Here's why you should think twice before getting solar panels
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The idea that we can gain power through solar is fantastic. We promote solar power and think it is something we should look forward to what future technologies can offer, but the current infrastructure is not conducive for long term solar growth and is creating greater waste, especially when it comes to home solar systems. Let’s dig deeper.
This article is intended to educate an otherwise uneducated population that assumes the best of solar panels and the very insistent and persuasive sales people pushing this product.
We’re going to look at this from a real estate, roofing, insurance, title, appraiser and lending professional perspective as well as discuss some very serious issues that consumers may be unaware of.
Real Estate Perspective
As a real estate professional in the industry for almost two decades, I saw the transition of solar panel systems becoming an affordable option for homeowners and a very slow adoption to residential sales.
From 2012 – 2015, we saw the cost of residential solar systems becoming cost-effective for the average American household. In 2015, more residential solar power was installed in the U.S. in over 18 months than in all the cumulative history prior to this.
Since that time, we have seen a tremendous growth of solar panel installments and an even greater number of sales people door knocking trying to convince homeowners that it’s a good idea.
Let’s look at what this means for a homeowner when it’s time to sell.
- First of all, there are several things to consider if you’re thinking about installing solar. How long are you going to live in your home? The break-even point may not even be worth the hassle, insurance and other costs involved when you look at the big picture and not the monthly fee people get caught up with.
For example, how does saving $50-100 per month on your electric bill make up for spending more than double that on a monthly solar payment? Financially, the numbers don’t make sense.
If you plan on being in the home over a decade, I don’t recommend it because it takes an average of 9-12 years just to break even. But please consider this from a solar panel installation company. If solar can save you an average of $26K on electricity costs over 20 years but the system costs you over $30K and most people don’t live in a home past 8 years, can you explain how this makes financial sense? - Those contracts are NOT written favorably for the homeowner. We’ve seen sellers stuck in their contract where they’ve either had to pay off the solar panels ($30K-70K – depending on the square footage) before selling or splitting with the buyers. Either way, this is a tremendous percentage of their equity out the window on a system that most people don’t pay off and see the break even point.
- Solar panels become liens on your property that MUST be transferred to another buyer and may disqualify a buyer that could have afforded your home because of the additional debt of the panels. When solar panels are present, lenders now have to make sure the debt to income ratio isn’t too high or financing will not be approved.
“If you’re not buying your solar panels with cash, the manufacturer may place a lien or Uniform Commercial Code filing on your property to make sure you keep paying for them. Unfortunately, when you go to refinance or sell the property, it’s generally trouble to have any kind of lien on your home.” (Source: Rocket Mortgage) - Appraisers are NOT adding the value of solar panels into an appraisal to compensate for the debt incurred, yet you are still paying taxes on the newly assessed value of your home after permits have been closed.
- If solar panels are leased, the leasing company has to approve the transfer and do a credit check. Selling a home can be complex enough without having to add this headache of yet another approval.
- Resale value with solar panels is not as exciting as homeowners may hope. As of now, the majority of home buyers appreciate that a home may have them (unless they understand the insurance nightmares we’ll discuss later), but they won’t add value to it when considering making an offer on a home.
Did You Know?
The absolute best solar panels are only up to 33% efficient with the best inverter and completely brand new. Check out this article on the “best solar panel systems” and none go above 24.69% – please let that sink in for a second. (Source: Solar Reviews)
Just why?
New homes are built energy efficient already and do not need solar panels, but unfortunately some developments have required solar panels to be obtained by the homeowner so there is no choice in the matter except a heavy added price tag, especially if damage to the roof incurs and a replacement needs to happen (more on that soon).
Here’s a sad story shared by a Realtor and like this one, there are hundreds more:
There are so many other improvements to a home that can make a HUGE impact in your value, but this one has more expenses and risks that may not be worth it.
Roofing Perspective
Let’s start with the fact that roofing companies love solar panels because it means a new roof. However, when you ask a roofing professional their honest opinion, it paints a different story for consumers. Let’s begin with two simple questions:
- Why are solar systems harmful for a roof? “Holes in the roof can lead to leaks forming over time. With the presence of unexpected moisture, the possibility of water damage and mold growth becomes very real. On that note, damage to shingles and roof tiles from drilling or hammering during solar panel installation is almost guaranteed.” (Source: Solar Stack)
- What does it take to install panels? “Roof-mounted panels require workers to drill holes in your roof to install the platforms where the solar panels rest. The sizes of the holes depend on your roof’s foundation and material. These holes hold the fasteners which attach the solar panels to your roof. Like how roof construction normally works, solar panel installation requires workers to use flashing. Flashing is plastic or metal sheets that fit underneath the tiles or shingles of your roof. Workers then seal the flashing and the area around the fasteners to prevent the holes from allowing water to leak into your home.” (Source: Solar Alliance)
Because of the way the panels need to be installed, insurance companies have stopped the coverage of these panels and require a special coverage provided by the solar panel companies or an add-on from the insurance carrier.
