What You Need to Know to Make Sure Your Solar Rooftop is Properly Valued at Time of Sale.
The SAVE Act, currently moving through Congress, would require appraisers to take into account the savings from a home’s solar or energy-efficient features if they are documented, effectively requiring lenders and appraisers to take renewables more seriously. © sl-f
In the market for rooftop solar?
Wondering if it will add value to your home when you sell?
Installers will probably point you to several studies which show that homebuyers pay a premium for rooftop solar. According to a 2015 report by the Lawrence Berkeley National Laboratory, that premium can be $4/watt ($5/watt in California), while in 2019, Zillow’s researchers found that solar panels increase a home’s sales price by an average of 4.1%.
These findings suggest that buyers like and value solar, and that there are lots of potentials for a solar owner to increase the value of their home by adding a solar energy system. But these are national averages, and they conceal the many challenges home sellers experience. Some sellers are doing well, but many are missing out on that extra $4-5/watt for their prized PV system.
Take the case of Max P, an Arizona homeowner and former Tesla employee in his mid-20s who bought a 1960’s-vintage fixer-upper in Tempe, Arizona early in 2020.
“My whole idea in getting the house was to make it green and smart,” Max says. “If I needed to rent or sell it, I wanted it to be smart and attractive. I would love to have a pool, but a pool attracts some people and not others, whereas I think having a green, smart home really adds value.”
Max spent $45,000 on improvements. He installed a 14.62kW rooftop solar system that produces 23,406 kWh/year, as well as not one but two Tesla Powerwalls in his garage. He also insulated his attic, installed better windows, and replaced the old gas water heater with a tankless electric model. The result was an almost non-existent electric bill.
“I do have a hookup to SRP, which is our power company, but I only have a basic bill every other month, which is really just for interconnection and water,” Max said.
So, when Max decided to refinance his home this February, he expected that these improvements would add a lot of value to his home. Instead, he ran into one obstacle after another. His story, which is similar to that experienced by thousands of homeowners across the U.S., illustrates the challenging road to valuing residential solar. Truth is, it’s a wake-up call for the entire solar industry.
Lender One: A Lien May Mean No Loan
The problems started almost as soon as the appraiser set foot on Max’s property. He told Max that he wouldn’t be able to realize any value for the solar panels in the appraisal because they were secured by a lien; as a result, the bank considered them personal rather than real property. Max pointed out that part of the proceeds of the refinance would be used to pay off the solar loan so that the lien would be removed, but the appraiser said there was nothing he could do.
Max had stumbled across a problem experienced by many solar owners. It’s reasonable to assume that panels on a rooftop would add value to a home, no matter how they’re owned or financed. But these details can make a huge difference. If the panels are leased or financed with a power purchase agreement (PPA), lenders take the position that because they are owned by a third party, they should not be considered in the appraisal.
This wasn’t Max’s situation, because he had purchased his panels. But the purchase was financed through a third-party lender, and the lender filed a type of lien on the property known as a UCC-1 (Uniform Commercial Code) filing. UCC-1 filings are used by lenders to indicate their rights to collateral or liens on loans that secure “movable” assets such as boats, manufactured homes, and, as it turns out, solar panels. Mortgage lenders, and the secondary market, do not recognize the value of solar panels secured by a UCC-1 in an appraisal because the lender has the right to repossess and remove them.
Max solved the problem by selling some assets, raising cash, and paying off the loan on his solar panels. This is probably the simplest option for an owner in this situation, but not everyone has that sort of cash available.
If a solar owner has panels secured by a UCC-1 and can’t pay off the loan, there are two other options.
First, contact the lender and ask if they will remove the UCC-1. Some solar lenders have indicated that they are willing to do this if the owner is selling the home.
The other strategy is to convince the appraiser to indicate the value that the panels would add to the home in the event that the UCC-1 filing is removed. Pearl has seen this approach used successfully in practice. If the lender recognizes that the loan will be paid off at the time of sale or refinance, they may be willing to consider the value of the panels. However, this approach is not universally applied or recognized. The appraiser could refuse to use it, or the bank could reject the higher, “hypothetical” value.
Tip 1: If your panels are leased or financed through a PPA, the appraiser is highly unlikely to attribute value to them. If you own your panels but financed them, you either need to pay off the loan or work with the appraiser to ensure that the appraisal includes the value of the panels, in the event that they are paid off at the time of closing.
Lender 2: Document and Ask for a Competent Appraiser
Once Max paid off the solar loan, he re-started the refinance process with a second lender. He recognized that he needed to make a case to the appraiser that the solar system and batteries were valuable. He assembled some paperwork and, at the advice of the first appraiser, used an online tool, PV Value® Photovoltaic Energy Valuation Model, to calculate the lifetime value of his panels. By doing this, Max had already gone further than 90% of homeowners in a similar situation.
Maria N., a New Jersey-based appraiser, was assigned to appraise thirty solar homes last year. A seasoned professional who goes above and beyond the minimal requirements for her assignments, Maria recognizes that solar panels can provide multiple benefits to the homeowner. She’s willing and committed to conducting the necessary research and to devoting the time necessary to determine whether they add value to the property.
But of the thirty homes she appraised last year, the number of homes that increased in value as a result of the rooftop PV systems was – wait for it – zero.
“Sellers just don’t provide documentation about their solar installations. It’s almost never available,” she said. “Sometimes they can’t even tell me if the system is owned or leased.” This comment is echoed by real estate agents and appraisers across the U.S.
