How does solar affect Austin property values?
Developer · Austin, TX · Member since 2016 · 108 posts · 23 votes
Has anyone run comps on similar houses with and without solar panels? Has anyone sold properties with them?
I'm curious about how it would affect sales price and whether it could be a value add on a flip after collecting state rebates and tax credits.
See the agents BiggerPockets members work with in Austin, TX.
See agents@Account Closed in general, you should not be adding solar panels to your home if it is a flip. Things like windows, tankless water heaters, pools, and solar panels do not give you a $1 to $1 return to install them. Meaning, if it costs you $50k to install a pool, you may only receive $20k in value. So if the exchange is WORSE than $1 for $1 then we aren't going to do it as a flipper...UNLESS the neighborhood warrants us to do so. If every house in your neighborhood has solar panels, then you need to factor that in your costs...and into your offer as well. Meaning a lower offer. So if all the comps do have panels, and you know it won't work out for a $1 for $1 exchange, then you will need to lower your offer to compensate for it. Same with pools. I have not seen enough homes in a geographical area to warrent enough comps for solar panels here. In Florida, there are certain parts where if your home does not have a pool it ain't selling. That's not the case here. Arizona is a pretty popular state for solar panels. I think California has way more but they also have way more people. Dallas-Fort Worth has more people in it than Arizona. But as far as a percentage, Arizona is pretty high. Texas is not so much. I would recommend against it.
@Account Closed in general, you should not be adding solar panels to your home if it is a flip. Things like windows, tankless water heaters, pools, and solar panels do not give you a $1 to $1 return to install them. Meaning, if it costs you $50k to install a pool, you may only receive $20k in value. So if the exchange is WORSE than $1 for $1 then we aren't going to do it as a flipper...UNLESS the neighborhood warrants us to do so. If every house in your neighborhood has solar panels, then you need to factor that in your costs...and into your offer as well. Meaning a lower offer. So if all the comps do have panels, and you know it won't work out for a $1 for $1 exchange, then you will need to lower your offer to compensate for it. Same with pools. I have not seen enough homes in a geographical area to warrent enough comps for solar panels here. In Florida, there are certain parts where if your home does not have a pool it ain't selling. That's not the case here. Arizona is a pretty popular state for solar panels. I think California has way more but they also have way more people. Dallas-Fort Worth has more people in it than Arizona. But as far as a percentage, Arizona is pretty high. Texas is not so much. I would recommend against it.
@Account Closed! Not for flip unless every other house in the neighborhood has them.
It would depend strongly on the neighborhood in Austin, I'd think. I'd imagine there are neighborhoods in Austin where many houses have them. But definitely insulate first and get high efficiency furnace and water heater, before considering solar.
Has anyone run comps on similar houses with and without solar panels? Has anyone sold properties with them?
I'm curious about how it would affect sales price and whether it could be a value add on a flip after collecting state rebates and tax credits.
I understand your question as Panels cost $10, rebates are $2, added value is > or equal to $8?
I think the other posters are saying "No, value is likely less than $8"
I generally agree with Andrew above.
I just put solar panels on my primary residence and I'm very happy with the outcome. I think IF you want to pursue this approach, and you'd better be careful, is to look at it from a cashflow/NOI perspective that future owners will get some sort of annual return for the remaining life of the system. That sort of calculation should help you come to a value for the system, but even then, the cost of you putting in the system will take some time to break even. I'd recommend staying away.
Hey guys, I totally agree with following the neighborhood- we always do.
I'm doing a major 4plex renovation condo-split in a growing part of town and thought about it since I'd be getting 4x the "benefit" while only having to panel one building.
It would be out of the ordinary in that area, so I was curious if anyone has done comps on something like that.
This months Realty Line issue (for Austin Realtors - can be found by googling Realty Line Issuu - page 22) published an article that says, "Most appraisers are not going to incorporate the initial cost of the system, depreciation and potential energy savings over the remaining expected useful life of the system to come up with value added to the property by having solar panels". Appraisers will consider comps of properties that have solar panels. Just don't expect for those comps to be much higher that similar properties that have sold without panels.
So as an ethical, money saving venture, you may want to consider if for your personal property but its not profitable. At least not yet...
I have seen some home sales run into trouble because the homeowner installed solar panels on a lease contract... then the buyer did not want to keep paying for lease. The company (I believe it was Elon Musk's Solar City) then wanted tens of thousands of dollars to come and remove the panels.... so regardless of what you do, do NOT put them up on a lease contract.
