5/19/2015

California Home Solar Panels - Buy or Lease?

Solar Panels
Solar panels are one of the many energy saving and money saving systems available to the homeowner. But save yourself some possible future headaches by investigating, beforehand, whether you should purchase or lease these panels.  Leasing seems a great way to go because it's a lot less money up front compared to buying panels outright.

Advertising your home as energy efficient seems like a great way to get a buyer fast.  But, when it comes time to sell, leased panels may turn into an outright headache for all parties:

  • Your buyer will have to take over your lease payments and qualify for the lease--extra expense they may not have counted on, or a lost deal if they can't or won't agree. The monthly cost of the lease must be included in the assessment of lender's debt ratios.
  • You, as the seller, may lose your next home you're in escrow for, or a job loss, if you can't move on time.
  • Or, you the seller may agree to pay up on the complete lease in order to move on--one couple in Fresno paid $22,000 to get out of the lease and sell their house.
The solar leasing company may say that very few times such issues arise, since most buyers either agree to take over the lease, or most sellers can pre-pay it to move on. However, just know that leased solar panels, whether you're the buyer or seller, must be dealt with in a property transaction.

A leased solar system will usually show up on a preliminary title report because of the recorded UCC-1 filing which secures the system. But even if there's not a recorded filing, the seller must disclose the system in the transaction by checking the appropriate box on the Seller Property Questionnaire and/or on the Transfer Disclosure Statement.

In the standard Realtor contract form in California, the buyer review of lease documents and approval of solar leased panels is one of the contract contingencies, and can cancel the contract if the lease terms are not acceptable to the buyer. Buyer and seller could also negotiate on each paying an acceptable contribution towards the lease, as one option.

If the seller thinks another good reason for installing solar panels is because they increase the appraised value of the home, think again.   Leased panels are not allowed under FNMA appraisal guidelines, however owned solar panels do have appraised value and are included per underwriting guidelines.

So before obtaining leased panels, the property owner should ask the company:
  1. What are the credit and other requirements required for a buyer to assume the solar lease?
  2. Does the company offer alternatives to buyers with weak credit, such as placing a cash deposit?
  3. Does the solar company have a dedicated team or other procedures to facilitate the transfer of leases to buyers?
  4. How long does it take typically for the lease transfer to occur? 
  5. Can a lease be transferred easily within the timeframe of a thirty day escrow?
 See Ken Harney's recent Washington Post article on solar panels.  For a more indepth article on this subject about issues during a California residential transaction involving leased solar panels, please contact me!

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