Residential Solar Photovoltaic installations are continuing to grow in the U.S. every day. Homeowners often purchase without having full knowledge of the documents they sign and the unintended consequences that follow. For instance, “I installed a solar PV system last year at a cost exceeding $30,000 and secured a solar loan to pay for it. I can’t find a buyer that will buy my property and assume the solar loan.”
The unintended consequences this homeowner faced is the loan may come with a Uniform Commercial Code (UCC) filing that identifies the solar system as “personal property.” The system cannot be included in “market value” if it is personal property. Removing the UCC filing means paying off the loan at closing. That may not be an option if there is insufficient equity to pay off the loan at closing.
When the system is collateral for the loan, it should not be mortgaged over. This can be avoided by refinancing the house to finance the system. A refinance may require an appraisal but should address the value the system may or may not add to the property. The interest rate on a refinance is typically lower than a solar loan.
Ever seen the solar advertisements of no money down and no monthly payments using a Property Assessed Clean Energy (PACE) loan that is paid through the real estate tax noted under the non ad valorem section of the real estate tax bill? The PACE loan goes with the real estate and takes 1st lien position creating problems for a refinance using a Fannie Mae or Freddie Mac loan. The PACE loan does not have a firewall that alerts the owner that the loan plus their mortgage exceeds their property value. If the real estate agent does not disclose the PACE loan on the property and they have an offer to purchase, the title company may discover the UCC or PACE just days before closing. Appraisers must identify PACE loans on the subject and or comparables sales used in valuations. The real estate tax on a property with a PACE loan for energy improvements will exceed the typical real estate taxes for a similar property. PACE loans are not always at lower rates and often are for 15-20 years.
Solar PV Systems provide financial benefits and are financially feasible in some areas. Engaging a skilled appraiser that understands solar photovoltaics and how to value them is a smart move before the purchase. The skilled appraiser can assist the homeowner in understanding the size of system they need to produce the energy they use. Oversizing a system results in higher cost and a longer period to recoup the investment. An appraiser should ask for a year’s utility bills on the property to analyze the usage and the kilowatt hour rate at the location. PV Value® can estimate the production or establish a wattage needed to produce the energy at a location and develop a value conclusion using the cost and income approaches. It is designed to be used by skilled appraisers/consultants with knowledge of solar and a discounted cash flow. However, the best data is sales data and solar trends in the local market. When data are not available to use sales, support the conclusion using other valuation tools. No sale – No value is not a recognized or taught methodology. The skilled appraiser will take extra steps to understand the market’s attitude toward solar. The Appraisal Institute Residential Green and Energy Efficient Addendum solar page can be attached to the MLS upon listing the property, used by appraisers to gather the specifics needed to value the system.
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