Value For Solar System.

[Appraising4u]

Hello everyone.
I appraised a property yesterday that was energy efficient. When the owners built the property they though of every energy efficient detail. They have extra installation, house direction and 20 foot windows that are strategically placed for maximum sun exposure, the whole nine yards. About 3 years ago, they paid over $60,000 on a solar system. The solar system powers the whole 4500Sqft home and charges a car, and they still get a credit back from PG&E at the end of the year. She stated that her husband took a class from a local Appraiser and he states that appraisers should credit homeowners 100% of the solar cost in the appraisals because it produces enough energy and a credit from pg&e that is considered "income". She showed me a copy of an appraisal that was completed on the property last year and the appraiser had $60,000 across the board adjustments for the solar system. This seems odd to me, that an appraiser would give such a large adjustment without even having one sale for a paired sales analysis. What is your knowledge on this topic? Considering that the solar takes care of all electrical expenses, plus gives them a credit at the end of the year warrant a full price adjustment in a report? what are your thoughts?
:Eyecrazy:

 

[Randolph Kinney]

Hello everyone.
I appraised a property yesterday that was energy efficient. When the owners built the property they though of every energy efficient detail. They have extra installation, house direction and 20 foot windows that are strategically placed for maximum sun exposure, the whole nine yards. About 3 years ago, they paid over $60,000 on a solar system. The solar system powers the whole 4500Sqft home and charges a car, and they still get a credit back from PG&E at the end of the year. She stated that her husband took a class from a local Appraiser and he states that appraisers should credit homeowners 100% of the solar cost in the appraisals because it produces enough energy and a credit from pg&e that is considered "income". She showed me a copy of an appraisal that was completed on the property last year and the appraiser had $60,000 across the board adjustments for the solar system. This seems odd to me, that an appraiser would give such a large adjustment without even having one sale for a paired sales analysis. What is your knowledge on this topic? Considering that the solar takes care of all electrical expenses, plus gives them a credit at the end of the year warrant a full price adjustment in a report? what are your thoughts?
:Eyecrazy:

The market value added must come from the market.

There are formulas for computing a net present value or discounted rate of return cash flow analysis based upon an income stream.

However, what you are describing sounds like an over improvement for the neighborhood, especially if you can't find a similar property to show market acceptance.

The home for residential lending purposes is not based upon "income" although some might argue that it can be.

One would have to ask, would a likely owner-occupant buyer purchase that home for its energy savings and if so, how much more would that buyer pay compared to a simliar home without that energy savings?

 

[Meandering]

The value of solar is market area specific.

Here is a nifty new article about some issues with the benefits and/or declining benefits associated with solar energy.


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[Appraising4u]

The market value added must come from the market.

There are formulas for computing a net present value or discounted rate of return cash flow analysis based upon an income stream.

However, what you are describing sounds like an over improvement for the neighborhood, especially if you can't find a similar property to show market acceptance.

The home for residential lending purposes is not based upon "income" although some might argue that it can be.

One would have to ask, would a likely owner-occupant buyer purchase that home for its energy savings and if so, how much more would that buyer pay compared to a simliar home without that energy savings?

Randolph, that is my exact concern. If I give value to something I like to find a paired sale so that I know what the "market value" really is. That is why I found it strange that the homeowner claims an appraiser professor stated that and the last appraiser gave them full value for the solar also.
I do not believe the solar is an over improvement. The subject is located in a golf course neighborhood in which homes of the subject quality rarely sale. So not get me wrong, there are a lot of homes in the neighborhood with solar however, none have sold. I also think that solar would be a beneficial selling factor but the house would not sell just because it is energy efficient. I think the fact the the owner is a judge, has me shaking in my space boots. haha

 

[mark hurlock]

Hello everyone.
I appraised a property yesterday that was energy efficient. When the owners built the property they though of every energy efficient detail. They have extra installation, house direction and 20 foot windows that are strategically placed for maximum sun exposure, the whole nine yards. About 3 years ago, they paid over $60,000 on a solar system. The solar system powers the whole 4500Sqft home and charges a car, and they still get a credit back from PG&E at the end of the year. She stated that her husband took a class from a local Appraiser and he states that appraisers should credit homeowners 100% of the solar cost in the appraisals because it produces enough energy and a credit from pg&e that is considered "income". She showed me a copy of an appraisal that was completed on the property last year and the appraiser had $60,000 across the board adjustments for the solar system. This seems odd to me, that an appraiser would give such a large adjustment without even having one sale for a paired sales analysis. What is your knowledge on this topic? Considering that the solar takes care of all electrical expenses, plus gives them a credit at the end of the year warrant a full price adjustment in a report? what are your thoughts?
:Eyecrazy:

Just a thought. You say you have no sales. In my market, I attribute that to the fact that the typical person who installs these systems do so with the intent of never selling the property. The whole concept is long term recapture of the investment. I know this because I interview owners who have various systems.

