One of the more common items that comes up during a consultation with a client is the question of how a potential or even planned move would impact the decision to transition to solar. For some homeowners the very thought of relocating at some point in the future is enough to keep them from considering solar, and for others the question is what impact a solar installation would have on the process of selling their home. In this blog I wanted to explore both the competitive landscape as well as the impact of how a solar system is financed. These are two very key elements to consider when talking about selling a home with or without solar.
New Home Competition
To start, every homeowner should be aware of is that in California, beginning in January 2020, all new residential home construction and multi-family residences of three stories or fewer, must be built with solar panels. The California building code Title 24 part 6 has very few exceptions, such as access to a community solar project for homes with insufficient roof space, or an exemption for homes in highly shaded lots. So what this means for any homeowner selling their existing home is that any home built after 2020 that is competing for that same sale will have the competitive advantage of offering cheaper solar power. If the buyer is having to choose between two homes they feel are potential candidates, this difference in cost, which can be tens of thousands of dollars in savings over the lifetime of ownership is obviously a strong factor for the buyer to consider.
Existing Home Competition
At the same time that new homes are being constructed with solar panels, California continues to lead the nation in conversion to solar across existing homes. A quick glance down any residential street confirms this, you’d be hard pressed not to find at least one or more homes with panels already installed. For most of us, panels and the sight of a solar array have become so commonplace, that much like utility poles, we hardly pay them much attention any longer.
As with selling against a home built after 2020, selling against a neighbor with solar panels on an older home places the home relying on fossil fuels at a competitive disadvantage. Over time as the rate for utilities continues to spiral relative to solar, this difference in price point continues to widen, making the choice easier for the buyer to go with the more energy efficient home.
Selling a Home with Solar
Selling a home with solar is also positively reflected in the sale price. According to a recent Zillow research study, homes in the US with a solar installation sell for an average of 4% more than homes without, and more than 80% of home buyers say energy-efficient features are important when considering a home for purchase. Take a trip to any home improvement store and you will find energy savings down every aisle. From LED light bulbs, to tankless water heaters, to high efficiency washing machines, consumers seek out ways to save money and reduce their carbon footprint. A home powered by solar energy is one of the best selling points a home has to demonstrate energy efficiency to a prospective buyer.
The Impact of Financing on Selling
The largest difference in selling a home with solar is how the system is financed. Each has relative merits and some with possible drawbacks, so let’s examine each.
Cash Purchase – By far the easiest way to sell any home with solar is if the system is already paid for and owned outright. In this instance, the sale process is pretty straightforward, the system is either passed along to the new owner as an asset, or the entire system can be removed by the seller to be used at their next residence. The decision is based largely on how long the system has been installed and whether or not the seller has realized sufficient return on the investment. There is very little to no drawback with this financial option if the homeowner is confident they will be in the home for long enough to have fully paid off the system through the resultant savings on electrical costs.
Loans – Similar to a cash purchase, if the system is fully paid for the owner can either leave the installation or remove it and use it again. However, if the system is not yet fully paid for, the type of loan will determine the options the seller has. A secured loan will mean the seller must pay off the remaining value of the loan prior to sale as the property is used for collateral to fund the install. An unsecured loan does not hold collateral, so the home can be sold without the loan being paid off, however the homeowner is still required to make the payments even though they have moved. Secured loans typically do not carry prepayment penalties and in either case of secured or unsecured the increased value from the solar installation should be able to eliminate most or all of the remaining balance due. The potential drawback in this financing option is if the move occurs early on, where the value of the system has not depreciated enough to be sufficiently offset by the increase in home value.
Power Purchase Agreements – Unlike a loan or cash purchase, a power purchase agreement operates much like the utility service it replaces, in that the system is paying a solar provider an established amount based on solar energy use. There are two main options for selling a home with a PPA. For most sellers, the option to select will be to have the agreement transferred to the new buyer. This will typically involve a credit check, and the buyer will want to understand the terms of the agreement, and any escalation that is built in. The second option is for the seller to completely buy out the remaining value of the system. The potential drawback to this financing method is if the buyer does not qualify for funding, or does not for some reason want to qualify to assume payments.
PACE financing – PACE financing is unique in that the loan is attached to the property and not the person who took out the loan since payments are made through property taxes. This loan solution also places a lien against the property until it is paid off. This financing solution has the most visible potential drawback as as many lenders will not allow a buyer to obtain a mortgage with a PACE loan as they are structured to take precedence over the mortgage.
Buyers and sellers alike continue to place a premium on the cost savings that an energy efficient home provides. With the wide range of financing solutions available, a transition to solar energy should be thought of as a part of an overall strategy to reap maximum gains from the sale of a home, not as an obstacle to prevent it.