Rachel Davis, Vice President of Products, Pearl Certification
The Pearl Equity Calculator is an app that contractors and appraisers use to help better demonstrate the value that solar installations can add to a home. It is the first tool in the industry to calculate discounted cash flows using data from certified contractors, NREL software to calculate solar production figures and an API for Freddie Mac’s mortgage rate on 30 years. Rachel Davis, VP of Product for Pearl Certification, explains how the calculator can improve your business.
What is the biggest hurdle solar entrepreneurs face when trying to show the value of a solar installation? Does it hinder their ability to close sales?
A big obstacle is simply the lack of local data. Most contractors struggle to demonstrate the value of a specific installation in the owner’s area. Instead, they tend to point to national or state data when offering insight into value.
For example, a frequently cited source is the 2015 Lawrence Berkeley National Laboratory study, which showed that solar energy adds $4/watt to home value. The entrepreneur can also refer to research by Zillow, which found that solar panels can increase the selling price of a home by an average of 4.1%. While somewhat helpful, these studies do not provide the homeowner with the details they need to feel comfortable with the major purchase they are considering.
As the famous saying goes, “real estate is local”. As a result, the homeowner, realtor, appraiser, and lender are not concerned with national averages, but with how the specific home solar PV system will be valued by the local market. Since solar panels are probably one of the biggest investments many homeowners will make in their home, they want to be sure that when they sell the property, the investment will be reflected in the value of their home.
An entrepreneur who can’t answer the owner’s question about what kind of return on investment to expect will face an uphill battle when trying to close that sale.
Why do you think homeowners don’t fully realize the return on their investment in solar energy when they sell their home?
A residential installation in Oregon by Imagine Energy
There are several factors that can contribute to a homeowner not realizing the potential return on investment when selling their home, but #1 is documentation. We continually hear from evaluators that they do not receive any information or documentation on the PV system.
A New Jersey-based reviewer told us that she frequently requests information about solar installations and simply does not receive it. One owner she recently interviewed for a refinance didn’t even know if her system was owned, financed, or leased. Homeowners have so many competing priorities when selling a home that the idea of promoting solar power might not cross their minds. Even if they work with a real estate professional, that person may not be trained in how to properly sell a home with solar power to ensure the homeowner receives the maximum return on their investment.
Without the proper documentation, the appraiser cannot add any value to the home for the PV system. A home’s high-performance features should be made visible in the listing and appropriately presented to an appraiser. If the lender and appraiser are unaware that these features exist, this value will not be included.
What value do you think solar plant owners are currently leaving on the table?
Owners can leave tens of thousands of dollars on the table. If we use an average system size of 6.3 kW and an average of $2.71/watt, we can calculate a system cost of $17,073. These average numbers are from the NREL US Solar Photovoltaic System and Energy Storage Cost Benchmark and may be conservative depending on where you live in the US. A homeowner could miss adding this investment to the value of their home. This represents millions of dollars each year that owners lose.
How does the Equity Calculator help entrepreneurs demonstrate their value?
Ipsun Solar
It offers contractors the ability to leverage a third party to show homeowners the value a solar installation can add to their home. The calculator allows the contractor to use data specific to that home and an appraiser-approved methodology to provide homeowners with information about the value of a solar installation. The Solar Equity Calculator differentiates this contractor from any other contractor the owner may have discussed solar energy with. This contractor will third-party certify their installation so the homeowner has all the documentation they need to get the maximum value from their high-performance home.
The Solar Equity Calculator generates a range of values for the contractor to present to the homeowner. It shows actual dollars and cents based on specific house data.
Pearl analyzed the numbers of homes with certified photovoltaic systems in our database to calculate the amount of equity our network contractors created for their owners and found that it was over $120 million. . And that number continues to grow thanks to our network of qualified solar contractors.
The calculator is designed to work seamlessly in the field or in the office. It is also available via API for contractors who wish to integrate it into their own software.
How does the tool help appraisers calculate the value of solar energy more accurately?
SEIA estimates that by 2030, 13.4% of American homes will be equipped with a photovoltaic system. This means appraisers are encountering PV systems with increasing frequency in refinance and sale transactions, and that frequency will increase dramatically over the next decade.
The Solar Equity Calculator allows an appraiser to easily calculate the value of a PV system as an input to the revenue-based methodology. The calculator is free to any certified appraiser and is the industry’s first tool to automatically calculate discounted cash flow from certified contractor facilities. The calculator can be used for any home, whether it is Pearl certified. For Pearl-certified homes, all certified data will be available in the calculator, making the process even easier for the appraiser.
How does the calculator work? It’s free? Is it only available through the Pearl Certification platform?
The calculator uses the discounted cash flow method to calculate the dollar value of the energy a photovoltaic system will generate from today until the end of the power generation warranty period. We look at the total future cash flow benefits the owner will receive from the PV system over its useful life and calculate the value of those future benefits at the time the calculation is made. This value is an important data point for the appraiser that can facilitate their use of the income-based approach.
The calculator is free to all Pearl Network contractors and certified appraisers. Pearl Network contractors are the only contractors who can use the calculator. The results of the equity calculator are unique not only because of the methodology used, but also because the results of the calculator are based on certified data from qualified sources. Pearl Network contractors have been selected to meet network qualifications including customer service, business practices and commitment to quality, to name a few, and may be held responsible for the accuracy of data. used to generate the results of the Equity Calculator.
Is there an industry-accepted rating methodology for residential solar power?
Yes, an appraiser can use three methods when appraising solar power: comparable sales, cost and revenue. The appraiser is unlikely to simply add the value calculated under the income-based approach to the appraisal. The appraiser is required to take into account the selling prices of comparable houses on the same market that have recently sold.
If the appraiser finds that homes with a PV system are selling for more than similar homes without a PV system, they can use the information from the Solar Equity Calculator that is included in each Pearl Certification Report as an additional tool to help determine the value the PV system adds to the home. If PV is relatively new to the market and the appraiser cannot find comparable homes with recently sold PV, they may consider the income-based approach as a basis for assigning a value to the PV system.
The key is documentation. If the appraiser does not know the details of the solar installation such as the ownership structure or the size of the system, no value will be added.
Is there any other tool like this on the market?
The Pearl Solar Equity Calculator is the industry’s first tool to automatically calculate the discounted cash flows of certified contractor installations for home appraisal purposes. There is no other tool on the market that gives a contractor the ability to answer the question, “How will this solar panel system affect the value of my home?” It also provides appraisers with the resources they need to quickly and accurately calculate key input when appraising a home with a PV system.
For more information on the Pearl Equity Calculator, visit: pearlcertification.com/contractors-equity-calculator