As @Roland Widmann said leases cannot be appraised. However an owned system - outright owned or financed can be appraised to full value and Fannie Mae has a document detailing that specifically. Beyond that it becomes subjective. How much is the cost of ownership going forward because of a solar system versus utility power.
For a flip it would be much harder to justify as the system would be purchased all cash rather than financed (by the solar company at least). Solar adoption in Austin is maybe 1% right now compared to SoCal at 7%. That means you'd be "ahead of the curve" which is not always a good thing for ROI.
@Andrew Smith Can you share the link to that document from Fannie? I'm curious to see how it calculates the value of panels. I do have one on my house, which was installed 3.5 years ago.
@Andrew Smith Can you share the link to that document from Fannie? I'm curious to see how it calculates the value of panels. I do have one on my house, which was installed 3.5 years ago.
I think this will let me link here. This shows the panels are appraised normally unless leased or PPA:
https://www.fanniemae.com/content/guide/selling/b2/3/04.html
@Andrew Smith Have you been able to find anything from Fannie/Freddie that shows how an appraiser should adjust for the addition of solar panels (@Henri Meli)? To the best of my knowledge, and as per my previous post on this thread, the solar panels will not add any value to the homes base price. However, appraisers will consider other recently sold properties with solar panels.
So, the only way solar panels will add additional profit to your net is if buyers are willing to bring extra cash to the table (above the appraised value) to close on the home. If that is the norm in your area, then over time homes with solar panels with begin to be viewed as more valuable. But if the comps in the area don't suggest higher values for homes with solar panels you’re not going to be able to convince an appraiser the home is worth more.
I think that over time this may change especially in TX where the summer heat is brutal and energy bills are high. Buyers may begin to see the added value in having solar panels (especially with long or lifetime warranties) and may be more willing to pay extra for a home that comes equipped with them.
Hi @Zachary Barton, per the link above, my understanding (that I have confirmed with brokers and appraisers) is that Fannie Mae allow appraisal of the full value of a solar system if it is owned or being purchased with finance. If the solar system is leased or it is a PPA then the solar system will not be appraised.
In mitigation of that there is the "subjective" which would relate to local views on the aesthetics of solar panels as well as how much of a reduction in ownership costs has been created as a result of the solar system.
I am sure you are correct in the latter subjective cost of ownership being increasingly a factor as utility costs rise inexorably. Additionally the California mandate that means all new construction must be equipped with solar means that the systems are inherently part of the appraised value of the home. The contrary then will likely result with older homes with no solar appraising less than those equipped. I would expect California's mandate to spread across the USA and globally.
@Andrew Smith From that link, "Fannie Mae will purchase or securitize a mortgage loan on a property with solar panels. If the property owner is the owner of the solar panels, standard eligibility requirements apply (for example, appraisal, insurance, and title)."
That language says they will lend on a home with solar panels, as long as the solar panels are owned out right. Otherwise there are additional criteria for loan qualification.
However, that does not mean that the solar panels will increase the market value of the home. In fact, as per the recent Realty Line article mentioned above, "Most appraisers are not going to incorporate the initial cost of the system, depreciation and potential energy savings over the remaining expected useful life of the system to come up with value added to the property by having solar panels". So yes, the bank will appraise and lend on a home with solar panels, BUT the market alone will dictate the "value" of those panels.
Right now, the Central Texas market places no additional value on homes with solar panels. Considering Cali's mandate, I think your absolutely right, overtime homes in your market with solar panels will be considered more valuable then those without.
-Zak
@Account Closed I looked into this matter 5 years ago - here are my findings:
Solar panels are the next granite countertops: an amenity for new homes that’s becoming a standard option for buyers in U.S. markets. - http://www.bloomberg.com/news/2013-09-10/solar-panel-is-next-granite-countertop-for-homebuilders.html
FYI, these are my findings and various methods of calculating PV value:
So, based on these articles, I would say the increase in value is somewhere between 3.5 percent of home value (14K on a 400K valuation) and 97% of investment costs. Or using the 20:1 increase to energy saving ratio, that would translate to more than 20K.
There are other ways to factor this in:
The mortgage interest saved (e.g. on a 450K 30yr 4% loan an extra $80 added to the monthly payment will result in savings of over 27K , the difference between 320K and $347K in total interest) calculation?
Or simply the energy saving cost, the production value: my PV array produces 3600KWh on average annually, it should have at least 20 years left on nominal production, so on a straight line it would save $7,2K at a minimum, or considering the historical energy prices inflation with PSE of 10%, that would equate 21K. Over the life of a 30yr loan, that would be $59K - even assuming an annual degradation of 10% in production performance, it would still resolve into $43K saving.