I was lucky enough to find one comparable for the last one I appraised because the seller had experienced an unexpected family circumstance that required relocation. I was able to extract 30% of cost for a market adjustment.

So no sales does not automatically mean no value but it might mean the lender will not lend on the value you determine. Some lenders will only lend on a % of cost.

Another thought is more and more new home builders are installing these systems and you could show where new home buyers are paying for the feature and that is a good place to show increasing market acceptance.

 

[ARRE]

I have run across this in the past. When I did it, I looked at the current rate of electricity with the rate the power company was willing to pay back for overage into the grid. What the owner is not telling you though is the reserve for replacement on the equipment to provide the power back to the company and to convert the DC current the panels create into the AC current your house uses. Also, the owner will have to purchase (in my area at their own cost) the smart meter so they know how much is being fed back into the grid. The other you must account for (in my area we have high pollen and snow) are the costs to maintain, clean, and repair the panels due to the pollen and snow loads (climb up on the roof in 2 feet of snow and broom them off) and get up in the summer to wipe off the pollen so they are effectively capturing that sunlight. By the time I had accounted for all this along with the original outlay and with a GRM, I came up with a very nominal adjustment of 10-20% the original cost of the installation of the system.

As stated before, this is very market specific, but I believe it is a credible method to extract an adjustment from the market for a prudent and knowledgeable homeowner.

Good luck

 

[Lobo Fan]

http://energy.sandia.gov/?page_id=8047

This is a spreadsheet developed by Sandia National Labs and endorsed by the AI. It uses an income approach to come up with an income based adjustment. Crediting PV systems at 100% of cost is not very accurate as there are huge tax concessions and other issues that affect direct costs.

 

[hastalavista]

The cost of the system (assuming it is owned and not leased) is "sunk"; the contributory value of the system (if it exists, and there may be one) is dependent on anticipated net-savings of utility bills. There may be an additional "I'm Green" appeal in certain markets.
So the relationship between cost and value is based on the future benefits (savings) as judged by the market and not based on some percentage of the actual cost. Don't rely upon someone offering a set-percentage (Note that Mark Hurlock's 30% is based on a subject-specific market analysis/extraction, and not some arbitrary number).

I recommend you use the search function on this topic; there is a lot of good information contained in prior threads.

Also, I will caution you (and you may think I'm being overly cautious, which is fine ).
Presuming that your license level listed on this forum is correct, the value analysis of the system you are talking about could be considered "complex". By definition, a license-level appraiser cannot complete complex assignments (for FRT work, in California) without supervision and cannot become competent (even though USPAP allows it, the licensing provisions do not): complex assignments for a licensed-level appraiser would need to be done with a certified appraiser.
If you complete the assignment and the borrower is unhappy regarding the outcome (rightly or wrongly), and turns the report into the state, then the state will make a determination if the analysis (and the assignment) is complex or not. Even if you do everything letter-perfect (and I'm fine with assuming you will ) and the results are credible, the state is faced with having to decide if the assignment is complex. Obviously, if the state finds errors with the report, it would be easier to conclude the assignment was complex from the get-go.
So, take my advice for what you think it is worth, and be careful on how you proceed.

Good luck!

 

[Raoul]

I recently did a property with geothermal and solar panels. In my market there is no demand and little recognition of the benefit of these systems.
The only benefit I could prove was the income steam from the buyback of electricity via the solar panels.

 

[Meandering]

I recently did a property with geothermal and solar panels. In my market there is no demand and little recognition of the benefit of these systems.
The only benefit I could prove was the income steam from the buyback of electricity via the solar panels.

Sweet, is the electric company actually sending a check or are they crediting the electric feed back.

Could you use a cost/savings adjustment for a clothes line as opposed to the electric clothes dryer?

Aren't they the same issue?

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