Homeowners are learning the hard way that solar panels can complicate or KILL a home sale. While owning your system is the best scenario for selling, solar leases are more complicated and power purchase agreements (PPA) can be devastating.
Ownership does not require the buyer to assume any cost or other agreement related to the solar system. Just don’t assume a buyer will pay a premium for the system. Like a pool, most buyers are indifferent and some will even back away due to concerns about maintenance and roof impact. However, by owning the system, you can always have it removed if needed to sell your home.
Leases are more complicated because, unless you are paying off the lease prior to closing, your buyer will need to agree to assume the lease. Your buyer will likely need to credit qualify to assume the lease as well. The required lease payments will likely go into their debt/income ratios, making it harder to qualify for a new mortgage and reducing the buyer’s borrowing/buying power. While buying out the lease could be expensive, at least you have that option if needed so you have some control of the outcome.
Power Management Agreements (PPA) can be terrible because they are long term and termination is usually cost prohibitive. Buyers are reluctant to assume such a long term obligation due to cost and rapidly changing technology. Plus the buyer usually needs to credit qualify with the solar company and the required payments can affect the buyer’s mortgage ratios. The electricity rates are rarely a substantial discount from retail rates and in some cases are even higher than resellers and energy cooperatives that operate on shorter term annual agreements. Unlike a public utility that needs government approval to raise rates, the PPA usually has built in annual rate increases. Many of the agreements do not comply with FHA or Fannie-Mae guidelines and the solar company has a security interest filed against your property. In two of our recent office transactions, the cost to terminate the PPA ranged from $42,000-$56,000. In both cases, if the buyer had not agreed to assume the PPA, the seller would not have been able to sell their home. The cost is so extreme because the solar company sells the PPA to an investor looking for that long term income stream. The solar company even gets the tax credit! The cost savings over a 20 year term is just not enough to justify encumbering your property with such an oppressive obligation.
So what can you do if you want a solar system but aren’t sure how long you’ll be in your home? Purchasing the system is the safest and many solar companies offer financing. You can also pay cash or use a home equity line. Just remember that you might not get paid back in full by a buyer who does not place a meaningful value on a solar system. Leasing is a viable back-up as long as you’re prepared to buy out that lease, which can be costly especially early in the term. A PPA is hard to justify unless you’re confident you’ll be in your home for the long term and believe that the average rates over the term of the PPA will be less than you can otherwise find in the competitive energy market. In the case of both a lease and a PPA, have your mortgage expert and Realtor review the agreement to determine if it complies with FHA and Fannie-Mae requirements and identify any other terms that might make your home hard to sell. You should always have an attorney review it as well.