Costa Mesa Solar Panels
If you are looking for a city that has a nice, temperate climate with great weather, you have got to check out Costa Mesa. We live in a wonderful place here in Costa Mesa – and one of the benefits about Costa Mesa is that it is located perfectly for solar power; it’s close enough to the coast to keep the temperature moderate, but inland enough to avoid a good bit of the marine cloud layer. Solar panels enjoy full sun and cool temperatures. In fact, when solar panels get too hot, there is a slight dip in their electrical production (not enough of a dip to be an issue even in hotter climates however).
You have probably seen signs and panels popping up in your neighborhood. Solar panels sound like such a great idea for many who want to reduce their monthly electric bill, or in some instances, have no electric bill at all. Just like most things in life, solar panels have become popular and no one really thought what the repercussions of buying or leasing solar panels would be with regards to selling their home. So how do they effect your real estate purchase, and more importantly how do solar panels and real estate effect your sale?
A little background on solar panels. Solar panels can either be leased or purchased. Many will lease solar panels when they want to install a solar panel system but don’t want to put in any upfront cash investment while others may purchase the solar panels directly, increasing their monthly savings but increasing their upfront costs. When a solar panel is purchased or financed as a purchase, a lien will be recorded against the home that will be forced to be paid off when the home is sold, therefore only leaving the maintenance of the solar panels on the new homeowner and not the purchase cost. When solar panels are leased, the agreement is recorded with the property. When a buyer goes though the financing process they will now have to include the solar panel lease agreement in their debt to income ratio. Depending on the agreement, that could be like adding another car payment to a buyer’s qualification. Now it may seem silly because the solar panels will actually be cutting your monthly bills, but a lender looks at the lease as a debt. Could that change – possibly, but right now it is a debt that must be accounted for. So what should you do?
•Make your listing agent aware of the solar panels and the monthly lease agreement and advertise the solar panels as part of the sale indicating whether it is a lease or if the panels are purchased.
•Provide your listing agent with a copy of your solar lease agreement and copies of the last few bills so they can quickly provide to a buyer’s agent
•Have your listing agent call any buyers mortgage broker before an offer is accepted and inform them of the lease agreement and see if it will change their qualification for your home. It’s much better to find out before an offer is accepted rather than ten days into an agreement.
•Understand that a potential buyer will likely have to qualify to buy your home with really good credit – solar companies will not lease to those that don’t have good credit. This will definitely knock out a good portion of buyers.
•Before you put in an offer, ask if there are solar panels and ask for a copy of the agreement
•Make sure you notify your mortgage broker immediately if you are purchasing a home with solar panels as they will need to look at your qualifications with this new monthly payment
•Make sure you are comfortable with the terms of the lease agreement. The agreement is transferable and runs with the home, so their agreement will then become your agreement
•Understand if there will be any maintenance that is required on your part
•Ask to see copies of electric bills and ask any questions to the owner prior to releasing any contingencies
And straight from Fannie Mae, here are their guidelines on solar panels:
•Solar panels that are leased from or owned by a third party under a power purchase agreement or other similar arrangement are to be considered personal property items and cannot be included in the appraised value of the property.
•The property must maintain access to traditional electrical utilities. For example, properties with leased solar panels must have traditional electrical utilities in addition to the electricity provided by the solar energy; to ensure consistent access to electricity in the even the solar panels become non-functioning or are removed.
•The lease payment must be included in the DTI ratio calculation. This requirement does not apply in the case of a power purchase agreement if the payment goes entirely to pay for the energy. Any portion of the payment that does not go toward the purchase of the energy must be included in the DTI ratio.
•The owner of the solar panels must have a general liability insurance policy that covers damage to the mortgaged property caused by faulty installation, malfunction, or other manufacturing defects, whether or not covered by the warranty.
•The owner of the solar panels must not be names loss payee (or named insured) on the property owner’s property insurance policy.
•The borrower’s homeowner insurance policy must not exclude coverage for any tort liability the borrower may have under the terms of the contract with the owner of the solar panels (for example, direct damage) and may not exclude coverage for losses to the insured premises by reason of the presence of the solar equipment
•The lease or power purchase agreement must include that:
1. The solar panels are removable without causing damage to the mortgaged property;
2. Damage that does occur as a result of the removal of the solar panels is the responsibility of the owner of the equipment and the owner must be obligated to repair the damage and return the improvement to their original condition (for example, sound and watertight conditions that are architecturally consistent with the home)
3. In the event of foreclosure either:
a.The lender may terminate the lease/agreement and require the third party owner to remove equipment
b.The lender has the right to become the beneficiary of the borrower’s lease/agreement with the third party without charge
c.The lender has the right but not the obligation to enter into a new agreement with the third party, under terms no less favorable than the prior owner.
Solar panels are a great thing! Just make sure you are smart about them and understand the effects they may have on the future sale of your home.
Connect with Colin Delaney at 714-743-9882 or email him with your Costa Mesa real estate questions.