Ipsun Solar
By Robin LeBaron, co-founder and president, Pearl Certification
Residential solar salespeople hear this question regularly: “If I install solar on my roof, will it add value to my home when I sell it?”
The salesperson is likely to cite the 2015 Lawrence study showing that rooftop solar adds $4 to $5 a watt to a home’s value. And if the homeowner goes online, they can find several other studies showing similar findings.
But the studies miss an important point. On average, PV panels boost a home’s value. But Pearl Certification’s research indicates that thousands of homeowners aren’t actually capturing the full value of adding rooftop solar to their homes.
Take the case of K.T., a homeowner in Arizona. His appraiser didn’t assign any value to his rooftop solar during the refinance — even though one of his motivations for refinancing was to obtain the cash to pay off his solar loan.
Then there’s Cait H., a Virginia homeowner, who refinanced her home in 2021 to pay for a new porch and other improvements. She was disappointed when the appraiser assigned no value to the solar panels on the roof, and then refused to adjust the amount even when a second appraiser found significant flaws in the original appraisal. Cait ultimately settled for a refinance amount that was considerably lower than she had hoped for, leaving her with less money to fund the renovations.
Or Max P., an Arizona homeowner who spent $45,000 on solar panels and batteries on a fixer-upper. When he refinanced in early 2021, the appraiser didn’t assign any value to the renewables. When it was clear that the appraiser wasn’t going to shift on this position, Max went to a second lender, and got his home Pearl Certified to showcase the renewables. The new appraisal came in at $30,000 above the first one — a huge improvement. Still, Max felt that the appraisal should have been higher.
“The appraiser apologized and said, ‘I don’t think I’ll be able to give you as much as we probably both think the solar is worth due to the underwriter’s assumptions and values around solar,’” Max said.
Or a solar installer who admitted: “We have had a few clients walk away from solar because their real estate agents are telling them it adds no value to their homes and would not be a worthy investment.”
These cases aren’t isolated incidents: they’re indicators of a widespread problem. Over the past six months, Pearl has talked with dozens of homeowners, real estate agents and appraisers across the U.S. Despite very different perspectives, they are all seeing the same thing: a large portion of homeowners who should enjoy higher sale prices as a result of their PV installations aren’t seeing them.
Here’s a look at why those values aren’t being realized.
Leases and liens
At present, all rooftop solar isn’t valued equally by the mortgage industry — depending on how they’re financed, some systems aren’t valued at all. Fannie Mae and Freddie Mac have determined that rooftop solar systems that are leased or subject to a power purchase agreement (PPA) are personal property, and by definition they can’t be valued in the appraisal.
If a homeowner owns their solar panels, the lender treats them as real property, that is, as part of the home — which means they can be valued in the appraisal. However, if the system is financed, and the lender secured the loan with a UCC-1 filing, the appraiser is required to consider the system as personal property — which means they can’t be valued, at least as long as the lien is in effect.
If the panels are secured by a UCC-1, the homeowner has several options:
- Pay off the loan so that the UCC-1 is removed
- Ask the lender to temporarily remove the UCC-1
- Work with the appraiser to provide an indication of the value of the solar panels in the “hypothetical” situation in which the UCC-1 is satisfied at closing
Firms in the rooftop solar business should be careful about representing that leased / PPA solar systems will add value to the home and should work with lenders to develop solutions for addressing the UCC-1 when the homeowner sells.
Lack of information
Even if solar panels can be valued as real property, there are still many ways that this value can go unrecognized.
Real estate agents and appraisers with experience selling and appraising homes with solar agree that the biggest challenge to valuing rooftop solar is a consistent lack of information.
“Real estate agents can be intimidated by solar,” said Pamela Brookstein, Project Manager with Chicago-based nonprofit Elevate, which offers training on selling solar and energy efficient homes to real estate agents across the U.S. “They usually don’t know anything about it, and they have limited time to learn.”
“Anything the homeowner does to provide the real estate agent with easy-to-understand information that showcases the rooftop PV during the sale will make a big difference to the owner’s chances of seeing value for the system,” Brookstein says. “Unfortunately, in most sales, this doesn’t happen, and there’s very little information for buyers about the benefits of the panels on the home’s roof.”
If information is very important for the sale, it’s absolutely essential for the appraisal. And in most cases, the appraiser doesn’t receive any.