This lack of documentation is a crucial barrier to ensuring that rooftop solar adds value to a home. It may be obvious that there are panels on the roof, but in the overwhelming majority of transactions, the available information starts and ends there. Details about the system size, manufacturer, age, inverter type, history of power production, financing and ownership, are invisible and often unknown to the buyer.
Max’s efforts to assemble documentation would have made Maria N’s day. But the appraiser from the second lender wasn’t as impressed.
“I asked for an appraiser who was familiar with solar,” said Max. “I don’t think he really appreciated me highlighting green efficiencies in the home. The house came in at $535,000. I felt he had not attributed any value to the solar. He’s saying the $45,000 assets were worth jack.”
Max came across another challenge when selling a solar home: the inexperienced professional. When you sell your solar home, you want a competent and engaged real estate agent and appraiser, professionals who are willing and able to use the information about your solar system. The real estate agent should be able to take information about the PV system and use it to determine the appropriate listing price to showcase the home. Similarly, the appraiser should be able to use the information in a way that enables the value of solar to be recognized at the time of sale.
Unfortunately, most agents and appraisers are unfamiliar with solar. They don’t understand how it works and lack the training to sell or value it. As Jacob W., Florida real estate agent says, “No realtor I talk to understands solar fully enough to market it.”
The result is that home sale professionals typically ignore solar during the sale and appraisal transaction. Mr. P, a Virginia homeowner, was told by his real estate agent that “solar currently does not add any value to the property,” a conversation many other solar owners have experienced. Some real estate agents even suggest homeowners remove the panels prior to sale to reduce the complications in the transaction.
And appraisers, even provided with high-quality information, may simply not attribute any value to the panels in the appraisal.
Max took the right approach. He asked the lender to assign a competent appraiser. However, the bank sent someone who may have felt they “knew” solar, but clearly had no training in appropriate valuation methods.
Tip 2: Make sure you are supported throughout the sale or refinance by competent professionals who understand solar, renewables, and energy efficiency. Interview a number of agents before selecting one to list your home and ask them about their training and professional qualifications. Real estate agents who have earned the National Association of Realtors GREEN designation, or who have completed the classes offered by the non-profit organization Elevate, are much more likely to help you capture some or all of the value of your home’s solar. Tell the lender that your home has solar, and request that they send an appraiser who has professional qualifications, such as appropriate training through the Appraisal Institute.
Lender Three: Third Party Documentation Is the Charm
Having paid about $45,000 for his solar panels and batteries, Max rejected the idea that they had no value. He turned down the second lender and went online to research third-party certifications that could help convince the next appraiser of the value of his home’s renewable features.
“I knew that there was a true value associated with the panels and batteries,” Max said. “I thought, ‘there’s got to be something. There are LEED certifications for buildings, but I don’t think that really covers renovations.’”
Max discovered Pearl Certification in an online search and realized he had found what he was looking for.
“I was super excited to see that there was a non-biased third party because there’s a huge value in having a non-biased opinion,” Max said.
Max worked with Pearl’s customer service team to get Pearl Certification for his entire home, including the panels, batteries, and energy-efficient features. The report included Pearl’s latest feature, an estimate of the lifetime value of the solar panels, discounted to account for the time value of money.
Armed with the certification report, Max went to a third lender and tried the process again.
When we got the appraisal back, it came back at $565,000,” Max said. “Within a month, we saw a noticeable jump in the value of at least $30,000 from the previously appraised value of $535,000.”
Max’s observation was that the third-party documentation from Pearl drove the change. “Pearl made the difference in capturing the value of my solar system,” he said.
Still, Max felt that the lender hadn’t recognized the full value of his system. He had hoped that the appraiser would assign most, if not all of the $45K he spent on the panels and batteries. Interestingly, the appraiser agreed with him.
“The appraiser apologized and said, ‘I don’t think I’ll be able to give you as much as we probably both think the solar is worth due to the underwriter’s assumptions and values around solar,’” Max explained.
Tip 3: Make sure that you provide your real estate agent and appraiser with information about your solar system, including:
- The energy the system produces each year
- Actual and/or projected utility bill savings
- Ownership status and future responsibilities for the buyers
- Names of the panel and inverter manufacturers
- Age of the installation
- Length of the warranties
If you don’t provide this information, your chance of seeing some value from your system is almost nothing.
Consider getting a certification from a third-party provider. This documentation will present your home’s renewable and/or energy-efficient features in a way that increases the chances that they will be attractive to buyers during the sale, and intelligible to appraisers during the appraisal process.
The Big Picture
If Max’s story was an isolated case of a single recalcitrant lender or a few unusually incompetent appraisers, it might make for an interesting tale, but it wouldn’t have general interest. The problem is that Max’s experiences aren’t unusual; they’re typical. Pearl has helped hundreds of owners of high-performing homes with solar and energy-efficient features negotiate the sale and refinance process and has interviewed appraisers and real estate agents across the country. All of them report the same thing: most solar installations aren’t properly recognized in either the sales price or the appraisal.
What can you do as a homeowner?
First, follow the tips outlined in this article. Getting information about your solar investment into the market when you sell or refinance is crucial. Without it, your chances to realize solar’s true value are greatly diminished. Be active about demanding competence and professionalism from everyone you interact with during the sale or refinance process, from the real estate agent to the appraiser to the lender.
There’s also a policy fix in the works. The SAVE Act, currently moving through Congress, would require appraisers to take into account the savings from a home’s solar or energy-efficient features if they are documented, effectively requiring lenders and appraisers to take renewables more seriously. Call your local congressperson and tell them that you support the SAVE Act as a crucial way to promote renewable energy and that they should too!