SOLAR AND REAL ESTATE
Solar is everywhere now, especially in Southern California. Homeowners have taken to the idea of generating their own power for less than what their local utility charges. They also like the control. They know what their power is going to cost, not just now, but well into the future. So what does this mean for the Real Estate industry? Is solar a benefit when selling a home? How do you maximize any benefit when presenting to a potential buyer or when listing the property on the MLS? What do you need to know if you are buying, or representing someone who is buying a home with solar?
In most circumstances, a photovoltaic solar system adds value to a home. A study conducted by Lawrence Berkeley National Laboratory from home sale data between 1999 and 2013, determined that solar homes sell faster and for a higher price than comparable nonsolar homes. They studied markets in eight states and determined that homeowners were willing to pay an average of $15,000 more for a home with a solar array. While reading the full report, at about sixty pages, might not sound like fun, there is a short version that you can read by clicking here.
The first part of this article is Solar 101. If you want to skip all of that and get to the nuts and bolts of selling a home with solar, skip ahead to the section “How Do You Sell a House with Solar?”
Why Does Solar Increase the Value of a Home?
Every home, no matter where it is, is going to have an electric bill. In most areas, homeowners do not have a choice in who supplies their power. While some communities are served by small, nonprofit utilities that keep costs down, most are served by large, private corporations whose ultimate goal is not to provide power at the best price for the customer, but rather to increase the value of their shares which ultimately means maximizing profit. Because of this, the cost of power is unpredictable and usually trends upward. On average, electric bills go up an average of 4 to 6% per year, every year. When a home has solar, that homeowner has a much better idea of what they are going to pay for power. If the system is owned outright, then the homeowner knows that most of their power will be covered by the solar. That is eliminating a mandatory monthly expense that can save the homeowner thousands of dollars per year. If there is a loan on the system, the listing agent and homeowner should analyze the numbers and determine if it makes sense to pay the system off through the sale of the home. Some solar financiers require it, while others will let the new homeowner take over payments. These payments should be lower than what an average electric bill will be. Otherwise, it makes more sense just to pay it off through the sale.
Most transactional issues come up when a system is leased because the buyer is forced to assume the lease. In most cases, this should be a benefit, as long as the agent knows how to present it. When a homeowner signs a lease, they are essentially agreeing to buy power at a certain price for a specified length of time – usually 20 years. Sometimes there is an escalator which increases the monthly rate by 3% per year, but usually, the payment is fixed for the term. When signed, most leases are 10 to 40% less than the average electric bill for the home. Therefore it stands to reason that savings will only increase over time as electric rates continue to climb. While the lease may initially save only a few dollars per month, those savings can grow substantially over the life of the lease. That means that if you signed a fixed lease in 2015 for $150 per month, then it will still be $150 per month 20 years down the road, no matter what the utility decides to do. The problem is that not all leases are created equal, and some companies make it more difficult than others to transfer. Most companies have a department that is dedicated to transfers. The important thing as a homeowner or listing agent is to contact them as soon as you decide you are going to sell your house so that you have all of your ducks in a row to make the process as smooth as possible.
If you are deciding whether or not to lease a solar system, and you plan on selling your house within a few years, make sure you do a couple of things. First, make sure you don’t get an unusually large system for a house like yours. Some people have abnormal energy needs and because of that, they carry a much higher average electric bill. Then they decide to lease a system that covers all of that power. Even though that system may be saving them a lot of money, the payment might be higher than what most people would pay for a normal electric bill in a comparable home. That could make it difficult to sell the home because the buyer will be hesitant to assume a payment that is so large when comparable homes have smaller electric bills. Instead, a high energy user should lease a system that covers the higher tiers of power with a goal of keeping the lease payment under the average electric bill for the area. That way the payment would be more attractive to a potential buyer and would likely cover a higher percentage of the new homeowner’s electric bill.
The second thing a homeowner should check before leasing a system is what the process is for transferring that lease and what the options would be if the buyer didn’t want to assume the payment. Every company is a little bit different, but they should all have a process in writing for transferring a lease. SunRun, SunPower, and SolarCity are all reputable companies and have clearly defined terms and processes in place for transferring leases. They are all a little different. The important thing is that you as a homeowner understand the process should you decide to sell your home. And oh yeah – KEEP YOUR PAPERWORK!!!
Owned Solar Systems
While leases were prevalent between 2010 and 2015, these days more homeowners are choosing to purchase their solar systems. Financing has become much more attractive, and there are a few other benefits. First, when you purchase a solar system you are entitled to a 30% Federal tax credit. This is not a deduction, but rather a credit. To better understand the difference, you would need to speak with a tax professional. Another advantage to owning a system is that once it is paid off, it will keep producing power that the homeowner does not have to pay for. The system will typically pay for itself within six to ten years, depending on a variety of factors. Most installers will cover their roofing work and workmanship while the manufacturers of the products carry warranties of up to 30 years. Panels will typically degrade over time, but they should still be producing around 90% of their initial capability at year 20. That means that a homeowner should have a pretty good idea of how much power their system should produce over that time. This is important information to have when it is time to sell the house. Which brings us to the point…
How Do You Sell a House with Solar?
