How Are Solar Panels Considered in The Value Of A Home

 

 

 

 

How Solar Panels Affect A Homes Value Good morning, my name is Brenden Rendo with The Homes In Orlando Team at NextHome Neighborhood Realty and this is my associate ,buddy, Joseph Dionne of Appi Home Loans

Welcome, Brenden, What's up? Ready for a new one this morning, this is gonna be interesting one, so we are. I had to do that one, I worked on it all week, how to come out, okay, okay, all right, I like it alright, stepping it up. So this is the Orlando Real Estate Buzz what we do is we try and we come to you on a weekly basis to discuss some of the issues out there with the real estate market. the one that comes up today is solar plants and the reason why I picked this one is always at a appraisal meeting and it just was doing a conversation with the appraiser and I had asked him because it's come up for me several times, especially recently showing a client down in Davenport there were several houses with solar panels on and I needed to know how do I count those in the value of a house. 

Yeah, and he goes, now it's easy, I'm like it is because yeah, in December, Fannie Mae came out with guidelines for solar panels and you know it's it's the first time they've actually kind of put something together and it was kind of interesting because it puts a lot of responsibility on you, Joseph now and let's go, we can take a look at that real quick, let me share, it's gonna pop up. But yeah, there it is. Okay, so this is a guideline that they've put out as of December 15 of this year. 

Okay and basically what is stating is now you see down here lenders are responsible for determining the ownership and any financing structure of the subject properties, solar panels in order to properly underwrite the loan and maintain first lien position. Yeah that's I think that's the biggest key and this is like Fannie Mae put into writing because it became a bit bigger piece but a lot of investors and a lot of lenders had already kind of taken very similar steps but the reality of this is it does fall on the lender and this is the hard part is this is this is crucial because what what what what you heard was it's easy, well now it's the lender's responsibility but but you know like typically the lender doesn't find out until what somebody tells us that there solar if we want a smooth transaction you want to create a good environment that's going to actually create a, you know to make sure everything seamless, we really need to know going into it that hey there's solar panels and why why is that? It's because of debt to income, yep, yep and they've also put out some guidelines now that hey if it's financed and collateralized that you have to calculate it in the debt ratio right here include the debt obligation in the D. T. I. Calculation. 

Yeah and and that's you know just you know what we talked about is that debt to income ratio, you know I'd love to sit there and say like how many how many clients are you like Hey like when I can buy a house for 300,000 is the most buying power that I have. How many are coming back saying you know what, I'm probably gonna buy a house for 200 because you know they're not. Yeah because now also and I've got I've got solar panels on it and I've got a $250 a month payment. Some of the prices on these solar panels are amazing. I've got a sample contract in here because I was looking at a house for a client down in Davenport's mutual client of ours and she liked the house but I had Copy of the of the Lease Agreement, $50,000 cost to install The Solar System Total Payout 71,000. After the 1st 12 months the payment went up to $252. And you know so all of a sudden it's like that's a car payment that's more yeah you know a low car payment but it's a car payment and again we run into the same issues we've been running into with a lot of people is all of a sudden the debt to income just goes away. 

Yeah and you know the complexity of this as well is what a lot of people don't realize like we hit the term. So let's say on the lender's side and finance excited as we see that there is a, a, you know, there's a solar system, solar panel system on the house and then we find out that the seller owns it, but they financed it right and they're not going to pay it off or they're leasing it and its finance. So what ends up happening is now it goes to, it becomes the like, hey, if the buyer wants to close on the house, they now have to incure this, this monthly obligation. So that impacts debt to income ratio. But the other piece that a lot of people don't think about is that client now has to apply with that solar panel company that has the financing or has the installment loan and get approved with them. And for us to close on our side, we've got to see that they are approved and then they have the terms in place. So effectively, you know, they're not going to, you know, make a payment or anything before they close. But effectively that buyer is saying, hey, I'm, I'm agreeing to terms for this loan that I don't for a solar panel that on a house that I don't even own yet, I don't even own yet. And what do we always tell our clients not to do, what's the number one rule you tell all your clients not to do add more debt, more debt. Make apply for any type of credit whatsoever. You know, that's we drill it, you know, don't go go to Kanes and buy furniture the day before because they're gonna pull us, they're gonna pull enough soft credit. Make sure that you haven't done anything stupid before before the closing and now we've got to do now. Probably have to go to the underwriter and write a letter of explanation. 

