Dishin' Dirt on Solar Panels and Real Estate Closings with Gary Pickren

As more homeowners add solar panels to their homes, I examine how panels affect real estate closings.  In this podcast I discuss how some restrictions can prevent a homeowner from adding solar panels to their home. I also discuss issues that a seller faces in selling a house with solar panels. Does the seller have to pay off the solar panel lease before conveying? Is the lease agreement a lien against title? Can the seller assign the solar panel lease to the buyer? Does the buyer have to assume the maintenance agreement and does the buyer assuming the lease affect the buyer's ability to purchase the house?  Before you list a house with solar panels you need to listen to this podcast. 

Also in this podcast is another installment of While You Were Out Showing and Gary's Good News Only! 

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Gary


* Gary serves on the South Carolina Real Estate Commission as a Commissioner. The opinions expressed herein are his opinions and are not necessarily the opinions of the SC Real Estate Commission. This podcast is not to be considered legal advice. Please consult an attorney in your jurisdiction for applicable legal advice germane to your issue.

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Gary

* Gary serves on the South Carolina Real Estate Commission as a Commissioner. The opinions expressed herein are his opinions and are not necessarily the opinions of the SC Real Estate Commission. This podcast is not to be considered legal advice. Please consult an attorney in your area.

Transcript

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This is edition dirt with Gary Pickens South Carolina's only podcast dedicated to the real estate agents crap. Hey guys, welcome back to another episode of edition dirt and on this episode we're going to talk about solar panels and how they affect real estate closings. We're also going to have yet another episode of what happened. While you were out showing this is an update on some information we talked about earlier. And of course, we'll finish this episode with another edition of Gary's good news only. Now before we started, lastly, huge favor of you know, a lot of you guys are listening to this on various platforms, including apple. So if you will look down at the bottom of the page and rate us five stars, of course, would be the most appropriate rating this show could get for you. And we'd ask you also to click the subscribe button because we'd like for you to get notices when new episodes come out. And they come out every Thursday morning. And they're always going to be under 30 minutes. So let's get to our show real quick. I had a conversation with one of my good friends in real estate agent Rene royal, the Royal Simon's Team at Keller Williams here in Columbia, South Carolina. And she and I had a long discussion about solar panels and how they affected houses. So I thought that would be a good topic for today. Now in this episode, I am going to discuss the legal ramifications of selling a house with solar panels. But before I get there, I think I want to briefly talk about solar panels on residential homes in the first place. Now I'm going to preface this by saying I am no fan of solar panels on residential home. I simply don't think the technology is there yet. And I think the ROI the rate of return on the investment is just non existent. Now that's not to say there's some personal or social value that you may receive from putting solar panels on your house. So if you are super environmentally conscious type person, and you don't mind the cost, then solar panels may be for you. Now, here's what I mean, the center of sustainable energy stated that the average cost of solar panels in the United States is between 15,020 5000 on a house. I personally think that number is low. Because when we get payoffs to pay these off at closing, we're seeing typically 30 and$40,000 payoff, the federal government currently provides a 22% tax credit through 2021, it will end at the end of 2021. The tax credit was 26% in 2020. So that effectively would reduce the cost using their numbers to around 12,000 to 20,000 per home. Again, I think that number is very low. The Motley Fool, which is a website about investment, did a case study and one of their articles about whether solar panels were worth the time and expense. And this is what they found using $15,000 is the standard price and a 26% tax credit for 2020. They set on a house that has an average power bill of $200 a month that it would take 55.5 months just to break even on the solar panels. The problem with that in Columbia, South Carolina, is it Columbia is a very transient community. We have military and we have government. So most people don't live in their houses five and a half years, I think the national average is less than seven as TD world, which is another investment website explained, there's a long time to break even when the average person doesn't live in the house 5.5 years, and the technology will be obsolete and look obsolete soon. They said the long term base lease is based on potentially unrealistic projected lifetime cost. And what they're talking about here and i don't disagree is that the technology continues to change. And if you think about some of the technology, look at televisions, the HD television that we bought 1015 years ago was rather cumbersome. It had big frame on it, it was rather thick and rather heavy. Today, this HDTV is very light has no frame around it, and is much different technology in just a matter of five or 10 years, it changes every day. I believe that's what's going to happen with solar panels. And so at some point, having these big solar panels on the top of your house will look extremely outdated. And that's what TD world is getting at on the internet, you can go to project sunroof. And they have an estimator, which would you submit your