“I can’t tell you how many times I ask for information and don’t get it,” says Maria Nucci, a New Jersey-based appraiser. “I interviewed a homeowner recently about a refi and asked if there was anything unusual about the property, and he didn’t even mention his solar panels. He didn’t know if he owned the system.”
Without at least some of this information, the appraiser is unlikely to assign any value to the home’s PV system. Nucci said last year she appraised about 30 homes, and was unable to provide a positive adjustment for a single one because she received almost no documentation.
If appraisers do receive documentation, they are well-positioned to recognize the value that a solar system adds to a home. Rick Hiton, a Chicago-based appraiser who has appraised many high-performing homes with solar, says that he is almost always able to assign some value to a PV system and have the lender recognize it in the underwriting.
Pearl has dozens of documented cases of homeowners receiving a higher value for their PV systems when they sell. They key factor: providing both the real estate agent and the appraiser with high-quality documentation about their system.
In the words of Bill P, one of these many solar homeowners, who displayed Pearl certification material highlighting his solar panels during his showings: “[The sale] went great — [we] went on the market on a Wednesday, had a signed contract by Saturday night, $25,000 over asking.”
Information that should be provided to a real estate agent and appraiser includes:
- The system capacity (in kW)
- The installation date
- Whether the system is leased or owned
- Actual or projected energy production
- The discounted cash flows that the system will generate
- Whether the system is secured by a UCC-1 lien
- The system’s warranties
- The panel manufacturer
Untrained appraisers and appraisal rules
The appraisers interviewed above understand rooftop solar. They’ve taken training on the subject, and they’ve invested the time and energy to assign value appropriately.
But they’re not — yet — representative of most appraisers.
The homeowners highlighted at the beginning of this article struggled with appraisers who didn’t assign value to their solar panels — largely because they didn’t understand solar, and had no knowledge of methods for valuing it.
Fortunately, high-quality training is available. The Appraisal Institute offers an excellent course on valuing solar and high-performing homes, and maintains a registry of appraisers who have taken the course.
When a homeowner with rooftop solar is selling or refinancing, they should inform the lender that they have a solar home and request (in writing) an appraiser with experience valuing solar homes. This will help ensure their home is properly valued, and will increase the demand for appraiser training.
But even trained appraisers can hit roadblocks in a mortgage lending system that is not yet designed to recognize solar. Residential appraisers typically compare the home being appraised with comparable homes in the area, adjusting for differences such as the presence or absence of an extra bedroom, a pool, etc. Ideally, the appraiser would want to compare a solar home with sales of other local solar homes.
But the fact that homeowners so rarely provide information about their systems means that information about other sold solar homes is rare. Sometimes the listing doesn’t indicate that the home had solar. And if it does, it typically doesn’t indicate the system’s capacity or age. The lack of data makes it almost impossible for an appraiser to make the adjustments that allow for an apples-to-apples comparison.
Accordingly, appraisers often use a second method to estimate the value of rooftop solar systems. They look at the financial benefits to the homeowner over the lifetime of the panels, (discounted to account for the fact that a benefit today is more valuable than a benefit later in time). Lenders can balk at this method, but it is often used successfully: appraisers like Hiton report that their appraisals based on this method are typically accepted.
But again, this method only works if the appraiser has the necessary data to calculate this value. If provided with basic data, the appraiser can generate the discounted cash flows using a tool like PV Value or Pearl’s forthcoming value calculator. Or they can offer their customers their own estimates, or a certification report like Pearl’s, which provides the information in a form easy-to-use for appraisers and agents.
The takeaway
Companies in the residential solar business can be confident that their product can reliably contribute to a home’s value, but they need to guard against complacency that their customers will automatically realize this benefit. They can provide their customers with the information they will need when the home is sold or refinanced. And, as an industry, they can work to support changes in the lending and appraisal industries, such as support for education and clear, universally accepted methods that will make it easier for solar homes to be valued accurately.
Until this happens, the promise of rooftop solar will be fully unrealized for hundreds of thousands of solar homeowners across the U.S.
Robin LeBaron is the co-founder and president of Pearl Certification. He leads national efforts that develop energy efficiency, real estate home data, and certification standards and authors guides on best practices in energy-efficiency for the U.S. Department of Energy and other stakeholders.
