August 25th, Worldwide ERC would like to thank today s sponsor: 2015 Worldwide ERC

Transcription

1 August 25th, 2015 Worldwide ERC would like to thank today s sponsor: 2015 Worldwide ERC

2 Shining Light on Solar Panels: Issues Faced when Acquiring Properties with this Feature 2015 Worldwide ERC

3 WORLDWIDE ERC WEBINAR DISCLAIMER The views, opinions, and information expressed during this webinar are those of the presenter and are not the views or opinions of Worldwide ERC. Worldwide ERC makes no representation or warranty with respect to the webinar or any information or materials presented therein. Users of webinar materials should not rely upon or construe the information or resource materials contained in this webinar as legal or other professional advice and should not act or fail to act based on the information in these materials without seeking the services of a competent legal or other professional.

4 Welcome and Learning Zone Instructions Technical difficulties? Dial , or questions to To submit a question 1. Click on the Q&A tab in the lower right-hand portion of your screen 2. Type your question into the dialog box at the bottom of the screen 3. Click the Send button To return to meeting room window: If you are in full screen mode, you may return to the meeting room window by clicking the View Meeting Room button located at the bottom left corner of your screen.

5 CRP Certification If you are a CRP seeking CE credit for this Learning Zone, you must utilize the CRP Recertification Credit Form, available online at: (please note that all (S)CRPs must use this form and pay the $8 admin fee to receive CE credit)

6 Today s Presenters Jody Scannell, CRP Director Operations, Residential Services Dwellworks Bill Rudolph, CRP Director, Appraisal Review Dwellworks

7 Agenda Solar Panels 101 Buying vs. Leasing Impact on Appraisals Client Policy Items to Consider

8 Solar Panels 101 Solar energy is the most abundant energy resource on Earth 173,000 terawatts of solar energy strikes the Earth continuously; this amounts to more than 10,000 times the world's total energy use The use of solar/voltaic panels greatly reduces the cost of electricity, improves the electrical supply in various locations globally, and helps to improve the environment by drastically cutting carbon emissions (Clean Energy Ideas, 2014) Along with solar panels, solar water heating panels are becoming more popular to heat a home s water supply, swimming pool, etc.

9 Solar Panels 101 How they work: A silicon/phosphorus plate with an extra electron (negative) and a silicon/boron plate with a space for one more electron (positive) are stuck together in the solar panels. Conductive wires are then placed between them Sunlight particles called photons hit the solar panel through its silicon/phosphorus plate, knocking loose that extra electron The silicon/boron plate then receives that electron because it has an open spot With millions of electrons breaking off and attaching on the solar panel all at once, electricity is generated

10 Solar Panels 101 On a global scale, the United States ranks fourth in the world in Photovoltaic (PV) capacity at around 7.8 gigawatts Attractive Markets include the Southwest and areas with high electricity costs California is the nation s highest user of solar energy Colorado, Hawaii, Minnesota, New Jersey, New Mexico, Texas, and various southwestern U.S. locations High electric cost locations: Georgia, Massachusetts, New York, and New Jersey (Long Island) Growth in residential settings is because of great financial programs and the introduction of various solar leasing opportunities

11 Solar Panels 101 The Southwest U.S., areas of New England, as well as the Tri-State area, are already seeing lower costs for solar power than grid power More than 60% of the remaining U.S. states should see this trend by 2016

12 Solar Panels 101 The cost of solar panels has dropped significantly over the years Buying Between $15,000 and $40,000 to buy and install Average savings = $20-30k over 20 years Tax breaks help offset initial cost (up to 30% of cost) Warranty length = 25 years Leasing/PPA Leasing is simpler for homeowners Cost = $50-75 per month No tax breaks and not as much long-term cost savings

13 Buying Buying solar panels requires significant funds upfront. Federal tax credits bring that cost down; however, it can still cost from $10,000 to $50,000 to install solar panels on a roof (Perratore) Once a homeowner collects at least 1,000 kilowatts of solar energy, they can sell that energy to the power company of their choosing. These are called Solar Renewable Energy Certificates (SRECs), and can be sold for about $200 each For example: Combining the SRECs and the amount saved on utility bills, $35,000 worth of solar panels will pay for themselves in less than 10 years. With a lifetime warranty of 25 years, a person may have 15 years of free electricity (Bratley) Owned solar panels without long-term obligations create fewer issues for RMCs

14 Leasing Leases and Power Purchase Agreements (PPAs) are the main alternatives to buying solar panels An average leasing contract is signed for around 20 years, with the homeowner making monthly payments of roughly $50-75 per month For some families, this cost just takes the place of their old electricity bill; the homeowners still save money, because solar panel lease payments do not increase as quickly as traditional power bills Leasing is simpler for the homeowner, because they do not have to calculate incentives and subsidies for themselves, or be responsible for the panels maintenance and repairs

15 Downside to Leasing Leasing could limit buyer pool if they are not willing to accept longterm lease terms Buying out the lease is cost prohibitive in most cases Considerable paperwork is required to assign a lease Leasing company may take the tax credit RMC responsible to honor lease requirements in interim period (facilitate power readings, power system down in storms, etc.) RMC must ensure lease obligations can be assumed by buyer (and the RMC temporarily) Buyer needs to be approved by leasing company and be able to afford the payments

16 Solar Panels and Mortgage Lending Lenders have avoided lending on properties with leased panels Owned panels are okay because they are considered part of the real estate and add value, but leased are viewed as personal property and not given value under Fannie Mae guidelines In addition to being viewed as personal property, lenders and investors have other concerns with leased solar panels Homeowner s insurance must cover damage to property caused by installation or removal of the solar panels An appraiser must establish that the subject is connected to an alternate source of electric power that is acceptable to community standards, i.e., public power

17 Solar Panels and Mortgage Lending In the event of foreclosure the lender/assignee must have the discretion to terminate or become the beneficiary of the lease, or enter into a new lease under terms no less favorable than the prior owner There can be no exceptions or conditions on title that would compromise Fannie Mae's first lien position Whether the panels are included in value or not, if they are leased and it will cause financing issues, this will need to be considered in the value. This will limit the buyer pool for the home Does that mean leased solar panels could actually hurt the home s value?