No matter what the studies show, most real estate agents that have had to sell a home with solar will tell you that they have had issues. Most of these issues concern leases, but owned solar systems can cause headaches as well. An agent practically has to become a solar salesperson because they have to sell the system as well as the house. Potential buyers are scared of assuming a lease because they feel that they don’t want to be locked into a contract. I have some bad news for them. Without solar, they are locked into a contract with an electric company that has the ability to raise their rates whenever they want. At least with solar, they know what they are going to pay. Buyers are wary of owned solar systems because they aren’t sure of what they’re getting. Does all that junk on the roof really add value? Or is it just a useless eyesore.
There are five pieces of information that are vital to selling a house with solar, and thanks to the Sunshot Initiative and the Berkeley Lab, data standards have been created that can be used by the various Multiple Listings Services around the country. California adopted these standards for its Regional MLS in January of 2017. That means real estate professionals no longer have to guess with regards to a home’s solar system. They need to obtain the information, which can admittedly be difficult, and then just fill in the blanks when listing the home. Here are the five pieces of information that the listing agent needs to properly list a solar house.
It is important to know the accurate size of a system in kilowatts. Simply knowing how many panels is not enough. You need to know how powerful those panels are and then add them all together.
A buyer will want to know how old a solar system is. If the system was installed ten years ago, then the buyer will know that the system has started to degrade. That’s not to say that the system is useless. It just means that a system that old shouldn’t add much to the asking price, depending on other factors. This may not be as important with a lease as most leases have power production guarantees built into the contract. Regardless of the age, whatever the system produces should be considered “free” power that will reduce the homeowner’s electric bill. That provides true value to a potential buyer.
Does the seller own the system? Or does a solar leasing company own it? This is the tough one. While there is value in having a fixed electric payment with a lease, there is more value in owning the system. As was previously discussed, owning a system means there will come a time when there are no payments, and the homeowner simply benefits from whatever power the system produces. The advantage of the lease is that the homeowner shouldn’t have to worry about maintenance, with the exception of cleaning the panels. But that payment never goes away. Then what are your options when the lease is up?
Owning the system means that the homeowner is responsible for maintenance, although installers, manufacturers, and finance companies have a variety of warranties these days that cover a lot of that maintenance. But ultimately having little or no electric bill adds value, and can be figured into the asking price.
This is the most important factor. This shows a potential buyer how much power the system is currently producing. Whether it is an owned system or a leased system, this lets the buyer know if all of their power uses will be covered, or only a portion, which could leave them with a large annual bill from the local utility. While it is impossible to predict exactly how much power an incoming homeowner will use, a good agent will have a rough idea of what the average usage is in the area. Using that knowledge, plus having an idea of whether the incoming homeowner will be above or below that average, will help understand if the solar system will meet their demands or not. It is also helpful if the seller has their original paperwork. That paperwork should show what the predicted output is in the future when factoring in degradation. There usually is a warranty to protect against that degradation going past a certain level. It doesn’t do the homeowner much good if they buy the house with a system that produces 12,000 kilowatts in the first year if five years later it is only producing 6,000. Future output needs to be taken into consideration when determining the value that a solar system may or may not add to the house.
Source of the Data
While it may seem like a given, it is important to consider the source of all of the above data. Just like anything else, try to get the information in writing – either from the company that installed the system or from a solar appraisal service. No matter how trustworthy a homeowner may seem, you should try to get the information from a professional. Even if the homeowner isn’t trying to intentionally mislead a buyer, they may not understand exactly what they have on their roof, or what the warranties cover. Hopefully, they kept the original paperwork from the installer. If not, there are companies that will perform a comprehensive solar appraisal where they not only examine the components of the system to determine data, but they also perform tests on the system to verify that it is operating correctly. It is recommended to do a solar appraisal regardless of whether or not you have the original paperwork, just to verify that everything is correct.
There you have it agents – a ton of information to digest when it comes to selling a house with solar. If you feel a little overwhelmed, don’t despair. S2G is always available to answer any specific questions you may have. We might even be willing to sit in on one of your solar open houses and answer buyers’ questions. You can always contact us through the site. We also included links to a few of the source articles we used. Hopefully, this helps you sell your solar homes, gives you the confidence to list a home with solar, or help your buyers determine whether the solar system on the home they’re looking at has any value. Feel free to use us as a resource.
Thanks for reading! Good luck out there!
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