Here are some concerns directly from a roofing professional:
1. Solar panel companies are not staying in business long enough to outlast their manufacturer’s warranty. This should be highly concerning for homeowners thinking about getting systems installed.
2. Solar cells dying after 15 years long with the converter not being able to convert the energy captured
3. Solar panel representatives sell you on the idea that energy prices will increase (which most likely they will), but they also don’t tell you that you won’t make your money back in the first 10 to 15 years. They initially sell you the idea that you’ll make your money back between the first 5 and 10 years but that doesn’t actually happen.
4. The tax credits aren’t enough to justify the savings you’re being sold.
5. If your roof is too old they can’t install the solar panels, so you end up having to pay for a new roof as well. Most companies will put the roof into the loan of the solar panels, thus incurring additional debt.
6. When you put solar panels on the roof, wherever there’s a solar panel it voids the roofing warranty of the shingles on that slope.
7. After solar panels die, they end up going to the landfill and they become hazardous waste due to the materials they are manufactured out of. So there are pictures of “solar panel graveyards”all across the United States.
Ironic how something that is supposed to be environmentally sound, is actually creating toxic waste.
Insurance Perspective:
Insurance is not anti-clean energy, it’s just not good business to provide coverage. Why? Claims costs are the drivers behind the issues of insurance companies not wanting to adopt solar PV arrays.
It’s often not just as simple as taking them off and putting them back on when the roof needs replacements. The costs of replacing the roof with solar is tens of thousands for insurance companies:
- Roof replacement from where solar was
- Solar panels themselves
- Storage fees (typically about 3 months and averages $5k just to STORE the panels)
- Moving fees to the storage facilities while roof is getting replaced
- Misc. fees
Insurance companies caught on rather quickly that this was an immediate liability for them to cover the roof where the solar panels are on. If they do, there is a premium.
Insurance is available but coverage limitations may vary from company to company. Importantly, don’t assume ALL insurance companies will take a home with solar.
Here Are Some Things You Need to Know:
“If you have roof-mounted solar panels, the coverage on your homeowners policy may pay to repair or replace them if they’re damaged by a covered peril. Some insurers may not cover wind or hail damage to roof-mounted solar panels.” (Source: Progressive)
If the roof needs to be replaced, how does that affect the panels?
“If you run into a roofing issue, and need to replace the roof post-installation, there will be labor costs associated with taking the panels off your roof and putting them back on. Unfortunately, it’s hard to give specifics on the costs associated with this labor, as it can vary greatly. Installers will have different rates for their labor, and the cost can also vary based on the size of the system, how many panels will need to be removed, and whether you need a place to store the equipment. If mounting hardware also needs to be removed in order to replace your roof, this will add onto the cost. On average, residential installations tend to cost somewhere between $1,500 to $6,000 to remove and reinstall. (This is not inclusive of the cost required to replace your actual roof.)” (Source: Energy Usage)
People always want to know if solar panels will be covered in their policy. Because each insurance company is different, they have a variety of reasons they may or may not cover solar panels. Essentially, the cost of having solar panels is a huge risk and cost for insurance companies.
Let’s take a look at how particular insurance companies can be with solar.
Frontline Insurance
Frontline, for example, will accept solar panels (as long as they are not net metered). Those familiar with the inner workings of solar panels know that ALMOST ALL systems are net metered, meaning owners can sell back energy to the power company (not that they get much from this).
Florida Family Insurance
Florida Family will accept up to 20 solar panels on homes over 2000 sqft as long as it is no more than 50% of the roof area. Under 2000 sqft, it is limited to 10 panels.
Florida Peninsula Insurance
Florida Peninsula accepts solar systems up to Tier 1. What is a Tier 1 system? Up to 10kW, which is often the “magic number” in these systems.
American Traditions Insurance
American Traditions accepts solar panels and you can BUY BACK coverage for hurricane protection, which in Central Florida can cost typically between $450 for a $20,000 solar system.
AAA Insurance
AAA Auto Club is removing their coverage.
Many Others
Many companies cover solar but specifically exclude WIND, HAIL, or HURRICANE damage to such systems (Author note: Then what in the world do they cover??? Those are the main reasons people in Florida need new roofs).
