Value For Solar System.

[KD247]

Impossible to say without looking at the other numbers involved, but I just don't see how it would be possible to separate market reaction to the solar power system from market reaction to the whole energy efficient design, particularly in a neighborhood with little data available and (I'm guessing) a price range where kitchen remodels might typically cost twice as much as the solar electric installation. Or, how to establish market reaction to an income/savings that is probably less than the HOA fees, or is probably a small percentage of the property tax bill.

The "politically correct" way to handle this might be to simply include the solar electric system with all of the other unique characteristics of the house and make a single Upgrades adjustment in the Sales Comparison Analysis. In the Additional Improvements section, list all of the upgrades to the property but emphasize that they have a "$60,000 solar power system". ("Solar system" sounds funny to me. I prefer solar power system, solar energy system, or solar electric system.) In the Sales Comparison Analysis, adjust for the net market reaction to differences in upgrades and try to use at least one property that has solar panels and at least one other property that has generally superior upgrades (preferably a home with high-tech type upgrades).

You never indicated the value range for the neighborhood but it's my guess that if you're dealing with a 4,500sf custom home (with 20' high windows, on a golf course) that a $60,000 upgrade isn't going to stand out as the biggest difference between properties. (Based on how much people enjoy bragging about this sort of thing, I'd think that market acceptance of the energy-efficient subject property would be pretty good.)

Try constantly be considering market reaction to the property as a whole. Would buyers in this market add some exact amount to their offer because of the solar power system? I doubt it. When shopping among alternatives, buyer's would probably refer to this house as the "cool, high-tech solar house with a plug for the electric car" and be comparing it to the "place with the tropical back yard that has a spa hidden behind a waterfall" (which was probably sold to those people with the pitch that they would also "get back" their entire $60,000 cost).

Wouldn't the analysis (not the numbers or conclusion) be essentially the same if the judge had installed a $60,000 pizza oven? Or home theater, or spa, or workshop, or observatory? In none of these cases would you arbitrarily say that cost=value but you also wouldn't arbitrarily say that it has no value because the feature is unusual. When you take a guess at the likely market reaction, wouldn't you then compare the significance of this feature's value (perhaps only a few percent of total value) to the normal variance in values for the area? If your best comparable sales have a 20-30% spread in sales prices, how important is this adjustment compared to other adjustments?

The message I'd be trying to convey in the appraisal is that the solar electrical system, combined with the other energy efficient aspects of the property, has a strong positive effect on both value and marketability but the specific amount of contribution is overshadowed by other market variables.

 

[KenAZ]

There was a short 5 minute segment on HG TV about a solar system installed oin a new home in the North East. They base the system on getting about 5 hours per day average. They did an analysis with some sort of cool meter that took into consideration the shade, direction of the home, roof shape and the number of cloudy days for the area. It then determined whether the home would get enough sun. I was surprised that it was worth it for this particular home. When my panels were installed, it was based on 6 hours per day. Every year the panels get better and better.

There are some new panels that are supposed be coming out soon that are cheaper and more productive than the ones out now. I think the name was Bosch.

 

[CANative]

Google Earth the defined market area or neighborhood and look for solar panel arrays. If there are virtually none then it means that people don't want them bad enough to pay for them. Little contribution to market value. If there are many then it pretty much says that will pay the cost. You can then just use depreciated cost of the system to support an adjustment even though there have been no resales.

 

[KD247]

...Little contribution to market value. If there are many then it pretty much says that will pay the cost. ....

I think there's more to it than that. The effect of the economic benefits alone would have the appeal of a Nissan Leaf but if the neighborhood is affluent and savvy, the emotional appeal and prestige of an aesthetically designed custom high-tech, fully green home might have the appeal of a Tesla Roadster.

 

[David Mescon]

Google Earth the defined market area or neighborhood and look for solar panel arrays. If there are virtually none then it means that people don't want them bad enough to pay for them. Little contribution to market value. If there are many then it pretty much says that will pay the cost. You can then just use depreciated cost of the system to support an adjustment even though there have been no resales.

Nah. Way too simple. Any type of analysis lacking five syllable words in the title, (like reversionary), just couldn't be accurate enough.

 

[rrwolfpack]

Does your process change dramatically when there are energy efficient items in a property or is it just business as usual? Is it easier for that property to sell if it is more energy efficient even if that property may cost more?

 

[AngelEyes359]

Google Earth the defined market area or neighborhood and look for solar panel arrays. If there are virtually none then it means that people don't want them bad enough to pay for them. Little contribution to market value. If there are many then it pretty much says that will pay the cost. You can then just use depreciated cost of the system to support an adjustment even though there have been no resales.

Google earth shows numerous inground swimming pools in my neighborhood....... Can you see where I'm going with this?

 

[CANative]

Google earth shows numerous inground swimming pools in my neighborhood....... Can you see where I'm going with this?

That people want pools bad enough to pay for them? It cost $25k to build one so it might make sense to make a $10k adjustment?

 

[AngelEyes359]

That people want pools bad enough to pay for them? It cost $25k to build one so it might make sense to make a $10k adjustment?

With this example, cost doesn't equal value. I thought you were making a cost equals value argument. Cost minus all forms of depreciation equals value. With a swimming pool, I have enough sales data to support an adjustment for contributory value. If I have to complete the cost approach, I can use this data to estimate the other forms of non physical depreciation that are causing a 3 year old $25K swimming pool to be worth only 40 cents on the dollar. If you are making an adjustment for solar panels based on their cost minus depreciation, how do you estimate the non physical depreciation?

 

[CANative]

With this example, cost doesn't equal value. I thought you were making a cost equals value argument. Cost minus all forms of depreciation equals value. With a swimming pool, I have enough sales data to support an adjustment for contributory value. If I have to complete the cost approach, I can use this data to estimate the other forms of non physical depreciation that are causing a 3 year old $25K swimming pool to be worth only 40 cents on the dollar. If you are making an adjustment for solar panels based on their cost minus depreciation, how do you estimate the non physical depreciation?

Who says you have to drill down and fine tune it to that degree. We're expressing an opinion. DCN is a "safe" adjustment, IMO. Especially so in areas where there is obvious demand but no resale information.