Homeowners Need to Be Careful Investing in Solar Panels if they are Thinking About Selling Their Home. Buying can Very Cost Inefficient, Leasing Can Make it Difficult to Transfer to The New Buyer
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I get asked this all of the time. If I put solar panels on my roof, will it make it harder or easier to sell my house? And, what is the difference if I lease them or if I buy them outright? That’s a great question and I’m going to answer them right here and now, and the answer is…wait for it….it depends.
Now I don’t want to get on the wrong side of those of you who are environmentally fastidious, but I’m going to be treading on some toes here. The toes of those in the solar industry, the toes of those who are very concerned about the environment, the toes of those of you who have already taken the leap without thinking about what limitations you may have put on the sale of your home, and what if you have already paid for those panels yourself and skipped the lease? Yes, I’m going to annoy all of those people and more by the end of this article, but so be it. Does it count that I drive a Prius? Okay, here it is the good, the bad and the ugly of the subject, Will Solar Panels Affect the Sale of My Home?
Let’s Start with the Leased Variety of Solar Systems
1. Leased solar systems
I’m sure that you have had them knock on your door in their snappy outfits and ask you if you had ever thought of going solar and proceed to tell you how much money you can save on your monthly energy bill. Companies like Solar City and Verengo Solar offer no cost installation and 20 year leases of solar photovoltaic, electric generating solar panels. Having solar panels of the leased variety can save high energy users lots of money on their monthly electric bills, but they may also make it more difficult to sell your home. Most of these solar leases are transferrable but the buyer of the property will need to agree to assume the lease that the home seller signed with the solar leasing company.
Remember we are talking about California here and in other states, there are different laws like for instance, in some states you can’t buy a home with a solar lease if the buyer is using an FHA loan, so check your local laws.
During the home buying process, at the beginning of the escrow period, the buyer will have an opportunity to review the solar lease agreement as part of the sellers’ disclosures. After reading the lease, the buyer will determine if he or she wants to proceed with the purchase of the home and take over the solar lease from the seller. Sometimes the buyer will request to see the lease before they write up an offer. That’s a legitimate request because often times the buyer doesn’t want to wait until escrow is opened, and a deposit is made before they get the “Solar Surprise”.
Another hurdle the buyer will have to clear is getting permission from the leasing company to assume the solar lease. The solar companies will require the buyer to have at least a 680 FICO score or better. The application for and the signing of the contract with the solar leasing company will require the buyer to enter into a leasing agreement during the home lending period and that can have a sour effect on the ability to get a home loan at the right rate or even at all. VA lenders are especially sensitive to these leases so your lender needs to be aware of the solar panels and needs to have the savvy and know-how to inform the underwriters of the situation.
So if the buyer proceeds with the purchase of a home with leased solar panels will that harm or degrade his or her credit rating to the point where they will not qualify for their loan on that particular home? Tim Love of Capital Mortgage Services says no, not really. If the buyer can prove for example that by having the solar panels on the roof, they will be saving money on their utilities, then the loan underwriters can be made to see that the lease of the panels will not be an extra expense, but in fact, a money saver and not a burden .If the savings can be shown to the underwriters of the loan, then it will not affect the borrower’s ability to obtain a mortgage.
So the good news is that most solar leases are transferable and for most lenders, the panels are not a major hurdle, just minor ones that could potentially turn into major problems.
The next question I get is ….
Will Solar Panels Improve the Value of my Home?
2. Purchased Solar Panel Systems
If you have purchased your own solar system, you are probably confident that the panels will improve the value of your home so your major concern should be, will I get my investment in the solar panels back when I sell my home. In California, appraisers look at leased solar panels as personal property so they don’t take into account the value of leased panels in the appraisal process, but to those of you who have made the investment, will that improve the value of your home, or will their investment in solar panels not hold their value?
I went to one of my best friends who also happens to have been a Real Estate appraiser for B of A for 27 years with the question; How do you evaluate a home with a solar electric system? His answers were very interesting, and they all made perfect sense. Well, kind of.
Let’s say for example that a seller says they paid $50,000 for their solar system and they have no electricity bills as a result. What should the appraiser do? Well, what they should do is look for what they call matched pairs, in other words, the appraiser needs to look for homes that compare in square footage, location, and what not, and they need to find homes that compare both with and without a solar system on the roof. We are talking about systems owned by the seller and not leased; remember that appraisers look at leased systems as personal property, so the appraiser needs to compare homes with systems that were purchased by the home owner. Now, that’s really hard to do because most of the solar panels that you see on roofs around town are of the leased variety. How does the appraiser or anybody for that matter know the difference just by looking at them on the MLS as to whether or not those panels are leased or purchased? You can’t! An appraiser can compare homes with and without pools pretty easily because there are lots of homes in Southern California with pools, or a home with an enclosed patio can pretty easily be compared because there are plenty of those too. The appraiser can see for example that the home with the pool sold let’s say for $10,000 more than the comparison without the pool, same for the enclosed patio, but solar, not so easy but the listing agent should and will disclose to the appraiser the fact that the system was purchased by the seller.
