Solar Value

[Deleted member 134708]

In the parts of California I appraise, two models side by side, market participants award the solar home w/ ~$7.5k in additional value.

 

[Terrel L. Shields]

File a complaint to the state board, attach a copy of the report and a copy of the AI article about solar panels, a couple of your electric bills, and then we will see if your bank and the appraiser are "correct" or not. I got a feeling the appraiser will be barbecued by the board if the NY board has a lick of sense.

 

[nicholz12]

Terrel, I have a couple of questions on this situation;
How about if the property had land with a wind farm that produced energy, same type of valuation? Or what about logging, same valuation i.e. income cap? Wouldn't this be a mixed use property? Maybe I'm thinking too much, just wondering. If you use the income cap to develop the value, is this how the 'typical' buyer in this residential market looks at the value of this home, substitution? If this is the only property within 25+ miles etc. how would that impact this approach to value? Obviously have to extend the search, but would this then be a unique property? If this is a unique property, maybe the cost approach to value would be a better choice?
Maybe I'm mixing apples and oranges... I have just lots of questions on this issue. I guess I'm getting confused with this... anyone?

 

[Elliott]

nottrav,
If I saw a used $25K system, I'd think the value contribution in a less than sun rich state, might be a $5K feature to the market.

 

[George Hatch]

First off, residential solar systems have been used in the U.S. for many years. I've appraised many properties with solar systems - in this region - dating back to the 1980s, so there's nothing new about solar systems in homes. I can tell you that probably 70% of the solar system installs I've seen over the years were never maintained and were inoperable by the time I appraised the property.

Secondly, The use of the Cost Approach as the dominant indication of value is almost never done in appraisals for single family residences, and even if it was that approach to value has considerations for measuring the market's reaction to features.

Spending $50k on a kitchen remodel sometimes returns more than $50k upon resale, but it also sometimes returns far less than $50k. Not all improvements that can be made to a home will return 100% of their costs. In our business the trusim for this is that "Cost /= Value".

Thirdly, the AI's income-based approach to the problem is no different than what would be used if the property had any other income-producing element such as a producing agricultural use or a separate rental of a field or additional dwelling units. That approach works when buyers are buying that income and it doesn't work (at all) when those buyers aren't buying that income stream. That their position paper is aimed at both residential and non-residential properties should not be ignored because it will be relevant to non-res properties far more often than not due to the relevance of cash flows to the buyers of those properties.

An office building that has a 5% lower expense ratio due to energy efficiency and solar systems will be that much more valuable to an income-oriented buyer who is buying the cash flow. That's a distinctly different motivation than the typical buyer for a home.

ALL approaches to value are based on how they actually function within the market, not based on how they *should* function in the market. The Cost Approach does this by measuring the difference between costs vs resale values, and the income approach does this by measuring the net income vs the contributory value as demonstrated in the market.

As I said before, without seeing what the appraiser actually did and didn't do in their analysis of this feature it is IMPOSSIBLE for any of us here to know whether the appraiser's opinion is supported or not. Just because the AI issued a position paper outlining one possible solution to this problem doesn't make it the only acceptable solution - not by half. In and of itself that paper won't carry any weight in any appraisal review performed by a competent appraiser, so I wouldn't recommend hanging all your hopes on it.

In your shoes I'd contact your vendor and see if they're aware of any local properties that have solar installs that have resold, and if so what premiums were paid in the resale market for those features.

 

[Meandering]

New York
Net metering
Net metering is available on a first-come, first-served basis to customers of the state's major investor-owned utilities. Publicly-owned utilities are not obligated to offer net metering; however, the Long Island Power Authority (LIPA) offers net metering on terms similar to those in the state law. New York State law allows net metering for solar photovoltaic systems up to 25 kW in residential buildings, and up to 2 MW in commercial and industrial settings, including systems serving nonprofit organizations, schools, governments and agricultural operations.

• Exemption from state sales tax for passive solar space heat, solar water heat, solar space heat and photovoltaics installed in residential and multi-family residential buildings. (see link on right to access the Dept of Taxation and Finance Sales Tax Rate Publication 718-S)

• Subject to local option, a 15-year real property tax exemption for the cost of solar and certain other renewable energy systems constructed in New York State, to ensure that property taxes do not rise because owners install solar energy equipment.

http://www.dec.ny.gov/energy/43231.html

New York
Solar Electric Clean Power Estimator for Residential/Small Commercial
The Clean Power Estimator uses the data provided to gather information about your utility rates, available sunlight at your site, and all available incentive and tax credits to generate a customized estimate of the costs and savings of installing a solar electric system using a participating contractor under NY-Sun Incentive Program
http://ny-sun.ny.gov/Get-Solar/Clean-Power-Estimator

So how old is your system?
Did you make it into the net metering program or not?
How many years are left on 15-year real property tax exemption?
What are your electrical savings according to the NY calculator?

Then ask yourself this,
If your system is saving you $X per year,
would a buyer pay you $X additional to the value of the real estate for the electrical savings (plus) + $X for the real property tax exemption for the remaining years,
to be financed for 30 years,
at current mortgage interest rates?

If so,
What was the $X you listed your house for sale?
If not,
How was the list price determined?

.

 

[Randolph Kinney]

The reason why solar PV systems depreciate so rapidly as to be almost worthless in 5 to 7 years is because the technology advances that quickly.

Solar PV panels 5 years old were getting 15 to 16% efficiency and were more expensive than today. Today, advancements are coming in the market that are 22% efficient and cheaper. That makes those older systems less valuable.

