Questions to ask when buying a house with existing solar panels
If you’re a homebuyer planning to buy a home that already has solar panels installed, here’s a quick guide to things you need to know.
If you’re thinking of buying a house that already has solar panels installed, there are some questions you’ll need to run through with the buyer before you sign the contract.
But first, if you’ve never thought about solar panels until you came across them in your home search, it’d be a good idea to do a little background reading first. Home solar panels have become wildly popular, with more than 2 millions solar installations now across the United State. The buyers guide on this site will give you an in-depth introduction to home solar, from the benefits of solar to explaining mysterious terms like “net metering”.
If you understand the benefits of home solar and want to go ahead with purchasing a house that already has solar panels installed, there are some questions you should ask to make sure that you don’t get stuck in an unexpected financial situation.
This article will give you the rundown of things you should know before buying a house with existing solar panels.
Are the solar panels paid for already?
Just because there are solar panels on a home doesn’t mean that the homeowner owns the panels. There are three possibilities for how the owner acquired the panels:
- The homeowner paid for them. This means that the owner either paid cash for the system, or took out a loan.
- The homeowner used a lease or power purchase agreement (PPA). With a lease or PPA, the homeowner doesn’t own the solar panels, but they are instead owned by the solar company.
- The homeowner used PACE financing. In California, Missouri, and Florida, solar owners can use the PACE financing program to pay off solar panels with an assessment on property taxes.
Depending on which of these is the case, you’ll have different follow-up questions for the homeowner.
Homeowner paid for the panels: questions to ask
The easiest case is when the homeowner paid cash for the solar panels. It means that when you buy the home, you will fully own and be responsible for the solar panels.
If they used a loan, they may have an outstanding balance and still be paying off the loan, even after selling the house. As a practical concern, this doesn’t affect your ownership of the panels: you will own them outright, even if the original owner still has a remaining balance on their loan.
Solar panels under a lease or PPA: questions to ask
In this case, the solar panels are not owned by the homeowner, but the solar company. Leases and power purchase agreements are similar financing tools that both boil down to the same thing. The solar company installs solar panels on a home for little or no upfront cost, and the homeowner signs an agreement with the solar company to purchase electricity at some rate that should be lower than the utility rate.
This is the most complicated situation, and requires the prospective homebuyer to be careful. In order for the sale to be completed, the buyer will need to agree to take on the lease or PPA - otherwise, the seller will need to have the solar panels removed, usually at a significant cost. This can be a big headache for the seller, enough that it can cause a sale to fall through.
If you’re interested in keeping the panels and taking over the solar contract, you should go through the same questions as if you were exploring a new contract with the company. You can read our guide to solar financing to learn more, but here are some basic questions you should ask:
- What is the term of the agreement?
- What fees or downpayments are due at signing?
- Who receives the solar tax rebates for the system?
- What happens if I need to repair my roof?
- What happens if I sell my home? Is the agreement transferable?
- Who is responsible for maintenance, repair, and monitoring?
- What happens if the system generates less power than planned?
- With a lease: How much does my lease payment increase over time?
- With a PPA: How much does my per-kWh rate increase over time?
- With a PPA: Is there a monthly fee? Does it increase over time?
- Is there an option to end the contract early? Is there a termination fee?
- Is there an option to purchase the system at the end of the term?
The last possibility is that the homeowner used PACE financing to pay for the panels. This program is currently an option for homeowners in three states: California, Missouri, and Florida.
With PACE financing, the homeowner owns the solar panels outright, and pays for the system over time with an increased assessment on their property tax assessment. You can learn about this program at PACENation.
As a homebuyer, you will want to know the basic terms of the PACE agreement, including the cost of the annual assessment and the number of years remaining.
It’s also possible that the seller might decide to prepay the assessment, leaving you in the clear. Either way, be sure to find out the status of the PACE agreement before completing the house purchase.
Questions to ask about your solar equipment
Once you’ve clarified the ownership questions with the home seller, be sure to ask some questions about the system and how it operates:
- Ask for a copy of the sale contract with the solar installer. This should list the price paid for the system, a complete list of the equipment used, and the terms of the warranty.
