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

[Dublin ohio]

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.

Homebuyer DCF.
Homebuyer: How much does it save on your electric bill. Homeowner or RE agent: $X. Homebuyer: Thank you

 

[alebrewer]

Apologies for the serving of salt. To your point, though, if you use least squares regression, I'd assume you're using a software application to complete it, as performing multi-variate LSR by hand is a painstaking process - or at least it was when I was working on my PhD in Economics. I'm assuming it still is. In which case, some of what is happening is, shall we say - "hidden and it isn't readily apparent". In which case, I guess no one should use LSR unless they're doing it by hand. Good to know.

I always thought the use of tools was acceptable, so long as you understood the concepts behind the use of the tool. Performing a manual DCF (no 12C OR Excel) isn't that difficult. In fact, here's the formula:



Doesn't take much work to identify/analyze all the elements that go into the calculator (or spreadsheet)...

 

[alebrewer]

Homebuyer DCF.
Homebuyer: How much does it save on your electric bill. Homeowner or RE agent: $X. Homebuyer: Thank you

The question is - how does that monthly savings impact the buyer's purchase decision? Assuming they trust the RE agent, that is...

 

[alebrewer]

I said, we use an appraisal model version of what they do. Most buyers don;t give a sh**about site value which is why many res assignments don't require or need the cost approach. but if a buyer is considering costs such as they are looking to build or buy new they might do a rough version of it, or compare land sale prices to completed home sale prices.

The buyer does use their own version of paired sales analysis, they compare the houses they looked at or considered to each other, and they also bracket, this house is bigger so we will pay more, this house is smaller so we will pay less, this house has the lake view we want, this house does not have it but if they took 30k less maybe we would buy it and so on.

Potato/Potato... I say technique, you say 'appraisal model version' (a term I'm not familiar with). So, buyers use their own version of all the appraiser's techniques EXCEPT DCF, right? And the reason they don't use that is because it's too hard, right?

 

[J Grant]

I appraised a fourplex where the broker was a specialist in commercial property, unlike the typical res broker, this commercial broker was GREAT ! He prepared a very simple easy to understand DCF and cap rate which I told him we basically don;'t use but thanked him for it, and THEN, he also analyzed it the way a regular small investor res duplex buyer would, he knew everything about a pending land use change, the comps etc.

 

[J Grant]

Potato/Potato... I say technique, you say 'appraisal model version' (a term I'm not familiar with). So, buyers use their own version of all the appraiser's techniques EXCEPT DCF, right? And the reason they don't use that is because it's too hard, right?

Thats right , because it is too hard for the typical res buyer ( even if they are brilliant at other things ) and it is not relevant to most of them. If they are buying a property for income they would tend to use income analysis of expense and income etc - if they buy at a bigger mass investment level they would hire analysist or accountant to do it for them.

But for most res buyers who purchase one property or maybe one second home or investment they stick to simple methods. .I think you like to argue to argue and nit pik the same thing from different angles, maybe we will just get tired and say whatever, whatever you say sure..

 

[alebrewer]

Thats right , because it is too hard for the typical res buyer ( even if they are brilliant at other things ) and it is not relevant to most of them. If they are buying a property for income they would tend to use income analysis of expense and income etc - if they buy at a bigger mass investment level they would hire analysist or accountant to do it for them.

But for most res buyers who purchase one property or maybe one second home or investment they stick to simple methods. .I think you like to argue to argue and nit pik the same thing from different angles, maybe we will just get tired and say whatever, whatever you say sure..

Perfect! Buyers are capable of, and actually do, paired sales analysis - a technique that many appraisers don't even understand, yet not capable of doing a DCF. Got it!

 

[George Hatch]

Apologies for the serving of salt. To your point, though, if you use least squares regression, I'd assume you're using a software application to complete it, as performing multi-variate LSR by hand is a painstaking process - or at least it was when I was working on my PhD in Economics. I'm assuming it still is. In which case, some of what is happening is, shall we say - "hidden and it isn't readily apparent". In which case, I guess no one should use LSR unless they're doing it by hand. Good to know.

I always thought the use of tools was acceptable, so long as you understood the concepts behind the use of the tool. Performing a manual DCF (no 12C OR Excel) isn't that difficult. In fact, here's the formula:

View attachment 58518

You're not catching my point. The mechanics of the one calculation are not difficult. It's the development and supporting of each of those components *from the market data* that can be difficult.

A stream of net incomes over 7 years might look like this:

$1800
$1850
$1895
$1940
$1950
$2010
$2050

But it's how you get to each of those annual totals that requires going into the projections for gross income and expenses that can get tricky. It's identifying the appropriate rate (which in the case of a solar analysis the "r" DOES NOT mean the mortgage interest rate).

I keep mentioning that solar installs have different resale values in different areas. Those different values are the result of different discount rates being applicable by locale. There is no fixed benchmark for the rate of return of/on solar installs.

 

[George Hatch]

I/R=V. You can't convert the income into a value without identifying the rate, and market extraction is the most direct way of developing a usable rate. There are other ways of developing an opinion of that rate but they are inherently less direct than extracting it from actual sales transactions.

 

[alebrewer]

I keep mentioning that solar installs have different resale values in different areas. Those different values are the result of different discount rates being applicable by locale. There is no fixed benchmark for the rate of return of/on solar installs.

Going back to my original post, I simply stated that one method buyers use is looking at the future income streams of a particular feature (solar being one possible feature) and factoring that future income stream into their purchase decision. Whether they're using a cap rate, an HP12C, Excel, or some crude semblance of any of that doesn't matter. Buyers' purchase decisions ARE impacted by features that generate positive returns. It's the appraiser's job to quantify to what extent those purchase decisions are impacted, as the income stream may not be the only factor involved in considering the value of a feature. To use solar, some folks may think they're an eye sore. Some folks may be superstitious about not getting their power from coal - who knows. At the end of the day, though - and this is my main rub (aside from the elitism) - it is lazy and a detriment to our profession to not analyze a feature simply because it's not 'easy' to do so.

To state that appraiser's shouldn't use DCF unless they understand it is fair. To imply that only CG's can understand it is inane. Buyers, however, are not under any constraints with respect to USPAP - they're free to use whatever tool they'd like in whatever capacity they deem appropriate.