Case Study: Leased Solar Panels
A remodeled bungalow a block north of Denver's City Park...full of thoughtful upgrades and including not only a garage and large, landscaped yard, but also a mother-in-law unit in the basement -- the homeowners knew that it would sell like hotcakes in this crazy Seller's market. And it did....they received a full-price offer on the first weekend, and the buyers seemed motivated and really sweet -- the homeowners accepted their offer because it was clean, a fast-close, well-qualified...and they felt like the buyers just honestly loved the house, which was important to them.
Then....it came down to the solar lease. The sellers had assumed that every potential buyer would love the idea of the leased solar system as much as they did. The buyers reviewed the leaseafter they were Under Contract to purchase the home, and decided that they were not willing to assume a 20-year lease on the solar system that was attached to the home. They also werenot willing to terminate the contract on the home's sale.
Both the homeowners (national solar-leasing company clients) and their agents worked diligently to determine the best way for all involved to finalize the transaction.
Possible scenarios considered:
1. Move the leased solar system to their new home and continue the lease. (No go. As far as we have been able to determine through ENDLESS conversations with both the solar lease provider and Xcel Energy, Colorado is one of the only states where a system cannot be moved. This was NOT made clear when the homeowners signed the lease. A dozen calls to the solar company's sales center also failed to reveal this exception in the national contract which is used without addendum across the US by this solar company's salespeople.)
2. Remove the solar system at the cost of the homeowner. $52,000. Yeah, right.
3. Transfer the lease to the new homeowners. This is what has happened in the majority of sales involving solar leases over the last 2 years. But those sales represent only 2% of leased systems, and the buyer in this case wasn't willing to assume the liability of the lease.
4. Pre-pay the lease and leave the system...basically granting 19 years worth of free electricity to the buyers at no cost or risk to them. Cost to the sellers? $32,000.
In the end, the homeowners and their Realtors were able to negotiate down the cost to pre-pay the lease to around $7,000, payable to the solar leasing company. A tough cost to pay along with all of the other related fees that come up when selling a property, but in this case it was the only possibility, short of defaulting on the Contract and facing legal ramifications.
Lessons learned?
1. Any existing Solar Lease MUST be part of the contract to purchase the property, and negotiated as part of the sale. It should also be disclosed on the Seller's Property Disclosure, even though there is not a specific line item for this currently.
2. If you enter into a Solar Lease, make sure you understand all of the ramifications and costs that will be involved if you decide to sell your property at any time throughout the 2-decade lease.
We love the idea of solar power, energy savings, etc. BUT, even if you think you are living in your dream home - the place where you will live for the rest of your life, or at least the next 20 years - change happens. And though it is a fairly strong Seller's Market at the moment, that is bound to change, too. You might not want to limit your buyer pool to only those people who are willing to take over a lease on equipment that is going to depreciate over the next years.
For more information, or if you have questions about the sale or purchase of a property with a solar lease attached, please don't hesitate to contact us.
Related article from Bloomberg:
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Rooftop Leases Scaring Buyers When Homeowners Sell
by Will Wade for Bloomberg.com
Dorian Bishopp blames the solar panels on his roof for costing him almost 10 percent off the value of the home he sold in March.
That's because instead of owning them he leased the panels fromSunPower Corp. (SPWR), requiring the new owner of the house to assume a contract with almost 19 years remaining. He had to shave the asking price for the house in Maricopa,Arizona, to draw in buyers unfamiliar with the financing arrangement.
Leasing is driving a boom in solar sales because most require no money upfront for systems that cost thousands of dollars. That's made solar affordable for more people, helping spur a 38 percent jump in U.S. residential installations in the past year. Since the business model only gained currency in the past two years, the details embedded in the fine print of the deals are only starting to emerge.
Homeowners don't understand what they're signing when they get into this, said Sandy Adomatis, a home appraiser in Punta Gorda,Florida, who created the industry's standard tool for valuing the systems. You've got another layer to add on top of finding a buyer for the house. It's not a plus.
For people who own rooftop power systems, solar adds value to the home -- about $25,000 for the average installation inCalifornia, according to astudyin December by the Lawrence Berkeley National Laboratory, funded by the U.S. Energy Department's SunShot Initiative.
Personal Property
Leased systems are another story because they're considered personal property rather than part of a house. For many potential buyers, a solar lease is a liability rather than an asset, and may drive some people away, said Adomatis, who wrote theResidential Green Valuation Tool, a guide offered by the Appraisal Institute trade group.
Solar leases were introduced in 2008 and started to take off in about 2012. As much as as 70 percent of the residential systems being installed now are financed through leases, according to GTM Research. Most of the systems in place remain in the hands of the original customer, suggesting the difficulties in selling these properties are just beginning.
Some buyers just won't be on board with assuming a solar lease, said Nick Culver, a solar analyst at Bloomberg New Energy Finance inNew York. Even if you save money every month, you limit yourself to a certain subset of buyers.
SolarCity Corp., the solar installer backed by billionaire Elon Musk with 110,000 lease customers, has transferred ownership of about 1,500 contracts to date and says the new owners typically will continue to enjoy lower power costs. It created an eight-person team that's handling about 150 transfers a month because of growing demand for the service.
Lower Costs
They're essentially moving into a home with a lower cost of ownership, a lower cost of energy, so a solar lease shouldn't make it harder to sell a house, saidJonathan Bass, a spokesman for SolarCity inSan Mateo, California. It becomes a selling point instead of a point of misunderstanding.
Scott Vineberg, a SolarCity customer, received multiple offers for the Scottsdale, Arizona, home he sold in January. The lease made the deal more complicated because the buyers were reluctant to take over the contract and asked him to pay off the balance in advance, about 10 years of payments.
I don't think they understood it, said Vineberg. He refused to pay off the lease, and instead provided years of documentation to verify the monthly energy savings. After the sale closed, the buyers opted to pay off the lease, and Vineberg installed another SolarCity system at his new home.
A Deterrent'
Bishopp had a tougher time. We had one offer in five months, and they pulled back as soon as they found out about the solar lease, he said. It's a deterrent, definitely.
The solar panels saved him about $50 a month on power costs. Before the panels were installed, he paid the local non-profit utility, Electrical District No. 3, 11.85 cents a kilowatt-hour for the first 500 kilowatt-hours a month, and14.35 centsafter that. His monthly bill was about $242.
With the lease from SunPower, he paid $160 a month for the 30 rooftop panels and owed another $32 to cover the utility's monthly minimum charge. Under the lease, he paid 11.5 cents a kilowatt-hour for electricity, a rate guaranteed for the length of the contract.
The house sold for $140,000 in March, and the buyer took over the lease with the same rates. Bishopp had initially sought $155,000, and lowered the price three times.
He had to price the house lower than houses without solar to get people interested, said Brian Neugebauer, the real estate agent at Re/Max Excalibur who helped sell the property. Potential buyers, he said, were scared of the solar lease.
That may change as leases become more common. It's going to become a non-issue, Neugebauer said. It's going to be like asking Does your house have lightbulbs?'
Credit Scores
There was one more hurdle: to take over the contract, SunPower had to approve the new leaseholder. The buyer's credit score was a few points short of the solar company's minimum, and was initially rejected. Bishopp had to persuade SunPower to reverse its decision.
In the vast majority of cases, buyers who qualify for a mortgage will also qualify to take over a solar lease, Martin DeBono, a SunPower vice president, said by e-mail.
The company has 20,000 residential lease customers, and fewer than 1 percent have sold their homes. Most of them transferred the lease to the buyer.
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