With energy costs rising and projected to continue to rise for the foreseeable future, many homeowners are turning to solar photovoltaics (PV) to greatly reduce or even eliminate their electricity costs.
Solar PV systems thus create a net benefit to both buyers and sellers of homes. PV systems are a desirable feature for many buyers. In addition, homes with PV systems sell for a premium comparable to homes without these systems.
According to a 2011 article by Lawrence Berkeley laboratories: “We find compelling evidence that solar PV systems in California have boosted home sales prices,” says the lead author Ben Hoen, a researcher at Berkeley Lab. “These average sales price premiums appear to be comparable with the average investment that homeowners have made to install PV systems in California, and of course homeowners also benefit from energy bill savings after PV system installation and prior to home sale.”
There are two main ways to acquire a PV system. One is by purchasing the panels and ancillary equipment and recapturing the initial investment over a period of years through greatly reduced or even zero future electricity costs. The other, and now more common practice, is to lease the solar panels.
In either case, there are various areas of concern for both buyers and sellers when dealing with solar panels. The following are a few issues to keep in mind during the real estate transaction.
For buyers:
If purchased, is there an outstanding loan on the panels? If so, the loan will usually be a lien on the property. For example, Rabobank makes loans on the purchase of PV systems but requires them to hold a first or second lien position on the property. The loans are not assumable and therefore would have to be paid off before close of escrow, according to Ida Pointer-Gomez, Rabobank Goleta branch manager. Buyers should have their agent include language in the purchase agreement requesting that the seller prove that the panels are owned.
If the seller states that the PV system is leased, the buyer should request a copy of the lease agreement as a condition of the purchase. In addition, the buyer will need to provide a copy of the lease agreement to the lender, since it may affect the borrower’s loan to debt ratio and ability to qualify for a loan. Also, the buyer should contact the leasing company to determine if and how they may qualify to assume the loan. The leasing company will have their own requirements to approve the assumption of the lease.
These requirements may be similar to or even stricter than the lenders requirements. Another strategy might be to negotiate a lease payoff as a condition of the purchase. Finally, buyers should speak with their lender to determine obligations of an assumed lease agreement.
When it comes to real estate transactions, solar power should be a win-win. Sellers gain added value to their homes, and buyers gain future savings through reduced energy costs. The key is understanding the details of the solar purchase or lease agreement so that it does not become a deal killer.
— Donald Brownett is real estate associate-broker with Coldwell Banker Santa Barbara. He is a former general contractor and building inspector and specializes in property management, vacation rentals and estate management. He can be reached at 805.837.9064 or donbrownett@gmail.com.