address, and they will tell you what it will cost you and what your savings will be. And so I put a couple of random properties in that I had done real estate closings on and this is what I found on a house that I knew that I'd close for$450,000. The upfront cost for the solar panels was $17,000. The savings in a 20 year period was 18,000. So in 20 years, you were saving $1,000 I'm pretty confident that if you took your$17,000 and invested in the stock market today, it'd be worth more than $18,000 in 20 years, and I would also venture to say probably worth more than$18,000 in about three months. Stock markets going crazy. I just don't see that the upfront cost is worth the miniscule savings over the 20 year I did several properties and that's kind of the same thing that I continue to receive now saying that I did have a conversation with employee my office who said that her mother's utility bill was 12 $100 a month before She got solar panels, and now it's about $400 afterwards, so she's saving about $800 a month. So perhaps in these high energy call situations, it may be worth something. But nevertheless, let's move forward to the legal issues. And that's what today's podcast is really all about is legal issues with solar panels. And so the first issue you have to understand, if you are representing a buyer who is looking to buy a piece of property and put solar panels on the home, you need to understand that there are many restrictive covenants that will not allow that there's many neighborhoods throughout the state, in which they claim that the aesthetic nature of the solar panels interferes with the aesthetic value of the neighborhood, and therefore they are not allowed in the neighborhood. And so if you have a client that tells you they want to put solar panels on their home, before you just allow it to close, you need to have that homeowner contact the HOA to find out if solar panels are allowed. And do not assume just because you see solar panels on other houses, that those were allowed, because sometimes people do things that they're not supposed to. And they may be in the middle of a litigation against the HOA to have those removed, so you don't know the status of that. So make sure your buyer contacts the HOA to find out if those are going to be allowed. Many states do have laws that override Hoa A's and deed restrictions. But most don't. In fact, I think there's only about 24 states right now that actually have laws that say solar panels cannot be outlawed by neighborhood associations and CCR CCR, currently before Congress. And you know how worthless Congress is, but they apparently now have a bill called the American clean energy and Security Act, they would make it illegal to restrict the installation of solar panels by Hoa rules or deed restrictions, the federal law would basically override this there would allow two exceptions and one exception would be historic property. So if you live in a historic neighborhood in like in Greenville, or Columbia or whatever, you would be able to ensure your neighborhood does not have solar panels on historic houses, and Hoa could still outlaw ground mounted panels. Be sure with a buyer looking to get solar panels that you get confirmation first, second, and most important issue in my opinion is closing. And what is the seller going to do when the seller has solar panels on top of the house. And so let's talk about the seller that already has paid for the solar panels, we have a few issues to address they are far. So if we have a house that has solar panels, which have been paid for meaning there's no lien against the property. What happens now is the seller going to take off the solar panels and take them with him. If he is he needs to remove those solar panels before you list the property. It's just like taking down the chandelier in the dining room that your client wants to take. Always take it down before you show the house is more particularly important with solar panels because when the solar panels are removed from the roof, as I understand it, they will cause shingle damage. And so the shingles will need to be replaced and you want that done before inspection so that the buyer will have ample opportunity to have a roof inspected, what you do not want to have is that they take down the solar panels two days before closing. And they do not make the repairs to the roof. And here we are at closing and they're arguing over wanting a brand new roof. Because you know and I know they're going to turn to the real estate agents and ask for contributions to the cost of this roof. So protect your commission by making sure that the solar panels are taken off in plenty of time for the buyer to have them inspected in the cellar to have any damage repaired if the seller is going to leave the solar panels native also figure out how does he transferred title is there any type of document that would need to be signed, transferring the ownership over to the new buyer. And you also have to understand that there may be a mandatory service agreement on the servicing of those solar panels even though they are paid for. We had a closing recently where the solar panels were paid for. But there was a several $100 a month service agreement the service agreement isn't for the repair maintenance, it was for the company to pull the energy created from the solar panels and put it onto the electric grid. And so there there's a cost to that service, and the service agreement was mandatory and could not be cancelled, and so it had to be transferred to the new buyer. Which brings us to a big point. All of this has to be disclosed on the seller disclosure statement. Now I understand that the solar panels are patently obvious on the back of the house when they walk by any consumer will be able to see him so it's impossible for them to say we didn't know there was solar panels, but it is not impossible for them to say we did not know we were going to take on a financial liability