Regardless, an appraiser has to be familiar with the Freddie Mac form 70 or its equivalent, Fannie Mae form 1004, and in particular the value adjustments for “Energy Efficient Items.” Or, if we talk about a lender or broker, they have to be familiar with the Sensible Accounting to Value Energy (SAVE) Act (S. 1737) which would require federal mortgage agencies to ensure that energy costs are included in the underwriting process.
As you can see, there are many ways to look at the PV value, and depending on the calculation method employed, the valuation can be on quite a range.
@Account Closed I looked into this matter 5 years ago - here are my findings:
Solar panels are the next granite countertops: an amenity for new homes that’s becoming a standard option for buyers in U.S. markets. - http://www.bloomberg.com/news/2013-09-10/solar-panel-is-next-granite-countertop-for-homebuilders.html
FYI, these are my findings and various methods of calculating PV value:
So, based on these articles, I would say the increase in value is somewhere between 3.5 percent of home value (14K on a 400K valuation) and 97% of investment costs. Or using the 20:1 increase to energy saving ratio, that would translate to more than 20K.
There are other ways to factor this in:
The mortgage interest saved (e.g. on a 450K 30yr 4% loan an extra $80 added to the monthly payment will result in savings of over 27K , the difference between 320K and $347K in total interest) calculation?
Or simply the energy saving cost, the production value: my PV array produces 3600KWh on average annually, it should have at least 20 years left on nominal production, so on a straight line it would save $7,2K at a minimum, or considering the historical energy prices inflation with PSE of 10%, that would equate 21K. Over the life of a 30yr loan, that would be $59K - even assuming an annual degradation of 10% in production performance, it would still resolve into $43K saving.
Regardless, an appraiser has to be familiar with the Freddie Mac form 70 or its equivalent, Fannie Mae form 1004, and in particular the value adjustments for “Energy Efficient Items.” Or, if we talk about a lender or broker, they have to be familiar with the Sensible Accounting to Value Energy (SAVE) Act (S. 1737) which would require federal mortgage agencies to ensure that energy costs are included in the underwriting process.
As you can see, there are many ways to look at the PV value, and depending on the calculation method employed, the valuation can be on quite a range.
Great info here! Thanks for consolidating it.
@Costin I. @Account Closed
Costin, I do see your evidence to support the value of installing solar panels. I agree that they have an intrinsic value to the home owner in the form of energy savings and the homes desirability/marketability. And of course, there is the environment to consider!
Your evidence makes a good sales pitch to someone considering investing in panels but more so in regard to the amount of money saved on the energy bill and adjusted cost of installation when you factor in the savings, tax benefits, and slight 3% bump to the home’s value (potentially).
Quin's question was about ARV of homes with vs. without solar panels. Costin you have some evidence that suggest that there is around a 3% gain to the homes values when solar panels are installed. But the evidence also suggest that that is a wash when you factor in installation cost. Looking at your math there does appear to be a net gain in the long run, BUT I think it's still debatable as to whether or not its profitable on a home you intend to sell. I would bet not. Not yet at least. This is very market dependent, in California where there are additional and significant economic benefits to having a small carbon footprint, the appraised values to seem significantly higher when you have panels. But on a local level (here in central Texas) I wouldn't even count on a 3% increase in value.
Two final notes for now. 1. I hope that I’m wrong or will have to change my opinion in the future. I think the path towards a greener future is best for all of us. 2. I’m going to call some local appraisers this week and get their take. Ill update then!
Thanks for the stimulating conversation!
In Northern CA, the leased panel does not add any value into the property. It takes about 3-4 years to break even the cost, but there is a smaller tax rebate first year. If it is a very new you are lucky to get $5K out a $15-20K system owner occupied send back to the grid.
Bottom line people do not mind having a solar system that reduce utility bill but does not want to pay the amenities. It is very hard to include solar payback value as quartz countertop, SS high end appliances, marble floor, exterior fireplace, out door kitchen or LED lights that carry more popularity. For a $1M home $15K improvement is just 1.5%. But it would be 3% w/o depreciation installed today new with full warranty on a $500K home.
If I was to give you $100 to apply to your mortgage every month for 15-20 years, would that have value? Would you be able to calculate how it will save you in principal and interest from your mortgage?
I would say yes and the same thinking can be applied to solar panels. If they save you an average monthly of $100, and you apply that to a buyer mortgage, you can calculate the value added. And that can be your add-on to regular ARV.