Unable to find comps which have "owned" solar panels. What to do?

[alebrewer]

For those unfamiliar with DCF, it's nothing more (or less) than the time value of money. It's utilization as an appraisal methodology is but a drop in the bucket compared to the myriad uses of DCF. It is simply a tool used to estimate the value TODAY of an investment that has expected future cash flows. It is used by investors purchasing companies, folks who buy stocks, capital budgeting, etc. It's not quite as esoteric as some here would like folks to believe...

 

[J Grant]

If you had the data to do it you could extract a GRM from sales data and apply that to your subject's income. That's pretty straightforward. Some buyers of cell tower leases use a GRM without having to go into a long form income/expense + DCF analysis. The thing is that if you have the data to extract a GRM or a cap rate then you also have the data it takes to run a paired sales analysis with that property's comps to isolate the adjustment factor so you don't really need to use an income approach.

A sophisticated buyer or their paid analysist of commercial properties might use a GRM wrt choosing solar, but the average residential home buyer will not , that was my point.

Market value is based on the actions of typical buyers so why are we using a technique they do not use ....in the avg residential purchase decision.

 

[J Grant]

For those unfamiliar with DCF, it's nothing more (or less) than the time value of money. It's utilization as an appraisal methodology is but a drop in the bucket compared to the myriad uses of DCF. It is simply a tool used to estimate the value TODAY of an investment that has expected future cash flows. It is used by investors purchasing companies, folks who buy stocks, capital budgeting, etc. It's not quite as esoteric as some here would like folks to believe...

My point DCF is used by large scale or commercial investors, not by a residential avg home buyer - they might do a rough crude version of it, but still they would want as steep a discount as they could get unless they are an idiot -

 

[alebrewer]

Market value is based on the actions of typical buyers so why are we using a technique they do not use

We use techniques every day that homebuyers don't use... but granted - those are kindergarten fodder compared to DCF.

 

[George Hatch]

For those unfamiliar with DCF, it's nothing more (or less) than the time value of money. It's utilization as an appraisal methodology is but a drop in the bucket compared to the myriad uses of DCF. It is simply a tool used to estimate the value TODAY of an investment that has expected future cash flows. It is used by investors purchasing companies, folks who buy stocks, capital budgeting, etc. It's not quite as esoteric as some here would like folks to believe...

Another way to characterize DCF is that it does the same thing a cap rate does except that it's more flexible and you can tweak the individual components to match your situation. A GIM/GRM is doing the same thing except they're applied as a factor, not a rate of return.

Performing a 10-yr DCF by hand on an apartment income (for example) takes about an hour. If you can do it by hand then you can also write one up in a spreadsheet that you can reuse in probably a half hour or less.

Or,

You can use the same data that it takes to get to a discount rate (which is just one component of a DCF analysis) to develop a GRM or paired sales adjustment, and then use 1/10th of the amount of explanation for it in your report and end up with 10x more of your readers understanding what you're doing.

 

[Mejappz]

For those unfamiliar with DCF, it's nothing more (or less) than the time value of money. It's utilization as an appraisal methodology is but a drop in the bucket compared to the myriad uses of DCF. It is simply a tool used to estimate the value TODAY of an investment that has expected future cash flows. It is used by investors purchasing companies, folks who buy stocks, capital budgeting, etc. It's not quite as esoteric as some here would like folks to believe...

In other words, pixie dust.

 

[George Hatch]

We use techniques every day that homebuyers don't use... but granted - those are kindergarten fodder compared to DCF.

That begs the question: if the market participants aren't using it then why are we using it? What's the main reason we don't do a CA for MV in most assignments? Because nobody in the market uses one unless it's new or proposed construction. Right? Same rationale applies on these black box tools.

 

[George Hatch]

In other words, pixie dust.

WRT property types which have a stable income stream it's extremely common for a DCF to return a similar or the same result as using a cap rate on the NOI. Which in turn also often returns a similar result as when using a GRM/GIM off the gross rents.

The distinguishing feature of a DCF is the flexibility to handle irregular incomes or expenses or reversions. In those situations that flexibility makes it *easier* to get to a result which makes sense.

 

[Tom D]

Well, technically there is - but the agencies won't allow it... It's the present value of the future stream of income/savings. That's exactly how a borrower would value it.

how long do those babies last. so you capitalize, then what if the remaining life is short, then the cost to remove them. i always hate to say this, but if you don't need that adjustment, why risk explaining how you really didn't figure it out.

 

[Proactive]

I'm in a market where the overwhelming majority of solar panels on homes are leased and are therefore not given any value in the appraisal. I am appraising a property in which the homeowner owns the solar panels and am unable to find any comps in which the solar panels are owned. I see my best option as explaining the situation in the report and stating that comps with "owned" solar could not be located and that the contributory value of the solar panels is deemed to be negligible since the majority of properties in the subject's marketing area which have solar panels actually lease them. Any suggestions on how to properly phrase this are greatly appreciated.

I haven't read the entire thread so I apologize if this has already been posted. I had an assignment last year that was very similar to yours; the links below were very helpful.

Good luck!

Valuing the Contribution of Solar Panels - Appraisers Blogs

Appraisers, Valuing the contribution of solar panels on homes has become one of the trickiest aspects of appraisers' work over the past decade.

appraisersblogs.com

Tracking the Sun | Electricity Markets and Policy Group

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