Solar Value

[Randolph Kinney]

Solar City is leasing and funding systems. Not same issue.

This is a simple calculation - take the AI course. Creating scenarios and calculating fanciful "proof" of losses suggests I probably don't want you for my next CPA.


That would be an assignment condition that is in violation of USPAP unless explicitly valuing a partial estate.

AGAIN - SEND THE REPORT AND THE COMMENTS OF THE "CHIEF APPRAISER" TO THE STATE APPRAISAL BOARD.

And do so for the good of this profession and hopefully one side or the other gets some guidance. The absence of other comparables with solar is like saying a second home on the site is invisible because no sales in the past year in the neighborhood had two houses sell.

I suggest you read USPAP Statement #2. There is no market evidence for residential solar PV systems in his neighborhood.

 

[Randolph Kinney]

Looking past the poor sentence structure, I can see where the appraiser was going with the thought.

Nobody in the neighborhood/market area has solar panels. No support can be extracted from the market to establish a value for the contributory item.

I have seen that here with consumer model wind turbines. Just because they cranked in $10k doesn't mean they get $1 back in market value.

Sometimes the wind blows, sometimes it's a cloudy day.

That is the critical element in this assignment. Even the lender has that as the basis for valuation.

 

[Mike Kennedy]

OK - and I would agree with that!

Getting back the point of this entire post - The appraiser did not follow the guidelines and is WRONG. There is a value to my solar system, and I was treated unjustly and unfairly by a biased appraiser that had no knowledge of the guidelines.

IF the Scope of Work for your mortgage lending assignment required use of the Fannie Mae/Freddie Mac appraisal reporting format, you should be aware they REQUIRE the Opinion of Market Value to be based on the Sales Comparison Approach to Value. In the absence of truly competitive local sales at least one or two which had similar systems, (this assumes the appraiser performed requisite due diligence by identifying, researching, using or not using with explanation in the report the most competitive which would serve as Substitutes for your property), reliance upon a different Approach to Value is not permitted. IMO, you would do yourself well by visiting SEVERAL local realtors who can assist you investigate MLS sales. Further, I would recommend paying a visit to your Municipal Assessor's office to identify NON-MLS closed sales which may or may not provide the competitive market info on their electric systems. Once solar-home sales are identified, you can send a request for a Reconsideration of Value along with the information you discovered. The appraiser may, or may not have utilized both data sources during the assignment. One might re-read the commentary in the report to determine whether or not BOTH were investigated. Should the Lender really have a policy against lending on props with solar - your only recourse would be to apply to another lender or two. Should the results of YOUR search yield zilch, that should put a different light on the topic. Good Luck. If you do the above - kindly do come back and let us know the result. Thanks.

 

[George Hatch]

New York State just called me and will be assigning someone to review my case. I will let you all know when the State rules in my favor and I get a refund for the appraisal that was done incorrectly.

Thank you for all of your comments and help. And for those of you who disapprove, thank you for pushing me to challenge this even further!

Okay, so the state is going to look at the case to see what the facts are. That's good news, because nobody here wants to condone unsafe or improper appraisal practice. If this appraiser worked off an assumption instead of doing the work then they get what they get.

I know in California it takes our board about a year to get to an investigation and about 1/3 of the investigations go nowhere due to being unfounded. Hopefully in New York their process is a little quicker.

And by the way, the burden of proof rests with the state to prove wrongdoing, not with the appraiser to prove their innocence. So if there really isn't any market data - as is stated in the report - then the state isn't going to be able to make something out of nothing.

By all means, we hope you keep us apprised on the outcome of this case.

 

[Mikeyvee17]

See, this is why appraisers are often reluctant to talk to homeowners about atypical appraisal situations. We can explain how we do things but if that conflicts with their world view or the results don't match whatever their sales person and the eco-advocates are saying then most homeowners invariably retain their assumptions that it just can't be true.

You may be 110% correct and this appraiser may indeed have undervalued your home. Or, you may be incorrect and the appraiser may have done the right thing. You apparently have no market data that supports your opinion, so that puts you at the distinct disadvantage in a discussion about how your local market operates with respect to solar installs.

The difference between the appraiser's opinion and your opinion is that you have a desired result and the appraiser doesn't. Not only does the appraiser not care what you want but he is required to *certify* that he/she doesn't care what either you or their own client wants. The appraiser isn't on your team and they're not supposed to be on the lender's team, either.

That means the appraiser has no incentive to lie about their conclusion or to take sides. That conclusion may be in error, but if so that would be the result of making the assumption (which is what you have done) instead of actually looking for the data and working the analysis.

And before you go just dismissing their judgement and experience out of hand you might want to take a moment and think about what the judgement and experience consists of.

Our profession has added very few new fully licensed appraisers over the last 8 years so that means this appraiser most likely has at least 10 years of full time appraisal experience under their belt. That's because it takes a minimum of 2 years just to accrue enough acceptable experience to even qualify for the full license. So that's at least 10 years of analyzing - specifically for value - at least 100 local sales transactions a week and quite possibly a lot more than that. That's 10 years of completing and submitting appraisal reports that are accepted by various lenders for their use in making these decisions. Including their own reviews that are being performed by other appraisers and underwriters, each of whom have their own professional experience.


Based on what you've told us one of those reviewers apparently told you that they agreed with this analysis and conclusion, most likely within the context of what they've seen from a number of other appraisers in your region.


