Last Thursday, September 21st, AAR held their Industry Partners Conference. This year there were over 340 participants. If you have never been to this event, you are missing out. Make sure you register next year.
Sherry Olsen (Desert Schools) and her team did a terrific job from beginning to end. Bill Gray opened the meeting with some words of wisdom, as always. Then the session’s scenario was introduced. Participants were at tables with others from different disciplines. Real estate brokers, agents, title and escrow officers, lenders, appraisers. What an interesting conversation can be had when accomplished professionals from different disciplines come together to discuss a common problem.
This year the conversation revolved around the purchase of a home with solar by a buyer with a conventional loan. Within a short while, the curveball was introduced of buyer changing the loan to FHA. Participants centered their analysis around the AAR purchase agreement, BINSR, Solar Addendum and other documents used in a transaction. It was interesting and informative to hear the issues each discipline deals with during the course of a transaction such as this.
I was privileged to be one of the panelist in the first hour. Below are remarks I made in my introductory statement. They may not be exactly as I spoke, since I tend to modify as I present, but all the points were presented.
62 years ago, the Association for Applied Solar Energy sponsored a two-part meeting. The first half was held at U of A, the second half was held in Phoenix. Over 1,000 scientists, engineers, industrial, agricultural and financial leaders, from 36 countries, met to discuss the use of solar energy.
57 years later in 2012, Governor Napolitano declared solar power had the potential to make Arizona “the Persian Gulf of solar energy”.
Solar energy production, storage and use has changed and continues to change. Technology demands we and our clients think differently about solar.
Roof top solar may look like a panel, or it may look like a roof tile. Most people think of Tesla roof tiles, but companies like SunTegra and Certainteed have been manufacturing roof tile systems for several years now. Dow Chemical had the precursor to Musk’s system and shut down the business last year because they could not penetrate the market place.
So why does Elon Musk think he can succeed where Dow Chemical could not? The bet Elon Musk is making is that he can capture the market for people who want solar, but have passed on solar because the panels are ugly and put holes in the roof. There will be an increasing number of these people who need to replace their roof. Part of the plan is to team the solar roof tiles with a battery storage system and be available for consideration when people need to re-roof. Musk seems to have a better sense of marketing, so it will be interesting to see how this goes.
Aside from the roof top solutions, people have to realize when they install a solar system they are installing their own energy generation system. That leads to several questions, starting with “Can my rooftop system generate electricity, more economically and efficiently, than my local utility can? APS is required to produce 15% renewable energy by 2025, and SRP is aggressively adding renewable energy to their portfolio.
Arizona’s first solar power system was in Flagstaff in 1997, since then we have added several others including the world’s largest solar power plant just outside of Gila Bend. Our newest solar power plant is on the Navajo Reservation.
In addition to solar, power companies are using wind and some are even harvesting energy from road and bridge vibrations. So, the question, “can you personally generate cost efficient energy?” is real and people have to do their own homework. Sometimes a combination of 3M window film (eliminates over 90% of energy loss through windows), insulation and weather stripping provides almost as much energy savings as solar, but without the lien concerns.
Add to this the new model for energy companies. Green Mountain Energy is a good example. They serve markets in 8 states. They sell energy generated from renewable sources to commercial and residential customers, but they also sell products like electric vehicles, portable solar panels for your backpack, lights, speakers and Nest thermostats. Think of them as more like a cell phone provider. They will sell you the service and products, you choose the plan and products. NV Energy allows you to choose receiving 50% or 100% renewable energy.
If your client decides to install solar, the question is will they lease or purchase the system? And if they purchase the system, will they pay cash or take out a loan?Once a property owner has solar on their roof, there is a good chance they will sell the house before the lease or loan is completed. At the point the house is sold, sellers need to disclose not only the existence of the system, but other important information like performance, lease or loan terms, warranties or guarantees, etc. Most property owners don’t know this information and cannot produce worthwhile disclosure, so in 2015 and 2016 AAR encouraged the passage of two bills mandating information and disclosures the solar company or utility must provide for a property owner at escrow. There are several provisions, and you can read both laws at www.weservgad.org, but here are some highlights:
• Solar company must provide a designated person and their contact information
• Solar rep is to be provide transfer info, third part approvals, updated performance info, updated utility savings, etc.
• Solar rep provides the proper paperwork and disclosures.
• Minimum 2-year warranty on distributed energy systems
• Minimum 1-year warranty on components and installation
• The Written warranty must contain performance information
• Prohibits payments until the system is interconnected and energized
• Requires leased or financed systems be warranted at least 2 years or include an energy production output guarantee.
• Requires the written warranty be part of the financing or lease agreement.
• Requires the description of the make and model of the system
• Requires the total price to the buyer over the life of the system be disclosed.
• Provides notice of any interest, install fees, doc prep fees, service fees or other costs to the buyer/lessee be made.
• Requires documents and sales presentations suggesting savings must include the methodology.Keep in mind, some loan products do not lend on leased solar. The most prevalent is FHA because leases violate the Free Assumability Clause. So as with any transaction, one of the questions for buyers and sellers is “does this house qualify for the buyer’s loan?”. That is a conversation that needs to happen before you take your buyer out and at the listing table. You don’t want to show houses to buyers who can’t buy them, and you don’t want to offer sale terms the seller can’t honor.
I think the new solar addendum will help agents and their clients begin the process of asking the right questions, and then if people are aware of the law, over time these transactions will become easier for no other reason than people have correct expectation and are reasonable in negotiating the contract terms.
Incidentally, if you want to read the papers presented at the 1955 Association for Applied Solar Energy Conference, the U of A library is one of 4 repositories with those documents.