.

As far as the valuation process goes, appraisers work off of data in the market, not off of organizational position papers and most definitely not based on our own personal opinions or assumptions. A *conclusion* in an appraisal is an opinion to be developed, not an assumption to make.

In God We Trust - All others bring data.

Based on my experience with such properties all I can tell you for sure is that in some market segments these systems demonstrate additional value and in others they don't; and in no case have I ever seen a resale of a property with one of these systems that demonstrated a premium that was anywhere near the cost of the system. In some market segments there has been no increase at all attributable to solar and in others the increase has been minimal, similar to the value of a covered patio or an old built-in pool.

The point is that buyer attitudes are market-specific, and what works in (let's say) a location in the South where there's lots of sun cannot be assumed to function equally at the more northerly latitudes where there's less sun; and vice-versa. The cost of heating oil doesn't cross the minds of people who live south of the snow belt areas.

Regardless of my past experience with these systems I *always* look at the available market data and I let that data speak for itself; I never make the assumption. It is not the appraiser's job to assign value or to presume to inform the market participants of what they should do with respect to an amenity; but to simply observe and report. We don't make the market, we just report on it. With appraisals performed for mortgage lending all the discretion and decision making rests with the lenders, not the appraisers.

 

[George Hatch]

Also, in answer to

Thank you for the reply, it sounds like you are saying that the appraiser is correct? My research brought me to this: http://www.appraisalinstitute.org/appraisal-institute-announces-support-for-new-solar-valuation-form/

why would the appraiser not use this type of form to put a value on it?

A - None of us can know how the appraiser in this assignment came to their conclusion. If they are operating off an assumption or out of force of habit then their conclusion may not be supported - or reasonable. But if they do know what they're talking about as a result of doing the research then their conclusion may be well supported.

B - As for why an appraiser would not use an income approach to value the potential savings and translate that into a value, the reason may be that it's a complete waste of time if the market participants aren't actually paying more for these systems. Some property types sell based on their capacity to generate net income, but homes are not among those property types so what they might rent for in the market or how much a property owner can save in expenses may not directly translate into a viable measure of value *unless* the other market participants are doing the same - in which case those sales transactions will demonstrate the increase anyway.

By definition, "what should be"....often isn't "what is".

 

[Randolph Kinney]

Thank you for the reply, it sounds like you are saying that the appraiser is correct? My research brought me to this: http://www.appraisalinstitute.org/appraisal-institute-announces-support-for-new-solar-valuation-form/

why would the appraiser not use this type of form to put a value on it?

The Appraisal Institute is advocating a capitalization of income approach using an Excel spreadsheet.

"PV Value works within a Microsoft Excel spreadsheet to determine the value of a PV system. This is done using an income capitalization approach whereby the energy value is calculated over the lifetime of the PV module warranty. Inputs to PV Value include the zip code of the location, local utility rate and characteristics of the PV system."

That method of valuation may not be indicative of the contribution to market value of your PV system.

However, you can calculate a value yourself using that spreadsheet. Here is the website that is free to use: https://www.pvvalue.com/

Let us know how much it says your PV system is worth.