In the 1980s, there was a significant 70% Federal tax credit available if you added solar panels to your home. At the time, we saw solar panels on rooftops popping up like crazy. Most of those systems were “financed” by the tax savings afforded to the homeowner. Most of the systems installed during that era were for heating water and space heating using a radiator system. Today, most of the solar panels you see are photovoltaic (PV), which produce electricity for the home or provide power back to the grid. These new systems are expensive, and the tax credits aren’t as large as the good ‘ole days of the 1980s. Most homeowners who add these systems to their homes don’t pay cash for the system and instead, enter into a lease agreement or a loan secured by a deed of trust against the home.
Selling or buying a home with a solar panel system lease or loan could introduce a few challenges for a real estate transaction. If the owner of the home paid cash for the system and owns it outright, it can be conveyed just like any other appliance, which is owned free and clear. However, if a solar panel system was financed through a lease or a deed of trust, it really isn’t too difficult to figure out how to deal with it, as long as you know before listing your home for sale and before a contract to purchase has been agreed to and signed. The main challenge comes mid-transaction, when the buyer and seller realize the effect of the burden of a lease or deed of trust secured by the property – that’s when it can get messy.
Selling or buying a home with a solar lease in place
Here are options:
The home seller should contact the lease holder to determine whether or not the lease is assumable by the new homebuyer and under what terms. Be sure to ask what the criteria is for approving the assumption of the lease and how long the process will take. Knowing this information will help the Realtor® write a contract with acceptable dates and contingencies to protect all the parties involved.
When contacting the holder of the lease it would also be good to know what the payoff of the lease is. The home seller should also have this information in the seller’s original lease documents. The seller could choose to pay off the lease and own the system free and clear. Then the seller can decide on their price of the house including a free and clear solar panel system. The seller should be able to show the buyer a track record of the savings on the electrical bill, thereby adding value in the eyes of the buyer.
Selling or buying a home with a solar panel loan secured by a deed of trust
Here are options:
In most cases, if the solar panel system purchase was made through a loan from the solar company or a third party, it was secured by a deed of trust against the home with the solar panel system. Secured by a deed of trust, means that the loan will typically need to be paid off at the closing table upon the sale of the home. The seller should know or inquire about the payoff amount upon placing their property on the market so there aren’t any last-minute surprises. The seller should also check to see if the loan has any fees if the loan is paid off early. With a free and clear solar system, however, the seller can price the home accordingly and the homebuyer can determine any value added based on the electrical bill savings.
There are instances in which the deed of the trust holder would allow the loan to be assumed by the new buyer. The deed of the trust holder would need to agree to subordinate to the new homebuyer’s first mortgage. The buyer’s first mortgage lender would need to qualify the buyer based on adding the assumed mortgage monthly payment.
It is possible, but rare, that the solar energy system was financed by a personal, unsecured loan. If that is the case, the home seller is free to sell without paying off the loan. Nevertheless, the seller is still subject to any terms of the personal loan.
Bottom line is that it isn’t a problem to sell a home with a financed solar panel system. The whole process can be seamless as long as the appropriate information has been collected and conveyed to all parties. This enables all parties to make informed and timely decisions. Your Realtor can help guide you through the process.
By Duane Duggan. Duane has been a Realtor for RE/MAX of Boulder in Colorado since 1982 and has facilitated over 2,500 transactions over his career. He has been awarded two of the highest honors bestowed by RE/MAX International: The Lifetime Achievement Award and the Circle of Legends Award. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor for Life. For questions, e-mail DuaneDuggan@boulderco.com, call 303.441.5611 or visit boulderco.com.