These are the people you're arguing with, and this is the level of information that they have accumulated in your market area which you have not accumulated. In counterpoint you've got an AI position paper that points to the use of an Income Approach to value this amenity; but what they didn't make as clearly as they should have was that this mode of analysis can only work to the extent that someone either arbitrarily *assumes* the direct relationship between savings and contributory value or else develops that opinion based on relevant data that actually demonstrates that relationship.

Just so you know, two properties can have the same income but result in different values in the market if they have different uses. So saying a $2500/yr reduction in net income can indicate to $25,000 in additional value to one property (say, a 10-unit apartment) doesn't necessarily mean it will have the same effect in a completely different property type (single family residence). That's not an opinion, it's a fact; and the AI's paper really should have made more prominent mention of that.

Thank you for your thorough reply. I agree, I very well can be wrong and I can accept that. I just feel that there needs to be more of an explanation aside from "there is no value". I will reply with the outcome of the complaint to the State.

 

[Terrel L. Shields]

There is no market evidence for residential solar PV systems in his neighborhood

That is a poor interpretation - so if a 40 oz. gold bar was embedded in the sidewalk it has "no value"? The Denver study clearly showed that, if fact, Solar does contribute value and reduce marketing time. The fact there are no SOLD solar panels in the market in the past year makes no difference. Again, let's send it to the state and see if they are better read on such valuations.

 

[Randolph Kinney]

Thank you for your thorough reply. I agree, I very well can be wrong and I can accept that. I just feel that there needs to be more of an explanation aside from "there is no value". I will reply with the outcome of the complaint to the State.

Did the appraiser say no value? Or did the appraiser say the contribution to market value can't be determined because most home don't have solar panels, meaning that there was a lack of sales with solar panels?

Big difference.

As was pointed out by Mike Kennedy in post 83, you can present sales of comparable properties with solar panels and ask for a reconsideration of value based upon those sales. The lender and appraiser are obliged to respond and to correct the appraisal if they are valid comparable sales. Otherwise, you lose by default.

 

[Randolph Kinney]

That is a poor interpretation - so if a 40 oz. gold bar was embedded in the sidewalk it has "no value"? The Denver study clearly showed that, if fact, Solar does contribute value and reduce marketing time. The fact there are no SOLD solar panels in the market in the past year makes no difference. Again, let's send it to the state and see if they are better read on such valuations.

The Arizona study shows minimal value for owned PV systems and negative value for leased systems. Besides, since when is DCF a method that is used to value residential properties? Since when does a lender make loans on residential properties based upon DCF, GRM or other income methods? They don't. The primary consideration is the direct sales comparison; with and without solar panels. And, it has to be sales based upon the subject's neighborhood, not sales in Denver, not sales in Phoenix and not sales in San Diego.

 

[George Hatch]

Thank you for your thorough reply. I agree, I very well can be wrong and I can accept that. I just feel that there needs to be more of an explanation aside from "there is no value". I will reply with the outcome of the complaint to the State.

Well, I certainly agree with the weakness of the explanation given. Now there are basically two possibilities that go with that explanation:

1 - It's a deficient explanation. Meaning, the appraiser didn't adequately convey the extent of their analysis.

2 - It's a basically inaccurate explanation in that the appraiser didn't do the analysis to which they implied, and just pulled their conclusion out of habit or out of thin air.

Neither possibility is good, but of them the #2 possibility is obviously much worse one. Depending on the state board's discipline matrix the #1 possibility (poor reporting) might only generate a nasty phone call or a letter of reprimand to clean their act up and sin no more. Or, they might incur a small fine. In real life some states are a lot more active with discipline than others.

But the discipline that goes with the #2 possibility would probably be more significant.


The last thing to bear in mind is that what's adequate or not adequate with respect to the development and reporting of the opinion is based at least in part to the norms for this type of client (the lender); not a layperson. In other words, what passes for "meaningful and not misleading" to the power users of appraisals and to what most other appraisers would do with a similar situation.

If the purpose of lenders obtaining appraisals is to contribute to safe and secure loan decisions then an undervaluation doesn't pose a threat to them. A marginal loan that isn't made isn't a risk to the lenders or to the taxpayers who may be called to bail that lender out. By contrast, an overvaluation that leads to a marginal loan being booked that shouldn't be poses the big risk. So it's easy to see that while neither gross overvaluations nor gross undervaluations are good, the former is way more problematic to the legitimate interests of the lender and it's regulators than the latter.


Lastly, I wouldn't take any bets either way as to whether the explanation in the report was simply weak or downright inaccurate.

 

[George Hatch]

That is a poor interpretation - so if a 40 oz. gold bar was embedded in the sidewalk it has "no value"? The Denver study clearly showed that, if fact, Solar does contribute value and reduce marketing time. The fact there are no SOLD solar panels in the market in the past year makes no difference. Again, let's send it to the state and see if they are better read on such valuations.

How about no definitive data going back 5 years? Still makes no difference? Or, how about there has been data and the data that's available doesn't support a conclusion that the system adds value, or that the value that ,may have been added is within rounding conventions?

'Cause in real life I've seen examples of all of the above in my region. And although that experience does include the older systems that were set up to run the water heater or the pool heater I've also seen it more recently with $25k and $50k PV installs in this region. I've even seen it with proposed construction out in the sticks.

It is the very fact that, as yet, the contributory value (in this region) appears to vary by location and pricing segment that I *never* make assumptions one way or the other with these systems. I always look for the data and I go where it leads.

I would not expect the market in New Mexico or Arizona or Texas to react to this feature the same way it does in most parts of my local region, nor would I assume the market in NY to react the same way. All real estate is local, right?