Well I, I applied for the solar system because solar systems on the house and I have to, you know, if I buy the house, I have to buy the solar system. Well most underwriters are gonna require, if we go into it, they're going to require, we're gonna need to see the new lease agreement, the climate plan, we're going to see all that. So there's not going to necessarily be anything kind of that added work is going to be on them, but it is added work and it takes time with one of the, with a past client of mine recently that we had, we went into it, we found out that the client had solar panels and thank goodness we did this at the start because I told the bar, I was like, hey you have to, you have to make this application now. And he's like, well we haven't even done the inspections. I said, we don't know how quickly they're going to move. I was, I was my only condition. 

I told him the day I got the contract. My only condition 3.5 weeks later on the file was the documentation for this new loan. And he was waiting for a response that the company that had the financing would sign over the, the loan to him and it eventually happened. But we were all the way up down to the very last minute to be within the contract terms. And the irony of it was, this was one of those you know, big bank corporations night that was probably the property we won't go into names. And they were like, hey, if you need more time, that's not our fault. Like you're gonna, you're gonna start paying per diem if you need more time. And that's what I was, I was laughing. I was like, imagine if he had if he had waited a week to do that application, he would have already, he would have had a delay and it would have cost them money and per diems that this seller was charging this corporate seller was charging for the house he was buying and he couldn't have avoided it. 

Well, it's, it's an interesting, let me see if, yeah, here's the wanted to bring up. You mentioned that the lease part of the lease agreements. What's something that again, we're taught as real estate agents as and as mortgage lenders about personal property homes. If it is personal property and not considered attached to the home, it has no value. This is a this is an actual lease agreement that I got for the for our client to see exactly what the terms were of of that solar panel. And right here it states the solar panels are personal property. You and we both expressly intend that no portion of the collateralized goods will constitute a fixture attached to any real property and that the collateral collateralized goods will be removable personal property. You've just wiped out any chance of having associated with solar panels because again, an appraiser is gonna look at it that says right here, it's personal property.

If it's personal property, I'm giving no value, I'm giving no value. And when we go back to our guidelines, that's really the nut of the whole thing was that if it's leased financed or they've done what they call a power purchase agreement which is something I learned that's new. the appraiser cannot give any value to the solar panel. The only time you can do it is when it's owned and when it's and fully owned, fully owned, fully owned, exactly no kind no other kind of lien attached to it. And then you know the appraisal was talking because then it's easy because I've got two houses that are exactly the same one sold for $200k sold for $210,000 guess what, I can give $10,000 value to the to the solar system goes, but otherwise now I can, I can give what and it's an important word its consideration. He's not allowed to give consideration because there's a value in the solar system. Yeah, and a lot of people see the value in the solar system, but as an appraiser, he cannot consider it in the value of the home. 

And that's a that's that's that's that's a very powerful word. And that's that that's that's something that a lot of people and a lot of agents and a lot of professional, a lot of buyers and sellers have to understand is that, is that depending on the property? Because yeah, like I think people look at and they go, well that system cost $50,000 and you know, maybe it's not worth $50,000 but they go, well maybe it's worth 30 like, you know, but kind of like putting in a pool, hey, I just spent, you know, I met with someone who's looking to list and they're like, well we have a contract for $90,000 pool, I want, it fell over costs, but to, they're like, what kind of value you think we'll get to that? And I said quite honestly, $20, $30,000 dollars you know, end of the day, You know, because you're just like a house, you know, when you, when you over build a house, you know for neighborhood, $90,000 house or $90,000 pool, this neighborhood is overbearing. 

