Solar photovoltaic (PV) systems are a common topic of discussion around the real estate industry. Understanding how to value them and assist homeowners in making a buying decision is a skill that appraisers can learn. Understanding how they work and what financial benefits they offer the property owner is crucial to a credible valuation. What is your kilowatt hour cost? When asking that question to large groups of appraisers or real estate agents, I usually find very few with answers.
A four-hour class is devoted to training real estate professionals on how to analyze utility bills to establish the kilowatt per hour cost that would be offset by installing a solar PV system. That is the first step in valuing a solar PV system. Until you know how much it will save at a given location, it is impossible to develop a value unless you have lots of sales with similar size houses, with similar solar PV systems installed, and that are the same age. If you have that kind of data, you will be able to do a paired-data analysis. Most markets today have limited data and access to the solar sales features to make a direct comparison. The absence of sales data requires special skills to develop a credible opinion using recognized methods and techniques.
The following characteristics must be gathered from the property owner or installer before a value can be developed.
If the system is leased, a power purchase agreement, or owned but financed with a UCC filing, the system is personal property and not a fixture or part of the real estate. Donâ€™t forget to obtain the lease or power purchase agreement terms and analyze them to opine on the effect on the real estate value.
It is important to know the size in wattage of the inverter(s), age, manufacturer, and warranty term.Â Most inverters will need to be replaced before the solar PV system warranty term.Â Youâ€™ll need to consider replacing the inverter(s) within the cash flow analysis to valuing the system using the income approach.
The best guide to gathering the details needed for valuing a solar system is the Appraisal Instituteâ€™s Residential or Commercial Green and Energy Efficient Addendum. One page has the list of characteristics needed to develop a cost or income approach to valuing the system. These inputs make using a software, PV ValueÂ® or Ei ValueÂ®, much smoother. PV ValueÂ® is used in the Appraisal Instituteâ€™s two-day course, â€śResidential and Commercial Valuation of Solar.â€ť
When sale of properties that are similar, compete for the same buyer, and have a similar size solar PV system are not available, appraisers must use other recognized methods and techniques.Â Using current installed cost less all forms of loss or depreciation is one simple way that should always be used with another method. The income approach is another recognized method that can be used when sales data are insufficient. The PV ValueÂ® software is a discounted cash flow that is user friendly; however, if you do not understand the method, it is not for you.
Solar PV valuation is a complex appraisal assignment. This article addresses only the very entry level topic of gathering the accurate characteristics of the system and how it is installed. Grow your business by taking a class to hone your skills on valuing these systems. Most appraisers find it takes more than a 4-hour class to learn the basics of valuing solar PV. Youâ€™ll find a Field Guide to Solar Energy on my website that will list resources useful to real estate professionals.
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Sandra K Adomatis, SRA, LEED Green Associate, NAR Green Designee, is a national speaker on valuing high performance features. She is an active real estate appraiser, REALTOR, instructor, and course developer that brings insightful dialogue to share with real estate professionals. Her book, â€śResidential Green Valuation Tools,â€ť was published by the Appraisal Institute. Sandra spearheaded the â€śAppraisal Institute Residential Green and Energy Efficient Addendumâ€ť that is being used by builders, appraisers, and energy organizations around the country. Her passion for high-performance structures is powered by her desire to see people living in healthier buildings that cost them less