Real Estate Analysis and Commentary in Peoria, Arizona

Solar systems are an excellent choice of power in Arizona, primarily because we have a lot of sun shine.  It makes sense both economically and ecologically, but can it add contributory value to your home?  I am going to discuss the "facts" on how solar systems can add value to your home or even be a financial hinderance on your home below.

Over the past 10 years or so in Arizona, almost every home owner has had a solar salesman or saleswoman come to their door or leave door flyers trying to sell the benefits of a solar system on your home.  There are even third party consultants that view your roof layout and come up with the best and most affordable solar solutions to save you money on electric bills while being more eco-friendly.  Those are two things I think every American would want to do, and because of this, oftentimes home owners are coerced into making decisions without really knowing the facts on an "economic" level.

There are approximately four way homeowners can get solar panels on their home to help with the cost of electricity and also make their home more "Green".  Below are the four main possibilities:

1:  Purchase the solar system outright, with no loan or lease.  This is a large upfront cost (similar to purchasing an affordable vehicle).  There are tax credits that reduce the financial burdens, but the solar panels will be permanently affixed to the home and not have an encumbrance.  THIS IS THE BEST SOLAR OPTION FOR ADDING VALUE TO YOUR HOME, AS THIS AMENITY IS "REAL PROPERTY" AND CAN ADD UP TO THE FULL COST OR SOMETIMES MORE TO THE VALUE OF YOUR HOME, DEPENDING ON THE MONTHLY ELECTRICITY SAVINGS.  BEST CHOICE.

2.  Leasing a solar system and having a solar lease payment.  This options is the least appealing, as you are burdened with a large lease payment and the "net" savings is minimal.  Also, typically at the end of the lease term, often times the solar panels have reached the end of their effective life and would need to be replaced.  FANNIE MAE / FHA / FREDDIE MAC and nearly all lending institutions or mortgage programs will not allow "ANY" value to the home from "leased" solar systems, as it is NOT real property, but rather personal property that will and/or can be removed at any time.  In addition to this, if you would go to sell your home, the buyer would have to assume and qualify for the leased solar panels which could lead them to NOT qualifying for both the home and the lease assumption.  We often see homes with leased solar systems sell for less than an identical house without leased solar systems for this reason.

3.  Financed solar systems that have a loan (not a lease) payment and the loan is typically using the home as collateral for the solar panels.  This option also is similar to a leased system in that FANNIE MAE / FHA / FREDDIE MAC and nearly all lending institutions or mortgage programs will not allow "ANY" value to the home from "financed" solar systems, as it is NOT real property (until the loan is paid in full), but rather personal property that will and/or can be removed at any time in the event of a loan default.

4.  Utility Company owned and installed solar panels.  This option typically offers the homeowner the least savings and is very similar to a "leased" system from the eyes of a lender, as it is also not real property and can be removed at any time.

So, I have often tried to come up with a way to explain this to homeowners that are happy with their solar systems and the savings it offers, plus knowing they are doing their part to be "ECO" friendly.  The lender is borrowing money "Mortgage" for the homeowner to purchase the home.  The home is their collateral for the risk assumed in making the mortgage.  If the value of the collateral is increased due to solar panels, the lender must be sure that in a "disaster situation" of a potential Default of the mortgage, the lender would foreclose on the property and the solar panels would be owned outright and transfer to the lender.  If the lender were to foreclose on a leased or financed or utility company owned, the leasing institution / lending institution / utility company would remove the solar system prior to the Mortgage lender foreclosing on the home.  

I know this is a lot of word jargon, but simply put, if the mortgage lender foreclosed on your house, will the solar panels be permanently affixed and transfer with the home with no encumbrances and be part of the "real property".  If so, appraisers who perform appraisals can add value to your home based on the market area / comparable paired sales / net savings extraction over a period of time / etc.  If NOT, then there can be no value added by the appraiser.  

Below is a link to FANNIE MAE's web site outlining the appraisers responsibility when appraising homes for mortgage / lending purposes.  I hope this helps clear up this really grey area for homeowners that in my experience are being told by solar sales people information that is not true in the lending / mortgage arena.

Appraising properties with solar panels

Posted by Jason Clow on February 4th, 2023 1:17 AMLeave a Comment

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