Looking at buying a home with Solar? Here are some things you will want to know.
There are essentially four different ways that Solar Panels may end up on a house: 1.) ownership outright, 2.) ownership via financing, 3.) a lease or 4.) a power purchase agreement.
I will discuss the four types of ownership in more detail below.
Let’s start with ownership outright. This is when the owner of the home buys the panels and owns the system outright. Purchasing a system can run about $25,000.00 to $50,000.00, and the lifespan of panels are typically 15 to 25 years with most panels having about a 16% efficiency. 23% would be considered high efficiency. The owner of the system can usually receive a tax credit and should get monthly rebates and energy savings. When the solar panels are owned outright, the value of the panels are included in the value in the home. In other words, an appraiser would consider the value of the panels in the value of the home. Also if you own panels or finance panels (as I discuss below), the home is considered to have additional value in terms of tax purposes.
Similar to ownership outright, owners can purchase a system with financing – typically through what we call a Solar Loan. Again the owner should receive a tax credit, monthly rebates and monthly energy savings. As in outright ownership, the value of the panels are included in an appraisal and for tax purposes. If someone goes to purchase a home with financed panels the Buyer’s title company will come across a financing lien. The new buyer would need to be able to take over the solar panels financing or the buyer and seller would need to negotiate either the removal of the system which would typically involve some sort of buyout of the financed system or the system would need to be bought outright and kept.
That brings us to leases. Solar panel lease terms are typically 15 to 25 years, and typically at end of the lease, one can extend the lease for 5 additional years. Solar leases often have a fixed monthly payment but that is not always the case. Additionally, the lease amount per month per year can also increase. Benefits of leases are that if there are any issues the solar panels, the company aka the lessor will typically remediate any issues and the system should not be considered an improvement for tax purposes. Similar to the owned systems, the lease should create a monthly energy saving for the lessee as long as the system is producing more energy than the lessee is using. When looking to buy a home with a solar panel lease, the lease payment is included in the buyer’s debt to income ratio and there is a process to transfer the lease to the new owner. The buyer also needs to be approved for the solar lease (typically solar panel companies want to see a credit score in the 700s). Another difference between panel ownership and leasing is that leased solar panels are not included in the appraisal value of the home.
The fourth type of solar panel arrangement is what we call a Power Purchase Agreement (PPA). Similar to a lease, with a PPA, the solar company typically remains responsible for repairs, and under a PPA the owner does not own the panels outright. The owner essentially rents the system and pays the solar company a fluctuating monthly payment that is based on production and use of energy. Of course under this structure you also have a monthly fee to the utility company to remain connected to the grid. PPAs tend to have an easier process for transferring to a new owner than a lease. However, like a lease, a buyer would need to qualify to take on the PPA. If the Buyer would not qualify or the buyer would rather not take on the PPA, the owner or seller of the system would probably need to negotiate a buyout under the PPA. Once the term off the PPA is over, typically the term is somewhere around 20 years, there may be an option to a.) buy out the system, b.) extend the PPA for perhaps 5 years or c.) request removal of the system by the solar company. With a PPA, the value of the panels should also not be included for tax purposes or appraisals.
Things to keep in mind when entering into a contract for the purchase of a home with financed, leased or PPA solar panels, the Seller will likely want a way to exit the contract if the Buyer does not qualify to assume the financing, lease or PPA agreement. Also if a system is generating Solar Renewable Energy Credits (SRECs), the buyer will want to make sure the SRECs will transfer to them at closing as the SRECs do not automatically transfer to the new buyer. If the SRECs do not transfer, the SRECs would remain with the seller. In other words, if the SRECs are not transferred to the new buyer, the seller could benefit from the system even though they no longer have any real association with the solar system. Buyers should also have an inspection of the panels and request monthly utility bills from the Seller so they can try to determine what the monthly cost is. Buyers should also figure out how many more useful years the panels have and again any SRECs should be specified as being transferred to the new owners.
Buyers and Sellers should also keep in mind that when a Buyer goes to buy a home, the Buyer will have a judgment/lien search done by their title company. If there is a solar panel lease or the solar panels are financed in any way or there is a PPA, a Uniform Commercial Code (UCC) lien (or “document”) will show up in the title search. In other words, it will put the buyer on notice that the creditor has an interest in the property. The attorney and title company for the buyer and the attorney for the seller will want to make sure the transfer of UCC is done properly. Typically, the UCC in the Seller’s name needs to be released and a new UCC needs to be placed on the property in the Buyer’s name. If the original UCC remains in place and the UCC transfer is not done, it could slow down a future sale of the property.
Again with any form of solar panel system, unless you are completely off the grid, there will still be a monthly payment to the utility company to remain connected to the grid. However, this amount could be low ie.) $4.00 to $6.00 per month or less.
Solar is not new and it likely is not going anywhere since New Jersey has goals with regard to clean energy. Thus, more and more solar is being installed to meet or try to meet the State’s clean energy requirements/ goals. With this comes an abundance of solar companies. Solar companies are not all the same and you will want one that is good and reputable in hopes that they will be around for the lifespan of the panels and then some. Also with an abundance of solar companies comes an abundance of different types of solar agreements. Not all solar agreements will contain all of the same terms. Thus, buyers will want to get a copy of any solar agreements that the seller has with its solar company.
Looking to buy or sell on LBI? Call me at 609-300-3899.
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