So in addition to the troubles that appraisers have in figuring out the value of these purchased solar panels is that there is no place on the MLS, the Multiple Listing Service that realtors use to post and advertise property listings, there is no place dedicated to solar. If local MLS’s had a Solar Panel section where an appraiser could go to in order to do a proper comparison, it might make a difference but there is no place currently on the MLS in California, to enter these details. If there were such a section in the MLS, the listing agent would be able to enter the solar panel specifics into the system. Are they leased or purchased, how many Kilowatts, the quality of the system etc.. But the fact of the matter is that there are just not enough homes out there, I think that the figures are about one in a hundred homes in the Southern California Area have solar on their roofs. There just aren’t enough homes out there to make a comparison. And what about the appraiser? The appraiser would have to become an expert on solar. They would have to know the different manufacturers, the science behind the kilowatt hours and production and how efficient each one is. It is just not possible for an appraiser to know all of this.
So the answers to those of you who have purchased your own solar systems, wait, hold it… I have news for you; you will not get back the money you have spent on the system when you sell your home. You may have saved lots of money on your energy bills and the longer you have lived in that home, the better, but the truth is, most appraisers will take those systems into consideration but you will be lucky to get that appraiser to evaluate those panels at being worth 25% of that $30-40,000 investment you made. Sorry!
Now you need to remember that a seller may get lucky and meet a like-minded, ecologically and environmentally concerned buyer who will gladly pay extra on top of the appraised value to get the solar system for their newly purchased home, but again, you have to be lucky. It’s just like a homeowner who has sunk $40,000 into a family pool and may only see $10,000 of their investment realized when they sell. The same holds true for the solar panel buyer.
Now before you get really angry with me here, let me tell you that if you are planning on living in the same home for many years, like decades many years, and you use lots of electricity, then your purchased solar system will do you well. You will be saving not only money, but the environment while reducing carbon emissions. But, only if you are looking for those long term returns does it make sense to purchase PV panels.
So, if you are planning on selling your home within the next five years and are planning on investing in PV panels to improve the value of your home, I suggest you upgrade your kitchen and bathrooms instead. You will actually get that investment back, and more. That would be a far better investmant than purchasing a solar system.
The Legal Pitfalls of Going Solar
We have been talking about solar and selling your property so I think we need to address some of the legal codes that have popped up here in the state of California that affect homeowners who install any type of photovoltaic solar panel system. These Solar Access Laws appear in the Civil, Government, Health and Safety and Public Resources Codes. Here are a few codes that may be of interest to you…
Civil Code Section 801.5 that says that neighbors may enter into agreements such as solar easements to ensure that enough light hits their solar panels.
Government code section 65850.5 permits subdivisions to include solar easements applicable to all subdivision plots.
Public Resources Code section 25980 contains the Solar Shade Control Act, under which trees and other natural shading planted after the installation of a solar collector may not cast a shadow that covers more than 10% of a neighboring properties solar collection absorption area between the hours of 10 A.M. and 2 P.M.
Then there is the Nuisance Civil code 3479 which is known as the “unreasonable interference with the use and enjoyment of the property of another. “ One potential impact of these PV panels, the photovoltaic solar panels is the extreme glare associated with them. In certain alignments, mirror surface solar panels may direct and even concentrate reflected sunlight and intense heat and glare toward neighboring properties. So it is very important when installing these panels, to take into consideration your neighbors and the glare factor. You may have a lawsuit on your hands if your neighbor is put out by the reflection and the glare from your solar panels.
Other potential adverse impact on neighboring properties may be a loss of view as in height restrictions, municipal view ordinances or CC and R’s from home-owners associations may also come into play.
Lastly, I need to point out that as of the printing of this article, October 27, 2014, the majority of solar panel users in California have leased systems. The folks who have gone solar have figured out that without all of the government incentives and rebates, solar makes no sense. It is too expensive and not efficient enough yet. I have to go no further than Leo Laporte, the Tech Guy who when asked by a caller last month what solar panels he would suggest said, none. He said that they were getting better but were highly inefficient and he had no suggestions for the caller. Leo is a real Green type of guy and he had no good answer for his caller. Need I say more?
Well, that is all I have for you today on this subject, Will solar panels on my roof make my home easier to sell or harder and will they improve the value of my home. On the real estate answer man show. Thank you for listening the whole way through. Stay tuned for and download all of my other podcasts. In the meantime, just visit my website at barrykessler.com, or southerncalifornarealestateanswerman.com and see my blogs, listen to my podcasts and watch my YouTube videos.
Remember, I am a real live Real Estate Agent, I work with my wife Debra, also a top producer at Century 21 Troop Real Estate. When you work with us, you get two agents for the price of one. If you are looking to buy or sell a home in Southern California, especially in the San Fernando Valley, Simi Valley Moorpark, Thousand Oaks and Agoura, The Kessler Team is here to represent and serve you with fantastic service, and all of the finest tools in the industry. Call us at 818-426-6415.
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Thanks for listening.
See you in your next home!