You may be wondering whether having a solar energy system would be nice. The answer depends on far more variables than most people realize, so many, in fact, that a solar energy disclosure form has just been developed.
The form requires home sellers to share information about the condition and financing of their solar system, allowing buyers to know what they are getting into. Here are some things you need to know if you are buying a home with solar panels.
Your Power Will Still Go Off
One of the biggest shocks most people get when exploring solar energy is that unless they want to go off the grid entirely, your system has to be connected to PG&E, and without a battery backup to store energy, your electricity goes out just like everyone else’s during a power outage.
PG&E must terminate all connections during an outage; they cannot allow you to feed electricity into the grid where it could electrocute a lineman doing repairs. With a battery backup, when the power is on, your battery charges and you pull energy from the battery to power your house. When the power is off, the system automatically disconnects from grid, but you have power from the battery until the battery is drained or recharged by your solar system. No battery? No power.
Financing and Ownership
Let’s say you’re thinking of buying a home where a solar system is already installed. It’s important to know what you’re buying, exactly. Do the sellers own the system, or do they lease it? If there’s a lease, what are the terms? Can you assume the lease? Who will own the equipment once the lease ends?
If the sellers own the system, did they get a loan and if so, how much is still owed? If there’s financing, is it recorded against the property? Would you be able to assume the loan, or must it be paid off during escrow?
You see, there are a lot of questions to consider—and we’ve only discussed the financial side of things.
Power Purchase Agreements
Sometimes solar companies offer free installations with lifetime maintenance in exchange for owning the system forever and selling energy to you at a rate lower than PG&E’s. They then sell excess energy to PG&E. Basically, your house supports their solar system.
If the homeowners own the solar panels, then throughout the year, PG&E sends a monthly bill with a zero balance and information indicating whether the homeowners used more or less energy than their system generated. At the end of the year, if the homeowners used more than they generated, they’ll get a bill. If you are purchasing this home, be sure you don’t get stuck with the bill for the sellers’ accumulated energy use at the end of the year.
Also, once escrow closes, make sure PG&E knows you own the system so you get credit for the power generated. You don’t want to end up with a bill that does not give you credit for the energy you generated. Note: PG&E is talking about reducing how much they pay for customers’ solar energy, so be sure to consider this in your financial calculations.
Condition and Upkeep
Like everything, solar panels decline over time. As a buyer, you’ll want to know the condition of the system. Be aware that only photovoltaic inspectors are qualified to assess a solar energy system’s condition (not Realtors).
As soon as sellers put their house on the market, I recommend they pay for a solar inspection and then include that report and all other solar documentation to prospective buyers up front. This avoids surprises that could derail negotiations or delay the close of escrow. If solar is involved, you’ll also want to give the title company plenty of notice. Solar endorsements can take some time. Delaying the close of escrow can be expensive if interest rates are on the rise.
If you have questions after reviewing the solar inspector’s report, the documentation, or the financing agreements, contact a real estate attorney. You don’t want to miss important details about leases, financing, maintenance agreements, or warranties (which may only apply to the first buyer).
If you have questions about property management or real estate, please contact me at firstname.lastname@example.org or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.
Dick Selzer is a real estate broker who has been in the business for more than 45 years.