because of the solar panels. So any issue involving a buyer taking over a financial obligation, the financial obligation needs to be clearly set forth on the seller disclosure, what is the length of the term what is the monthly payment and so forth and you need to make sure that is clearly denoted on the seller disclosure closing saw through all the Thomas solar panels because it is not being disclosed and when we get to closing the buyer finds out and also Sometimes a lender finds out that it's another $200 a month for them to live in that house. And sometimes the buyer no longer qualifies for the loan. So don't get yourself all the way to the closing table before you figure all this stuff out. This needs to be done on the seller disclosure statement. Perhaps the bigger issue However, when it comes to sellers and solar panels are the situations where the solar panels are not paid for. And in most cases, what I have experienced, the solar panels are not paid for. So they have borrowed the money. And there's a lease agreement involved. And what you need to understand is, if there is a lease agreement, it is highly likely that the solar panel company who did the financing has filed with the register of deeds in the Secretary of State's office, what's called a Uniform Commercial Code lien, we call them UCC liens. It is no different than a mortgage lien in the fact that it must be resolved, either released or paid off. Prior to transfer of title, it is a lien against the title, which will transfer with title if not paid off. And so and most of the documents that I've seen from solar panel companies have a due on sale clause in them so that they have to be paid off before you can transform, so you can't transfer title and let the person just deal with it. It has to be handled prior to closing. So let's talk about the two situations let's talk about the situation where they borrowed money to pay for the solar panels, but they intend to pay it off at closing. Before you list a house, you need to determine what the payoff is. You cannot properly do a net sheet without knowing what this payoff is. Don't listen to your consumer when they tell you Oh, it's just a couple of dollars, you need to find out in writing what these payoffs are. The reason I say that is because many of these agreements that I have seen have prepayment penalties and the prepayment penalties are significant. Some of them will say that you must finance for a minimum of five years, if you pay it off prior to five years, then this penalty applies. I have actually seen some of these agreements where it would not even allow you to pay it off for five years. But personally, I don't think that's allowed under federal or state law that you can not allow me to pay off my solar panels. But we have seen that and we're sitting at closing arguing with the solar panel company when they refuse to give a payoff. So how much do they owe first? Secondly, can they even pay it off? If they can pay it off? Is there some exorbitant pay off fee? Secondly, if he is paying it off? Again, is there a mandatory service agreement? And will that mandatory service agreement also go away? Or will they have to continue on the mandatory service agreement? In addition to that, what happens to the panel's now if they're paid off? Is the buyer going to get the panels or is the seller going to take the panels with them, the seller is going to take them are they going to repair the damage that caused by taking them off. If the buyer is going to keep them what value are they now have the buyer if they are not being serviced, from my experience when they are being paid off? A pay off can take two to three weeks to get from the solar panel companies. And it takes multiple phone calls by not only the law firm, but the seller to convince the solar panel company to send the pay off, we've had many closings delayed because of the inability to get the solar panel companies to respond. In fact, I've had many of them get very argumentative with us, when we try to get the payoff. The other thing you have to look at is what happens if your seller is not intending to pay them off, but prefers that the buyer assume the lease agreement. There's all kinds of legal issues that are involved there Fars, this can't be done at the closing table, this has to be done weeks in advance, because getting the solar panel companies in my experience to give you the transfer papers or the assignment papers is very difficult. And all of that needs to take place prior to closing because once the closing occurs, then it becomes a bigger issue. And so a closing attorney will not do a closing without this matter being resolved because as I mentioned earlier, it is a lien against the property in most cases with the UCC filing. So this has to be done well in advance. The buyer needs to be fully aware of what they are assuming which again goes back to the seller disclosure, what are they assuming how much is their monthly payments going to be? How long is the term going to be when can they pay it off? and etc, etc? What is the what is the balance on the loan, and then they're gonna have to disclose this to their lender because this now becomes a debt and the debt to income ratio that must be considered by the lender. And in some situations, the debt of the solar panels will push them over their debt to income ratio and they'll No longer will qualify for the loan. And so that becomes problematic. Additionally, we have to look at the lease paperwork because some of these leases we have seen are non assignable. And so while the seller is intending to assign the lease to the buyer, the solar panel company sometimes won't allow it, but we've been in situations where we're at closing and they can't pay it off because they don't have enough money in their house to pay it off. So they want to assign it to the new buyer. And the solar panel company won't allow it. So effectually, what happens is the closing falls