Tips for selling a home with solar panels
Solar panels can make it easier or more difficult to sell your house, depending on how you financed the system. Here's some tips before you put your home on the market.
Selling a house is always a stressful event, so anything that adds complication is unwelcome. Having home solar panels can be no big deal or make selling your house more difficult, depending on how you paid for them.
An upside is that solar panels can add significant value to a home, which is something that your real estate agent can help communicate. There are also some things that you should do as a seller to make sure that the next owner has access to monitoring and knows what to do if issues crop up.
The main factor in whether solar panels will make it easier or harder to sell your house is if you used a lease to acquire your system.
Third-party owned solar panels (leases and power purchase agreements)
The biggest headache comes with third-party ownership of solar panels, which refers to systems under a lease or power purchase agreement (PPA). Under these financing models, the system is owned by the solar company, and the homeowner pays a monthly fee. Essentially, the homeowner is renting their solar panels.
A typical term for a lease or PPA contract is 20 years. If you want to sell your home before the contract is up, you have two options:
- You can convince the home buyer to take over the contract. This is called a service transfer. The solar company will provide assistance to make this happen.
- You can buy out the contract. This means that you end the contract early by purchasing the system for a sum determined by the installer.
For the seller, a service transfer is the better option. This is because the process to buy out a contract comes with limitations.
For example, the option to purchase will typically only be available after at least five years into the contract. The reason that solar companies like third-party ownership is because, as the system owner, they obtain the federal tax credits. If the solar company sells the system to the homeowner early in the contract, they would have to repay some of the tax credits back to the IRS.
Another reason why you want to avoid buying the system this way is that it’s expensive: you’re paying the market value of the system without the benefit of getting the 30% tax credit (because the solar company snagged it). The lease contract will also state that the price will be set at the “fair market value” of the system, which will be determined by the solar installer. Unlike a shopper who is able to use multiple solar quotes to negotiate a better price, you won’t have any control over the price the solar company sets.
A UCC-1 “lien” can make financing more difficult
When you have a solar lease or PPA, a document called a UCC-1 filing statement is created, which will show up with a title search on your home.
While this technically isn’t a lien on your house because the UCC-1 is a claim on the solar equipment and not your house, it can still cause a headache when you sell your house. This is described in New Mexico’s lawsuit against Vivint Solar:
Vivint utilizes UCC-1 Financing Statements for these filings, which falsely describe the consumer as a “Debtor.” As a result, reasonable consumers are led to believe that this erroneous UCC filing is in fact a lien on their home, and potential home buyers of those homes are misled about any encumbrances on the real property. Vivint’s fixture filings operate to encumber consumers’ homes, negatively impacting the value of their property and complicating real estate transactions. These filings are made despite Vivint’s contractual promise to consumers that it will not file property liens.
Fortunately, there is a workaround. You can contact your solar company and ask them to temporarily remove the UCC-1, which will prevent it from showing up in title searches.
Although this workaround is available, it’s another negative against solar leases.
Transferring a solar lease contract
Between the two choices, transferring a contract is better for the home seller. This can be somewhere between easy and difficult, depending on if you can convince the home buyers that it’s a good idea.
It’ll be easier to make this attractive to home buyers if you can clearly demonstrate a cost savings from your solar panels. If you have a lease, calculate your cost of electricity by adding up the total amount of lease payments you made in the past 12 months and divide that by the number of kilowatt-hours (kWh) that your system generated during the same period.
If you have a PPA, look up your bill to see your current price per kWh.
If your cost of solar electricity is less than what you would pay to the electric company, then your solar panels are a financial benefit. However, it’s not a given that this will be the case. Because of escalator clauses, it’s not unheard of for third-party solar contracts to be more expensive than utility rates.
The third-party ownership model is attractive to companies because it results in steady income. Sunrun, for example, has a page with ready-made pitches for home buyers, sellers, and real estate agents.
How much value does an owned solar system add to a house?
Things are simpler if you own the system - even if it’s the case that you’re still making loan payments. In this case, the solar array is included with the house and you can treat it as a value-added addition, the same as you would a patio or pool.
A couple of studies have tried to estimate the value that a solar array adds to a home, but those are a few years old now and the cost of solar has changed.
How should you estimate the value that your solar panels add to your home? I think the most fair way to do it is by determining the replacement cost of the system, and deduct the depreciation for the number of years of service left (assuming a 25 year lifespan).
For example, let’s say that you’re selling a house with a 6 kW solar system that’s 10 years old. Reach out to your original solar installer and find out what the approximate price for an equivalent new system would be today. Then, knock 40% off the price (because your system has approximately 15 years of service left in its estimated 25 year life).
This is a reasonable approach that you can defend to the seller because it’s based on the current market value of home solar. It’s also probably a conservative estimate: it’s quite possible that your system will still be operating after 25 years. (Solar panels have been known to work after 40 years.)
Help your real estate agent be a solar advocate
It’s a good idea to arm your real estate agent with some information so they can make the case to home buyers that your solar panels will be a benefit to them. Even if your agent is familiar with solar and has sold solar homes before, it’s a good idea to have exact numbers to share.
Most people are already aware that solar panels are more environmentally friendly than fossil fuels, so I think it makes sense to focus on the financial benefits.
Add up your last 12 months of utility usage and give that to your real estate agent. Home buyers will be interested to see how your solar generation and use of utility electricity changes throughout the year. If you have any months with net zero grid usage, that can be a really impressive thing to show off. If you have an open house coming up, take the time to put together a one sheet printout with graphs that summarize your past year of electricity usage and solar generation.
You may also want to share access to your solar monitoring system so that buyers can see your electricity production. Both Enphase and SolarEdge inverters let you make your statistics public. (Here’s mine, for example.) For an open house, you could put this on a laptop or tablet so that visitors can explore it for themselves.
If you have a battery, that can be a unique selling point, especially if you live in a place where power safety shutoffs are becoming a fact of life. Not many homes have the ability to stay powered during a blackout using only renewable energy, so this can be a feature that your agent can talk up.
Finally, be sure that your agent knows the basic specs of the system, such as the number of panels, power output, and type of inverter.
Things to do once you sell your solar home
If you’ve successfully sold your home, congratulations! There’s only a few things you should do as part of handing the keys over to the new homeowner:
- Contact your utility company. You will need to make sure that the interconnection agreement between you and the utility company is transferred to the new owners, otherwise your credits for solar electricity sent into the grid may continue to be added to your bill rather than the new homeowner’s. This varies between utilities, so reach out to your utility to make sure this happens smoothly.
- Share all your paperwork. Any paperwork and documentation that you received when you purchased your system, such as copies of the invoice, interconnection agreement, and equipment manuals should be given to the new homeowners. Make sure that if the new homeowners need warranty service for the system that they’ll have the necessary documentation to make a claim.
- Share details about your interconnection agreement. This means that you should let the new owners know whether you have net metering, net billing, or a tariff scheme with your utility company, and what that means in terms of when the best time to use electricity is. If you participate in a SREC market in your state, that’s a really important detail to share as well.
- Make sure they’re familiar with the system components. Many people won’t know what the parts of a solar system look like, such as the inverter or communication gateway. Being familiar with the power cutoff switch and when to use it is also important. Make sure the new homeowners what each piece of equipment does.
- Hand over your access to the system monitoring. Finally, you’ll want to make sure that the new homeowners are able to monitor the production of the system. Give them access to the web interface for your system, and them which app to download.