Challenges And Obstacles To Selling Solar Homes
A solar home can be thought of as any home that is partially or completely powered by energy from the sun. Given the broad definition, a solar home can look quite different depending on the way you go about it. Getting solar panels of your own is just one option.
Depending on the type of arrangement you have for getting your solar energy, here are some of the obstacles to work through when you sell your home.
Solar Leases Or Power Purchase Agreements (PPAs)
If you don’t want to deal with upfront solar panel cost, you might look into a solar lease or a purchase power agreement (PPA).
With a solar lease, you contract with a specific solar company or solar installer and pay a flat monthly rate for the equipment.
With a purchase power agreement, you pay a fixed rate for each kilowatt hour generated based on your use of the solar equipment installed by a third party. With either of these arrangements, the idea is to generate the electricity at a cheaper rate and pocket the difference between what your energy bill would be without a solar offset and what you’re paying the company to maintain your equipment.
There are two things to consider if you’re looking to sell your home after putting one of these arrangements in place. First, because you don’t own the equipment, it doesn’t get counted toward your property value. You’re not going to necessarily sell your house for more under this arrangement.
Secondly, if you sell the house prior to the end of the term of your lease or PPA, you and the buyer have to agree on how the solar lease will be handled given the options in your solar contract. Although these options may vary, they often include the following:
- Prepayment: The seller can prepay the remainder of the contract. In this case, the buyer would assume any responsibilities under the contract, but not the payment.
- Assignment or assumption of contract: The buyer takes over all payments and responsibilities of the contract initiated by the seller.
- Purchase: The seller has the option to purchase the solar panels at a price listed in their contract so the buyer doesn’t have to deal with it. Additionally, if the panels are purchased, it can be included in the home value.
It’s important to note that if the buyer takes over a solar lease, this is included in their debt-to-income ratio (DTI) for qualification purposes. This is not the case with a PPA because it’s looked at like a utility payment.
Solar Panel Loans
Now let’s say you opted not to lease your panels, but you’re paying for them over time with a loan. When solar installers provide a loan, they often put a lien on a homeowner’s title that’s removed when the loan is paid off.
In order to sell your property, for buyers who are coming in with a mortgage, you’ll likely be required to pay off that loan at or prior to closing. Mortgage companies want to make sure that new homeowners aren’t taking on additional responsibilities.
The good news is that because you own the solar panels, that can be included in your property value to the extent that it makes a difference in your market.
Lack Of Knowledge
Solar energy is still a relatively new concept to account for in property valuation, so buyers, sellers and their real estate agents may all be operating from a limited base of knowledge. They may have several concerns:
- How much do solar panels add to home value? This is where having recently sold comparables in the area with solar panels will help. There may be other advantages to being the first on your block with solar, but increased home value may not be one of them if you don’t find the right buyer. On the other hand, there are some tools to estimate the value that solar panels bring to your home. Appraisers can also certify green home features, including solar panels.
- How much can I expect to save on energy bills? Energy bills can easily be shared with the personal information blacked out so sellers could give buyers this information by using their before and after utility bills.
- How long can I expect my solar panels to last? This one is a bit tougher, but one thing you can do is rely on the advice of your solar company and/or installers. One good indicator may also be how long they’re willing to warranty the equipment. If there is a warranty, make sure that it stays with the house – and new owner – once the home is sold.
Another important thing to note is that the panels don’t necessarily have to be on-site for you to benefit from energy savings. A group of people can participate in a “green field” project. This is where solar panels are installed on vacant space and members of the group help pay for and maintain it. In this case, each person benefits from the savings. You may not be able to include this in the appraised value, but it can be a selling point.
Lack Of Seller Transparency
One of the basic principles of economics is that markets tend to work best when both parties have all the information available to make an informed decision. The more you can tell a buyer about how much they can realistically expect to save, the way the system is maintained, any warranty that came with it and the lifespan of the panels, the better. You’ll attract buyers who are interested in this.
On the flipside, you don’t want to be negative either. Solar panels can be quite an investment and it can take quite a long time before it fully pays off. That timeline is also going to change quite a bit based on where you live and how much sun you get. You might be frustrated, but if you portray that, it could be harder for you to sell your home.
It’s important for you to remember that the buyer won’t have the upfront investment, so the solar panels may pay off in terms of savings much faster for them. It should always be a selling point and not a detraction.
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