through, and the seller is stuck in their house. I don't know how that's conscionable. But that's a big problem. So you have to even determine First of all, isn't even assignable. If it's not assignable, then we got a bigger problem. And secondly, as I mentioned, you got to see if they're still going to qualify for the loan. So in short, a seller needs to address all of this before listing, they need to have all of the information before you so that you can determine are they are they going to pay it off? Are they going to try to assign the lease to the new buyer? What is the term going to be for the new buyer? How long are they going to have to pay it what's the monthly payment going to be? What's their balance going to be? And all of this needs to be determined before contract the buyer and if you're representing a buyer needs to completely understand what they're getting into. Before signing the contract. You do not want to spend your clients money on inspections, appraisals, title searches and other things, only to find out that because they're gonna have to assume a $300 a month lease or they're no longer going to qualify for the loan. And now they have all these expenses that they don't want to pay for. And the final issue we'll address today is the appraisal. How do solar panels affect the value of the listing? What do you tell the prospective buyer about the value? does it increase it? Does it decrease it several months ago, I spoke to a leading appraiser in South Carolina concerning how appraisers are conducting appraisals of homes that have solar panels. And the appraiser emphasized to me that the solar panels are a new arena for appraisers. And the issue simply hasn't been around long enough to there to be a consensus as to how value is determined when there are solar panels on a house. Whether the solar panels are leased or owned also can affect the appraisal. Many appraisers are taking the position that there is no added value, and perhaps some diminished value with least solar panels because a buyer must assume the lease. This additional financial commitment makes it harder to market the property and harder to sell the property I think you've probably seen that. Moreover, the cost of the lease often negates some of the utility cost saving so therefore, lease solar panels are likely to be value neutral to an appraiser. As to solar panels owned by the homeowner. The appraiser noted that there are a few recent seminars that have been offered on the topic. And the consensus seems to be that in determining if solar panels add any value there, appraisers are required to be able to substantiate their analysis. A likely analysis of the issue is similar to an analysis of say the savings on the cost of a mortgage over the course of time when flood insurance is required. So if a homeowner is required to have flood insurance, how much more money will they spend on the mortgage? conversely, how much would they have available? Ie the cost of the insurance? And how much larger home? Could they buy with that same money over time? So the analysis essentially is one of cost versus benefit. If the solar panels are owned and you have to pay the cost to the seller, how much more of a house could you purchase, if not for the additional expanse. Additionally, as the technology changes and like I mentioned earlier with televisions, it's going to change and it's going to advance rapidly. At what point do solar panels become obsolete, and perhaps a financial detriment to the aesthetics of the house? If Elon Musk is unable is able to make shingles that are also solar panels, then these solar panels will obviously become a financial detriment. Many of you remember trying to sell the houses with large and useless satellites in the backyard remember the huge et likes satellites in the backyard what a burden it became trying to sell a house was one of those if the seller wants to be reimbursed for some of the costs of the panels and the value of the property some appraisers have upon that they would likely Consider the following factors number one would be utility call savings. Number two the risk of repairs to the house calls by having the solar panel number three the limited number of people who can repair panels. Number four the cost of removing the panels and repairing the house wants to technology becomes obsolete. So this appraiser upon to me that he can understand why appraisers would be tempted to say there is no material benefit and having a solar panel because the issues are not necessarily overcome by the benefit of the reduced utility bills. Because some appraisers are holding the panel's values as neutral many sellers have decided to remove the solar panels prior to listing he said and there's also because it becomes a problem because the cost of removing the panels and repairing the damage to the roof also comes to a factor and if your seller removes a panel as we mentioned earlier, it's necessary to have a Quality Roof Company inspected and issue a clear roof letter to protect your client and yourself as we mentioned earlier. So in conclusion as to appraisals, solar panels are more prevalent and there are more contractors who can repair, remove and install them. But the appraisers may look at this as no material benefit. So the lesson to be learned today is get your information up front and disclose it as much as possible. Now to our segment what happened and why you are held show. A couple of months ago, I mentioned that the National Association of Realtors was contemplating a change to the code of ethics, which would allow them to discipline you, for your private social media post. Unfortunately, that has now become the role. And under this rule, the National Association of Realtors can sanction you find you and even suspend and expel you from the association. For your post, if they consider your posts to have racial slurs, epithets or hatred in them. Before I tell you what's wrong with