Whether selling a home or refinancing a property, the question of value becomes a central focal point for a home owner. Value determines how much a seller can clear upon the sale of a home or how much s/he can borrow against their property. For many, the question of value is often determined by a home appraisal.
A property appraisal is an estimate of a property’s value. Property value is based on such factors as location, amenities, structural condition and recent sales of similar local properties. The appraisal is completed by a licensed appraiser.
Appraisers are third-party certified or licensed contractors, and the lender usually hires them. They are knowledgeable in real estate and are required to know how to evaluate a property on factors such as neighborhood growth,neighborhood housing trends and market conditions. Value tends to be a process of comparison of past sales in the area in relation to the home being appraised (using comparable home sales of like-kind properties to determine the value).
Solar photovoltaic (PV) systems add a new element to determining a home’s value, especially in the appraisal world. With the panels on the roof of a home that are reducing the monthly utility costs, homeowners often wonder if solar system add value to the property.
In terms of determining the value of solar, appraisers often had a variety of answers since some tried to take a cost approach of purchase price minus an estimated depreciated value while others “ball-parked” the value based upon the cost savings amortized over a set period of time (ranging from 3 to 5 year period of time). Most appraisers would give a system a nominal value but often cited that there was a lack of comparable sales to support any value.
In the past few years, appraisers have slowly started to realize that there needs to be a better way to determine value. As a result, the Appraisal Institute released the Green Energy Efficient Addendum, Form 820.04. The addendum is an optional form appraisers can use as a worksheet to identify energy efficiency improvements, renewables, and other “green” characteristics, and to help make an accurate assessment of the value of energy efficient and green homes, especially for solar systems on a home. The 820.04 captures details about the solar system, such as the size, type of panels, age, warranty info, energy production, etc. Appraisers can use this data to inform their “opinion of value” for the property.
While these forms are crucial to determining an accurate value on an appraisal of a solar home, the true test of accuracy lies not in the form but making sure that the appraiser is competent and qualified to value a solar home. As a listing agent of solar homes, I make it a point to include language in the real estate contract, for example, that requires the buyer’s lender to hire a green certified appraiser. In the Phoenix area, there are over 1,700 certified and licensed residential appraisers but less than 2 percent of the appraisers have completed a green certification course, according to the Appraisal Institute. Of course homes in the Phoenix area with a solar owned system on the roof only account for about one-half of one percent (0.5%) of the total monthly sales (based upon July 2015 data).
Homeowners beware! If you are selling a home or refinancing a mortgage, be sure that the people you are using, whether your listing agent or your mortgage lender, knows what an 820.04 is and how it can impact the value of a solar home.