And, here in California and other states, net metering is going to change to 50% net metering: the utility buys your solar at $0.50 on the dollar that they sell it to you plus they have instituted increased minimum charge on your bill.

http://www.computerworld.com/articl...ted-the-worlds-most-powerful-solar-panel.html

 

[Terrel L. Shields]

How about if the property had land with a wind farm that produced energy, same type of valuation? Or what about logging, same valuation i.e. income cap? Wouldn't this be a mixed use property? Maybe I'm thinking too much, just wondering. If you use the income cap to develop the value, is this how the 'typical' buyer in this residential market looks at the value of this home, substitution? If this is the only property within 25+ miles etc. how would that impact this approach to value? Obviously have to extend the search, but would this then be a unique property? If this is a unique property, maybe the cost approach to value would be a better choice?

Farms may have income from mineral rights and from solar or wind rights. Solar tends to take up 100% of the space. Wind rights are usually spaced about 80 acres and leases are paid somewhat like billboards in some cases and other cases, are pretty complex..? I don't really know the whole nuances but there is also the issue of a flat payment (usually) for the entry road and pad of the windmill. While you can farm pretty close to a windmill, you still have roads, etc. to go around. So it is a lease and solar panels (OTOH) are contributory if you own the panel but probably not if leased from a solar company.

Rather than "mixed" which indicates the uses, I would think of this as a complex property with a component that provides additional income (savings) to the property.

Timber deeds are generally taken to cut timber. These are contracts for the sale of the timber and act like a lease so the Leasehold has rights during the term. And payment is based on the board feet of lumber taken, or a flat fee agreed upon. There are different scales used to measure logs and some favor the seller, some the buyer.

Wind leases are often "short form" or assignments and the actual lease is unrecorded such as attached. (note that they have an easement on your property for the noise and electrical interference that these generators may cause. So expect your TV to be snow and hear electrical pops in your ears when listening to the radio nearby.

As for valuation, you need to adjust the value according to the savings in energy. That is a straight forward analysis as best I can tell. It is also a classic appraisal technique (making an adjustment based on income capitalization) - I would likely apply a typical GRM against the savings and see if that seems to be a reasonable adjustment (probably not if the adjustment is higher than the cost of the system)

http://blog.energysage.com/selling-home-value-solar-panels-owning-vs-leasing/

So can you just wait for that assignment of 40 acres with a house, a windmill, solar panels, a billboard lease, and an oil well...

 

[Elliott]

I get Terrel's point. If the OP would tell us the figures, we could posit the question, "If you went to the investment market and asked, so I can buy this thing and it costs x, returns y, and it lasts z, then how much would you pay for that 'investment.' The OP in theory could sell his finite net income stream after return on investment and expenses and depreciation. And the real question is how much would the next investor buy it from the previous investor, or what is its value in the market.

 

[Elliott]

Cars now can last hundreds of thousands of miles, 20 years, but their value rapidly declines. They are sold on a monthly payment of $200 to $300 for 3, 4, 5, 6, 7 years. They virtually become upside down, or near upside down after a few years. What if the lender or FHA asked us to value the carpet component, a wasting asset, in a house with a 30 year mortgage?

Larry the Liquidator's speech could be about private solar system investments:

"Lawrence Garfield: [In response to Jorgy's speech] Amen. And amen. And amen. You have to forgive me. I'm not familiar with the local custom. Where I come from, you always say "Amen" after you hear a prayer. Because that's what you just heard - a prayer. Where I come from, that particular prayer is called "The Prayer for the Dead." You just heard The Prayer for the Dead, my fellow stockholders, and you didn't say, "Amen." This company is dead. I didn't kill it. Don't blame me. It was dead when I got here. It's too late for prayers. For even if the prayers were answered, and a miracle occurred, and the yen did this, and the dollar did that, and the infrastructure did the other thing, we would still be dead. You know why? Fiber optics. New technologies. Obsolescence. We're dead alright. We're just not broke. And you know the surest way to go broke? Keep getting an increasing share of a shrinking market. Down the tubes. Slow but sure. You know, at one time there must've been dozens of companies making buggy whips. And I'll bet the last company around was the one that made the best goddamn buggy whip you ever saw. Now how would you have liked to have been a stockholder in that company? You invested in a business and this business is dead. Let's have the intelligence, let's have the decency to sign the death certificate, collect the insurance, and invest in something with a future. "Ah, but we can't," goes the prayer. "We can't because we have responsibility, a responsibility to our employees, to our community. What will happen to them?" I got two words for that: Who cares? Care about them? Why? They didn't care about you. They sucked you dry. You have no responsibility to them. For the last ten years this company bled your money. Did this community ever say, "We know times are tough. We'll lower taxes, reduce water and sewer." Check it out: You're paying twice what you did ten years ago. And our devoted employees, who have taken no increases for the past three years, are still making twice what they made ten years ago; and our stock - one-sixth what it was ten years ago. Who cares? I'll tell you. Me. I'm not your best friend. I'm your only friend. I don't make anything? I'm making you money. And lest we forget, that's the only reason any of you became stockholders in the first place. You want to make money! You don't care if they manufacture wire and cable, fried chicken, or grow tangerines! You want to make money! I'm the only friend you've got. I'm making you money. Take the money. Invest it somewhere else. Maybe, maybe you'll get lucky and it'll be used productively. And if it is, you'll create new jobs and provide a service for the economy and, God forbid, even make a few bucks for yourselves. And if anybody asks, tell 'em ya gave at the plant. And by the way, it pleases me that I am called "Larry the Liquidator." You know why, fellow stockholders? Because at my funeral, you'll leave with a smile on your face and a few bucks in your pocket. Now that's a funeral worth having!"