Will Solar Panels Kill the Deal?

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Real Estate

I recently helped a young couple buy their first home.  As with all real estate transactions, there was one thing that came up during escrow that stands out as the “big deal”…  This home had solar panels on the roof.

The house met all of the buyers must have’s; good neighborhood, nice yard, and it had a pool.  It also had leased solar panels.  Since it was a trust sale and the trustee had not lived in the home recently, the seller only had a vague knowledge of the costs of the solar and what would be involved with taking over the lease.   I dug into it, did my homework, and worked with the buyer and seller to hash out the deal and get to closing.  Along the way, I learned a few things that I wanted to share.

If you own a home and are considering installing Solar panels, do your homework prior to deciding to lease or buy. The choice will have a significant impact when you decide to sell your home.  There are pros & cons to both leasing and purchasing a solar system so there is not one right answer for every situation.

On the good side, leasing usually requires no money down; with the Leasing Company retaining the tax credits and billing you a monthly fee over the life of the lease contract.  They cover maintenance and guarantee you a specific amount of energy production.  On the bad side, your lease is attached to the property and goes with the house when you sell it.  If you do decide to lease, you will have a few things to deal with when it comes time to sell your home.

When you sell your home with leased solar panels there are only two options; either the seller or the buyer buys out the lease, or the buyer must assume the lease.  Neither the buyer nor seller wants to spend in the neighborhood of $15,000 or $20,000 or more to buy out the lease.  The second option requires the buyer to qualify with the leasing company for the assumption of the lease.  If the Buyers’ debt to income ratio is near the top of what lenders allow, this could be a problem for the buyers and put the loan in jeopardy.

Did I mention the lender?  Well even if the buyer qualifies for the lease, the lenders have a say in this as well.  First, the lenders will view the lease as a lien against the property, even if it is technically not.  So for my deal go through, the buyers had to apply for the assumption of the lease, and then when they were approved, the leasing company had to work with escrow to get the “lien” removed from the title report so that escrow would close.  The lender held up the loan in order to get the assumption contract amended to include language that further protected the lender.  All of this involved working with a solar leasing company who would not assign a dedicated customer service rep and was not responsive or helpful.

At one point, after being on the phone with the solar company for over an hour, the buyer was ready to walk.  She felt it was a bad deal and hated the leasing company.    I reviewed the lease agreement, all of the lease bills as well as the Southern California Edison bills for the prior 2 years (including a period before the panels were installed) and crunched the numbers… It was not a bad deal; the buyer would definitely save money over not having the solar panels in place.

Lessons learned?  If you plan to install solar panels under a lease agreement, be aware this will make selling your home a little more difficult.  If you are buying a home with solar panels, you will need to do some due diligence; get copies of lease bills, electric bills & lease agreement and begin getting the lease assignment process started ASAP.  Also, find out if the solar panels were financed through the HERO program if so you will have even more problems on your hands.  It helps to work with a real estate agent who either knows about these issues or, one who will dig into the details with you and learn everything he or she can about the solar panels.  If your agent throws this in your lap, you chose the wrong one.