this rule, let me be clear, we condone any form of racism, private or public, you know, place for it in our business, there's no place for it in our society. I don't think anybody would disagree with that. What the problem with this rule is, is that if someone decides to file a grievance against you, it can be another real estate agent, it can be a consumer, it can be anybody. Then the process is you go before the grievance panel, which is made up of five other real estate agents in your organization. And it becomes these five agents opinion as to whether what you said was racial, racist or hatred. And in the era of the cancel culture, where anything you say that somebody disagrees with politically, now becomes hatred. I can only see a situation where five like minded people who disagree with you politically, can declare your post politically as hatred. So now we'll have political police censoring your speech. And where it really gets concerning to me is this whole thing about racial slurs? Because again, in our culture of canceled culture, everything that was a racial slur, for instance, the Washington Redskins now is somehow a racial slur. The Cleveland Indians is a racial slur the Atlanta Braves, to some people as a racial slur, I don't believe it is. But now, if you are in Cleveland Indians fan and you post all over your website, Cleveland Indians or even if you post how upset you are, that the team is changing the name from the Cleveland Indians to the Cleveland spiders I hear, which is a horrible nickname. Are you now posting racial slurs? And do you trust five people who sit on some committee to determine that because remember, once you have been labeled as to providing or uttering a racial slur, it's a very quick step to now you are a racist, and that will never leave you in this business. So this is a lot of power put on five people to determine what your speech is. And it's just scared the hell out of all of you. But that is not to say that we do not support the realtor's Association Blair Cato has always supported the Real Estate Association and will fact we are members of the Central Carolina realtor Association and was awarded the associate member of the year so we continue to support the association at all levels. But we do disagree with this particular position. And that's what happened to you why URL show. And now to Gary's good news only. And I apologize because it makes it a little bit harder for me to find the good news only these days. Danny hood, really great real estate agent at Coldwell Banker was sending me an email that he was getting from a doctor friend to him that the CDC and HHS was releasing every week. But since the change of administration, the new administration has not started sending those emails out. So I'm hopeful it'll start sending those emails out. So I'll have some more good information because there's always lots of good information on those emails. But in the meantime, I've done some research and found some good information to share with you particularly on Coronavirus. Two weeks ago, South Carolina had 4800 cases a day. And now we're down to 3500 cases a day. Yes, that is still a ton of cases and we need that to go down even farther. But that is a good trend to see that the numbers have dropped that precipitously since January, a to the United States, there were 315,000 cases a day on average, based on the seven day rolling average today. We're down to 144,000 cases. So that's half so looks like we're getting through this winter wave that they have been protecting for many, many months. 32 point 8 million vaccines have already been administered. My mother and dad have already gotten their first and they're getting their second this week. So that's all good. The vaccine that was not even supposed to be available this year. And it's already been administered almost 33 million people. So that's really good news. The COVID-19 Uk variant This is the b1 one seven variant This is the one where everybody was concerned about these new strands of COVID were coming in. But we have now have evidence that that strand or variant has been started In the United States since November, and despite that us COVID infections, hospitalizations, and mortality rates are all trending down. So very good news. Now this is kind of funny, we found out that we basically have cured the flu. And England for example, they have noticed that the flu has plunged by more than 95% to levels not seen since the since 130 years. So somehow we have cured the flow apparently the same way in the United States. Now on the financial markets, mortgage applications to purchase homes did fall 4%. Last week, they were up this week, but they're still 16% higher than a year ago, the average purchase loan amount hit another record high of $395,200. Nationwide, still less than that in South Carolina, and the 30 year fixed rate mortgage increased to 2.95, which is still below 3%. So that's excellent housing prices. We get two articles here one says 9.1% year over year gain on a 20 city composite, s&p corelogic says they see a 9.5% raise in November from the year before. So price houses prices still continues to go up. And lastly, jobless claims raise let rose less than expected. So also very good news. And that's Gary's good news only. Well, that's our show for this week. We greatly appreciate you tuning in and hope you got something out of the solar panels answered you please like, share, and subscribe to these podcasts. We're growing tremendously. We're closing in on 5000 listens. So we appreciate everybody who spends time listening to these podcasts. Please tell all your real estate agent friends in your office and those that you work with about the podcast. Like I said, there's lots of great information I think that agents can learn from and that's our goal here is to help educate agents so that the industry will be better as a whole. I hope everybody has a wonderful weekend and we will see you soon.