You know, so I think that's, I think that's our important thing that we've got to pull away today. Well let me hit one other thing because this is, this is I had my wife, me and I sat through, I think two or three solar panel presentations, a couple of keys that I took away from that, that in fact one, they always tell you it won't show up in your credit report okay. Because they don't, they don't report it. Things only show up in your report of the company and the company does it okay. And always you want to have fun. I always ask them what happens if I move, they never have an answer for it. And now we know why now we know why? Because they're not considering it, you know, many of them in their lease agreements are considering it personal property. Yeah. 

So by considering personal property, they're basically saying like, hey, like this is your problem to rectafy I, no matter what, you know, and then basically kind of when you read through it says, hey, you know, yeah, we can take them. Yeah. And the, you see and they, but they don't tell you, they file a UCC filing either. They don't tell you that because the UCC filing allows him to go back and file a lien against the property. So you've got to have all your ducks in a row if you if you own a home with solar panels and you are thinking of selling, this is another task for you. You've got to get all your stuff pulled, you know, it's not showing up on your credit report, make sure you've got to give your lease okay.

Finding UCC filings is not the easiest thing in the world either. It's kind of a pain in the butt. Well just like one quick cap that I want to talk about as well as you know we were in central Florida so we're in Florida and Florida had, you know there was a number of different programs, someone that stands out to mine is like a PACE, the property assessed clean energy program. It was actually a incentivized program in Florida that did it. But that's actually one of the few that there's certain loan times for instance F. H A. If there is a PACE like program was used to get solar panels on your home, you can't get F. H. A financing. And the reason being is there's a number of different things but one of the things that kind of stuck out to me is the Pace loans don't allow subordination. Gotcha. And that was the big thing with the Fannie Mae guidelines is that Fannie Mae has to be in first position. Yeah, no no lender is going to take second like nobody's gonna lend hundreds like to securitize against the property and be 80 90 100 you know, 95% of that value and sit there and say, you know, we'll take second consideration, yep. So there's a lot more, you know, in summary, there's a lot more to the solar panels than just, hey, yeah, throw them up there. Yeah. You know, I was paying $200 a month, you know, electric bill. Now, I'm paying $200 a month for my, for my solar panels and after 20 years of payments, I won't have to make any more. Let's see how long those last, let's see how long those last. And it's interesting to see how many people put them on two years ago, three years ago and now selling their house, you know, so it's, it's, it's something, you know, it's, it's going to be added in. This is where, you know, having good communication between your realtor and your lender because they're gonna, you know, we're gonna have to dig together to go find this information. Yeah. 

And I think you mentioned too, like I, and like you were out in Davenport area, I'm noticing on my end that there's a lot of new build communities that they're now utilizing this as like a strategy to be like, hey, not only building our house with us, but we've partnered with this solar company and they'll put it on and you can finance it all. Like we've got all this, like this is all now starting to become a bigger part of the puzzle piece of, you know, what are those loans, are they creating a second loan is actually just part of the purchase. So those details are going to pop up more and more because builders are using it as incentives to get people to buy in their communities now. Sure. So another fun thing, you know, for us to us to deal with in, in the real estate industry. if anyone has any questions on it, always feel free to give joe a call or I call or reach out to us. again, just remember that these days if according to Fannie Mae guidelines, if any, if the, if the solar panels are not owned outright and there is no type and they're not attached to any type of lien. That is the only way an appraiser can give value if they are lease and you've got to transfer the lease, it's going to count against the buyers DTI and can cause the, the deal to go south because all of a sudden you're there outside the D. T. I guidelines. Anything else, joe I think that's it. Thanks so much for having me on the, on the little chat today, enjoyed it, enjoyed it. That was, that was a good one. That was an interesting one. You take care, have a wonderful day. Bye bye next week