18 Solar Panels and Contributory Value In 2011, the Department of Energy did a study involving 72,000 homes in California, comparing solar panel homes versus non-solar panel homes. These homes were very comparable in everything except for the solar panels The study concluded that homeowners with solar panels could command approximately $18,600-23,870 more than the properties without solar panels (CompleteSolar, 2013) According to the Department of Energy, buyers are willing to pay $15,000 more for a home with the average-size solar photovoltaic system (3.6 kilowatts, or 3,600 watts), compared to a similar home without one

19 Solar Panels and Contributory Value In 2012, the Appraisal Institute provided a worksheet that guides appraisers in analyzing and valuing a home based on its energy efficient qualities This makes it seem that we are heading into a direction of solar panel systems adding value to homes However, under the new Fannie Mae guideline, appraisers may not add value for leased solar panel systems, which are increasingly popular because they usually require no money upfront (Appraising Solar Energy s Value, 2015)

20 Solar Panels and Relocation Worldwide ERC guidelines allow an appraiser to contribute value to a property in their Anticipated Sales Price based on the typical buyer s reaction in the market Thus, a problem emerges for the relocation world the bank says you cannot add value for leased systems, but a typical buyer will likely pay more to have it

21 Solar Panels and Relocation Example: Worldwide ERC Relocation Appraisal: $200,000 Anticipated Sales Price $190,000 home value $10,000 in solar panel contributory value Uniform Residential Appraisal (for mortgage loan): $190,000 market value No value for leased solar panels allowed $10k in built-in loss on sale for acquirer?

22 What Do Appraisers Say? Whenever I come across solar, which is about 20% of the time, I always take a picture of the solar unit and ask the homeowner if they own it, lease it, or some combination of the two Either way you look at it (owning or leasing) I think it should be mentioned in the appraisal and given some value I typically don t give it line item value, but reflect it in the overall condition adjustment. My thought is if I am buying the exact same two houses, and one has solar and the other doesn t, I m taking the one with solar and the potential of saving money, leased or owned

23 What Do Appraisers Say? Areas such as the Northwestern and Northeastern U.S. face more extreme conditions throughout the year, so the panels conduct less energy and are prone to damage from the conditions; that could come into play in their value Think about the differing costs of electricity throughout the U.S. More expensive areas may consider solar energy to be much more valuable than less expensive areas. While some dislike the physical appearance of solar panels on a roof, which could turn-off some prospective buyers, there are certain areas of the U.S. that value clean energy more than the look of their roof These clean-thinking areas would likely value solar panel homes much more than others

24 What Do Appraisers Say? I know the relocation industry doesn t necessarily follow Fannie Mae guidelines. The industry could advise appraisers to follow Fannie Mae guidelines as it relates to the solar panels therefore not giving them value and that would address the acquisition issues for acquirers Is that really fair to a transferring employee?

25 What About the Home Inspection? If there are any areas that are exposed, an inspector can try to assess general condition but will offer only limited commentary Another factor that could be a concern is how the panels are attached to the roof and whether that poses any concerns, i.e., penetration through the material and proper seal to prevent leakage Lastly, if/when that roof reaches the point where it needs to be replaced, the cost of removal and replacement of the solar equipment needs to be factored in - Carlo Iannandrea, US Inspect

26 Client Policy Items to Consider At disposition of inventory, or during amended sale, the acquirer could see sales fall through because borrowers cannot get financing as a result of the presence of a leased (or PPA) solar panel system Relocation Management Companies may be best served to work with their mortgage providers to handle these situations This could help facilitate the sale of properties with solar panels from inventory or in an amended sale where the buyer is struggling to secure financing

27 Client Policy Items to Consider What the relocation industry must decide: How will they determine if the property has a solar panel? Do we ask if it is owned or leased? Do we instruct appraisers to consider impact to value? Should leases be considered non-value impacting?

28 References Bratley, J. (2013, June 19). Solar Panel Definition Clean Energy Ideas. Retrieved from: Dhar, M. (2013, December 16). How Do Solar Panels Work? LiveScience. Retrieved from: Maehlum, M. (2015, March 23). How Much Do Solar Panels Cost Energy Informative. Retrieved from: Pierce, E. (2012, June 22). Top 6 Things You Didn't Know About Solar Energy. Retrieved from: Prevost, L. (2015, Feb. 20). Appraising Solar Energy s Value. Retrieved from: solar-panels-and-home-values.html?_r=0 Shahan, Z. (2014, February 4). What Is The Current Cost Of Solar Panels? Retrieved from: The Solar Foundation (2015). Retrieved from: Solar Panel Investment Increases Home Values Complete Solar. (2013, August 23). Retrieved from:

29 Questions & Answers

30 Thank you for attending! Visit the Worldwide ERC web site at or contact Worldwide ERC for more information on these topics