Why leasing solar panels may not be a good idea if you’re planning a home sale – The Washington Post

By Jill Chodorov, (Katherine Frey/The Washington Post)

The Washington region is at the bottom of a steep learning curve regarding solar panels on homes. And some local homeowners have learned the hard way that it pays to read the fine print.

According to Marcus Beal, media relations manager of Pepco Holdings, the Pepco region has about 7,200 customers who have completed the application process, installation and are fully integrated with the company’s electric system. That number is rapidly growing at an estimated rate of 100 percent per year.

As these solar-powered homes come on the market for sale, unexpected issues are bubbling to the surface. What’s more, almost all of the issues are happening to homeowners who lease rather than own the solar panels, which comprise an estimated range of 60 to 90 percent of the market.

“My seller couldn’t believe what I was telling him,” said Yolanda Muckle, a real estate agent in Mitchellville, Md. “The solar panel company wanted $32,000 to buy out the lease if a buyer did not agree to sign the transfer agreement.”

Muckle said her clients had just signed a 20-year lease agreement prior to listing the house for sale. They had more than 19 years left on the lease.

“I received three offers on the house and all three buyers walked,” said Muckle. “I honestly don’t think my clients read the lease agreement. They just believed what the salesperson told them, that it would increase the value of their home.”

Muckle’s clients are saving about $50 per month on their electric bills with the solar panels.

“With a savings of $50 per month, that means that my clients would save $600 per year. Over 20 years, that is a $12,000 savings. Yet the company wants $32,000 to buy out the lease,” Muckle said.

Explaining solar panels and lease agreements is a new issue for local real estate agents.

“Most agents in this area have not sold very many homes with solar panels,” said John Jabara, founder of Savenia Home, a Bethesda-based firm that provides independent third-party ratings and marketing materials for solar installers and home sellers.

“If you don’t know how to push the benefits of solar, you run the risk of making a huge benefit into a negative,” Jabara said. “Many lease agreements do provide a real value for a homebuyer.”

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Jabara did agree that the challenges of selling a home with leased solar panels are numerous.

“Appraisers do not consider leased solar panels in the value of a home. Since it is a leasehold improvement, the bank cannot take the asset in a foreclosure,” Jabara said.

Sandra Adomatis, a certified LEED Green associate of Florida-based Adomatis Appraisal Service and co-author of the recently released study, “Selling into the Sun: Price Premium Analysis of a Multi-State Dataset of Solar Homes,” said that there are many challenges involved in appraising and selling a home with leased solar panels.

“If the panels are owned outright, there is no problem,” Adomatis said. “With leased solar panels, there is another layer added to selling a home.”

Adomatis referred me to page 296 of Fannie Mae’s “Selling Guide” that outlines the rules on leased solar systems for FHA loans.

The rules are cumbersome and confusing.

First, if the buyer will acquire a leased system as part of the home purchase, the lease payments will be counted in the debt-to-income ratio when qualifying for a loan.

“Think of it like leasing a car,” Adomatis said. “If you lease a car and then go to borrow money, you cannot use the value of a leased car as an asset on your application. Rather, the lease payments are an expense.”

Other rules for FHA loans on homes with leased solar panels include: The monthly lease cost cannot be financed into an FHA mortgage. The lease must be free of restrictions that prevent the borrower from freely transferring the property. The lease cannot be subject to a third party approval. It cannot be subject to limitations on the amount of sale proceeds a borrower can obtain due to a lien or sale clause. There can be no liens on the property from the solar company that are superior to Fannie Mae’s first lien position. The panels must be removable without causing damage to the property.

Adomatis also explained that a big part of the revenue model for solar companies is the 30 percent federal tax credit and the five-year appreciation schedule.
“Because the solar company owns the panels, they reap the benefit of the federal tax credit, not the homeowner,” Adomatis said.

“In addition, the solar companies make it very difficult to buy out a lease agreement in the first five years. They don’t want to lose the five-year appreciation on the equipment.”

Adomatis suggested strongly to read every item in the lease agreement and to consult your accountant and an appraiser to understand all the ramifications of the lease agreement.

“A few dollars spent now can save thousands later,” she said.

Help is available

So, are solar panels just a dark and gloomy proposition, or is there a brighter side? The good news is that there is a brighter side, and help is right nearby.

The Community Power Network (CPN), a national nonprofit based in the Mount Pleasant neighborhood in Northwest Washington, helps communities build and promote local renewable energy projects.

Anya Schoolman, founder of CPN, has been working to make solar accessible and affordable to homeowners. She has implemented state projects in Washington (DC SUN), Maryland (MD SUN), West Virginia (WV SUN) and Virginia (VA SUN), through which homeowners can get advice and assistance in going solar.

Schoolman and her staff will assist homeowners in reviewing and negotiating lease and purchase agreements with solar companies at no charge. In addition, they assist homeowners in creating neighborhood coops to share in the cost of purchasing solar panels outright.

“If you are going to do it, do it now,” said Schoolman, when asked about the benefits of buying solar panels. “The 30 percent federal tax credit which is fueling the solar market will go away at the end of 2016.”

John Young, an agent with Re/Max Realty Services in Bethesda and a National Association of Realtors “green agent,” explained that buying solar panels is not as expensive as most believe. Young said he just installed a souped-up solar system on his own home.
Young said that 5 kilowatts of power, an adequate amount of power for an average size home, should only cost $15,000 to install. “The prices have dropped substantially,” he said.

“After you take off the 30 percent tax credit, it should take only seven to eight years to recoup your investment,” Young said. “Don’t look at the gross price, look at the net.”

Based upon those figures, a home that spends about $1,300 a year on electricity would recoup the investment in eight years.

Another benefit of owning versus leasing solar panels is the premium it offers on the value of your home.

According to new research sponsored by the U.S. Department of Energy’s Lawrence Berkeley National Lab, buyers are willing to pay $15,000 more for homes with average-size solar photovoltaic (PV) systems (3.6 kilowatts). The homes used as part of this study had solar panels that are owned outright and not leased.

As solar panels become more commonplace on local homes, homeowners will become wise to the financial and environmental benefits of solar energy. In the meantime, it is important to analyze your options before signing on the dotted line.

Here are some tips to stay out of hot water when leasing solar panels:

• Seek guidance from third party experts, like DC SUN or Savenia Home.
• Join a solar coop to take advantage of bulk purchasing.
• Read the fine print.
• Do not lease solar panels if you will sell the home in the next five years.
• Check your roof’s exposure to the sun. You want a southern exposure with at least five hours of sunlight each day to maximize the benefits.
• Get at least three bids from recommended companies.
• If you determine that solar would be a good investment, it may be better to purchase now, before the 30 percent federal tax credit expires.

via Why leasing solar panels may not be a good idea if you’re planning a home sale – The Washington Post.