- Ask for a copy of the interconnection agreement with the utility company. While this document will be different with each utility company, at a minimum it should describe whether you have net metering, net billing, or some other scheme with the utility company. It should state how excess credits in each billing cycle are handled each month, what the rates paid for excess credits are, and what the term of the agreement is.
- You want to see what the annual electric bill looks like. It’s not enough to see just one month’s bill, because solar energy generation can vary a lot between summer and winter. Instead, you want to know how much electricity you can expect the system to generate over the whole year, and how much electricity you might still need to draw from the grid.
- Be sure to understand the age of the system and the years left on the warranty. You should already know the installer’s warranty from looking at the contract, but the product warranty for the inverters and solar panels are provided by the manufacturer, not the installer. These warranties can last up to 25 years, so be sure that you know what the exact make and model of your equipment so you can make a warranty claim if needed.
Monitoring the solar energy system
Unless the system was installed many years ago, any home solar system should include a web-based monitoring system that will let you see in real-time the electricity output of the system. If the system has microinverters, you should also be able to see the power generation for each individual panel. This will help you know if any individual panel is experiencing a failure.
Ask to get access to the system so that you can see the power output. The system should store the hourly output of the system for several years at least, which will give you a good picture of how the system will perform from year to year.
If the monitoring system does show that one or more of the panels has a failure, you’ll want to address that before signing the contract, otherwise you’ll be stuck with a costly repair if the system is out of warranty.
Take a look at the inverter and metering system
As part of your general pre-purchase inspection, take a few minutes to go over the electrical equipment for the system, which will be located near the electric panel. This will include the inverter, which may have an LCD display that tells you the solar generation of the system in real-time. In the case of a microinverter-based system, there won’t be a central inverter, but there should be a central monitoring unit that is connected to the internet.
There will also be one or more utility meters, and a cutoff switch that is used in emergencies (such as a fire), or during maintenance. Be sure that you’re familiar with all of the components of the system.
Things that your home inspector should inspect
You’re doing a pre-inspection before buying that home, right? Good. If the solar panels are on the roof, you’ll want your inspector to get on a ladder to take a close look at them. If they’re ground mounted, you can do this inspection yourself.
Here are things to look for:
- Look for cracked glass. This can be caused by hail damage, or the neighborhood kid’s baseball.
- Look for hot spots. Hot spots are damage caused by an electrical fault within the panel. A hot spot will be appear as a localized discoloration that looks like a burned area of the panel. This is a failure of the panel, and needs to be replaced.
- Check underneath the panels for wire damage. One surprising cause of damage to solar panel systems are squirrels, who like to get underneath and chew on wires. You or your inspector should take a look underneath and make sure that cabling is properly tied off, and that there are no loose cables that are rubbing against any sharp edges of the racking. The wire insulation should be completely intact.
Property taxes and your solar panels
The last thing to be aware of is that adding solar panels to a house increases its value, and depending on where you live, that could increase your property tax bill. However, some states and municipalities have property tax exemptions for solar systems. This means that even though adding solar panels to your house will increase its equity, a property tax exemption means that your home assessment doesn’t increase. This can save you a lot of money in the long run.
However, some states have a property tax exemption that lasts only for a restricted amount of time, such as ten years. This means that after the exemption expires, you could see an increase in your property assessment and taxes. Be sure to find out what the rules are in your city and state.
Conclusion: Solar panels add value to a home
If you’re house hunting, good luck! It can be a stressful thing, and if you encounter an unfamiliar technology like solar panels, that’s another thing to think about.
Just keep in mind that the main things to find out from the home buyer is how the system is owned, and what the components of the system are so that you know how to monitor and maintain the system. It’s not that hard, so stick to the questions in this article and read our guide to buying solar to learn even more about home solar panels.
Lastly, you should know that solar panels add value to a home - on average about $4 per watt. This means that if you have a 6 kilowatt system, studies show that it will increase the value of your home by $24,000. It makes sense: after all, once the system is paid for, you’re getting free and clean electricity.