Title Perspective
It’s important to understand how solar systems affect title:
- Most UCC-1 (Uniform Commercial Code-1 statement is a legal notice filed by creditors as a way to publicly declare their rights to potentially obtain the personal properties of debtors who default on loans) are effective 5 years after they are recorded
- It can be continued – A “Continuation statement” must be filed 6 months before the expiration of the 5 years.
- UCC-1 is terminated with a UCC-3 “Termination Statement” at the time of the sale.
- If the UCC-1 is not terminated, the UCC-1 will take priority over the buyer’s mortgage, and the interest conveyed to the buyer in their deed.
- The solar system can be repossessed.
Tips for homeowners with solar panels when looking to sell your home:
- Obtain a list of the Lease and disclose the Solar System in the MLS
- Review the lease to determine whether it is assignable or must be paid off at the time of the sale
- Side tip: If you are planning on getting a solar system installed, request that these provisions be left out of the lease.
- Know the balance owned, and factor it into the listing price.
- If the system is paid off, gather proof. Title company will request this information. Having this ready prevents delays.\
From Appraiser Perspective:
Here is what’s important from an appraiser’s viewpoint. It’s important to know if the panels are owned outright or being financed. If owned outright without financing, then they are given more value. If they’re owned, the appraiser considers how big the solar unit is.
For example, is it just for the pool or the entire home. The contributory value of solar systems (owned) varies greatly on subdivision, location, total living area of improvement and age.
If the solar system is being financed, the appraiser should know whether the panels can be repossessed if the loan goes into default. If they can be, then no value should be given in an appraisal.
Leased packages are NOT included in valuation per FHA, FNMA, and VA.
If there are panels that are being financed and they are not fixed to the real estate, then they should not be given value either.
The most challenging part of Solar, is to find comparable sales to support market value that includes similar systems. It would be helpful to find comps with similar panels if possible so that there is no need for a separate adjustment.
Fortunately, it’s becoming more prevalent, but still not common enough in this area to always be able to find good comparable sales.
FNMA 1004 Form does have a line-item on the grid for Energy Efficiency which is the line item adjustment typically made for this type of improvement.
Remember, the benefit of a Solar System is to reduce the Cost of power over the long haul, the contributory value today is NOT cost to purchase and install. (Author note: Did you hear that??? It’s not the value of what you paid for it, it’s the potential long term savings which so far does not come close to the cost involved).
From a Mortgage Lenders Perspective:
Lenders need to be made aware of any additional liens or mortgages on a property that would be required to be taken over by a borrower as it affects their financing ability.
When a home is encumbered with a solar system that needs to be transferred to a buyer for the remaining balance of the loan, it can take their debt to income ratio out of the range approved by the lender.
For current homeowners, we have seen clients that had a mortgage that was affordable, but after installing a solar panel system, their taxes increased due to reassessment which in turn affected their monthly mortgage because taxes are included in escrow. Several clients are on the verge of losing their homes because they’ve seen a significant increase in their monthly payment.
A local Oviedo lender shared that they had clients in Oviedo who can no longer afford their mortgages as a direct result of solar panel installations.
“One lady purchased solar panels for her home and unfortunately due to a recent divorce, her husband had her file bankruptcy. In addition, due to the solar panels, her property was reassessed and with the panels and taxes, her monthly payment went from $1700 to $3000 monthly. She's unable to refinance as a result of the bankruptcy so she’s in a bind. We’ve had 4 clients this month come in with similar issues of being unable to pay their mortgages as a direct result of solar panels.”
Tips when considering buying a home with solar panels
When it comes to protecting buyers looking at properties with solar panels, here are some really important items to consider:
- Prior to viewing a home with solar panels, ask if they are leased or owned
- If the solar system is leased, ask the seller for a copy of the lease: Does the lease require payment upon sale of the home? Is the lease assumable by the buyer?
- Does the buyer qualify for the assumption? Remember, buyers CANNOT be forced to assume the lease. Seller may need to pay it off if the purchase contract requires marketable title to be delivered to the buyer.
- Ask about assumption fees. (Author note: There is a transfer fee that we’ve seen in the thousands of dollars that solar panel companies charge just to transfer from one homeowner to another).
- Ask seller to disclose (in writing) how much remains to be paid.
- If there are payments and fees owed on the Solar System, buyers should take this into consideration.
- Ask about warranties that can be transferred to the buyer.
- Commercial clients – “no right to sunlight in Florida”. You may need a solar easement so that the solar system remains operational.
There are several risks and negatives for getting solar panels in this stage of the technology. Here’s another risk to consider: fires. Design flaws, component defects, and faulty installation generally cause solar rooftop fires. As with all electrical systems, these problems can cause arcs between conductors or to the ground, as well as hot spots, which can ignite nearby flammable material.