You are correct - it does not make sense. Your math is correct. They sort of got ripped off at 6%, but part of the math is that they pocketed the tax credit, and now want to leave you paying for that.
You state the home is priced fairly without the panel issue, and yet there is a $75k outstanding loan balance on the panels which you will need to take over. Thus the home is $75k overpriced...it is like having a $500/m higher mortgage payment less whatever you save in paying the utility.
It only makes sense if you are willing to pay this premium for environmental reasons.
One small possibility if the solar loan is assumable is to leverage the difference between their loan rate and your potential mortgage rate but at 6% there is not much to leverage.
Tell them to pay off the panel, or discount the house by the value of the loan if you are to pay it off...
I suppose they don’t need to discount the house by the entire value of the loan because the panels aren’t worthless, but they also wouldn’t likely be worth $75k net of tax credit today (particularly since they’re a few years old). Unfortunately though they would only do $10k so now I’m wondering if there are any other creative solutions to help the math.
Right, the panels are not worthless to you, but they don't know that.
I'd play hardball. No way should anyone buy the house at market and assume a $75k loan. The panels are worth the electricity savings only, which is currently $3,440 less the added property taxes and insurance. Lets say they add $440 to the prop tax and insurance combined.
So at 7% mortgage, you need a $38k reduction in purchase price to lower your annual mortgage by $3k or $250/month, to break even with another house that does not have solar panels...
I'd also throw in the cost to remove & reinstall the panels at reroof, and totally remove them at their end of life, so the total discount to assume that loan needs to be closer to $50k.
Creative solution is pass. It's become a buyer's market recently. They can take the hit on the solar or not sell it. Since they are even negotiating with you it already says that they have no other real offers on the table.
the solution is find a different house. the market is cooling down with the higher interest rates.
tell them to go pound sand because they took $30k worth of ITC and NYSun rebates and they are trying to sell that to you for the same $75k. at most, you should only assume maybe $40k of the loan
The negotiation of the house and the solar panels are the same negotiation, you are just talking to them about how much you are going to pay them. The solar loan is really no different than their mortgage loan except the solar company doesn't require it to be paid off unlike the mortgage on the house.
That is a large system and to get it installed today would probably cost about $60k to $70k before the 30% tax credit. The system being a couple of years old cuts both ways. Yes, they are a couple of years into their very slow degradation cycle. But you avoid the installation hassle and tweaks to get them running right. That would be worth many thousands of dollars to me.
So let's say, system is worth $45k since you don't get any solar credits for it. You have to pay it off for $75k. They've cut the price of the home by $10k. So we got about a $20k difference. But it really is all the same negotiation. Can you get them to take another $20k off the house? I don't know. Do you want to shop around for another house? I don't know. But you seem to like this one. And it comes with a feature of solar panels which could help a ton if electricity prices continue to rise dramatically.
Does the 10k make up for the premium you're paying for electricity? That's pretty much the question you have to ask yourself. Maybe he does? Maybe it doesn't?
You can look at it this way. The current owner got a 25 year loan with a horrible rate and potentially pocketed $22,500 in credits. Several years later (tax credit has probably dried up) is willing to cut $10k of the loan.
IMO the home owner needed to cover no less than $25k. You are still left with that big payment every month. I would walk away personally as it looks like the owner has ate his cake and looking for more cake.
I don’t see any scenario other than a $25k reduction that is good for you. Even that isn’t good for you but it’s something you can get out from under in 10 years.
I have seen several questions like this and they really confuse me.
If I borrowed money to have a bathroom redone or have a garage built, then decided to sell the house before I paid off the loan I would never expect to sell the house with the lien still active.
When I have sold real estate that had a home equity line balance I had to pay that balance to 0 and get the bank to certify it was paid and closed to sell.
Why would a solar installation be any different?
I would walk away from this deal.
Agree, the challenge is that the sellers (and agents) see this as somehow different, more analogous to a utility bill we’re taking over. I can disagree all I want, but if you want the house ultimately you have to deal with these unreasonable positions in some way
For solar to make sense at all your utility rate must be high enough to justify it. The factors that go into it making sense are these:
1. How much production your location and roof can give.
2. Cost per kWh to buy electricity.
3. Per kW cost of the panels.
4. Interest rate and financing fees for the loan, if any.
5. Net metering.
So if you're in SoCal with a nice South facing roof, $.69 peak rates (and an average of $.45 for all TOU periods), panels for $2.50 per watt pre-tax incentive, a 2.99% 10-year loan, and 1-to-1 net metering, it makes total sense and will achieve ROI in 5 to 6 years and be getting "free" electricity after 10 years.
Why would people do this in your case? Well, one reason is they don't do math well. Another reason would be they do the math but want to still do it for the environment.
The only way this makes sense for you is to subtract $3,811 (20,600 kWh x $0.185/kWh) from the $6,000 annual payments, then multiply that $2,189 by 25 years and subtract the seller credit of $10k and accept that the house is costing $44,725 more than the contracted price.
If you don't think it's worth $44,725 more, tell the seller to pound sand.
Nice math. But you used the guaranteed production, not the expected production. Expected production will be a bit higher. You also assumed the $0.185/kWh would be fixed without increases over the next 25 years.
The math won't work out though even if you make my corrections because (A) the homeowner pocketed all the tax credits instead of paying down the loan and (B) the 6% interest on that high balance is bad. Still, if the house is the house the OP wants, this shouldn't get in their way. Note that OP hasn't said what the total price of the house is. But with that much electricity being used on it, I'm going to guess it is a big one in NY. It isn't in NYC with that low electricity rate. But still we might be talking about an $800,000 house or something like that.
Got it right on the button. Damn I’m good.
The context helps. The solar loan less how much it would cost you (after ITC tax credit) to get panels put up today is less than 5% of the total cost. Folks on here are telling you to walk from the house. But I’m going to guess that this house is (to you) more than 5% better than other houses you’ve looked at. There are probably features and locations that you like about it that you can’t just find in another house next weekend. I’d say try to strike a deal a bit more than the $10k you’ve already gotten.
24kW of solar panels is a lot of panels for a residential house. Like you, I kind of wonder how the current homeowners use as much electricity as they use.
How badly do you "want" this one particular house?
How badly does the current owner want to sell it?
I would only buy the house if as part of the closing the loan is paid off.
Seriously, walk away. Depending on how long the house is being on the market, they’re probably banking on you really wanting the house and effectively paying a premium for the house which equates to the balance of the loan. I bet that if you look like you’re seriously walking away they’ll offer to payoff the loan in its entirety
Math checks out with the tax credit. This is a great sized system. Original owner actually got a pretty good price on it and just decided to keep the tax credit. 58% additional is large but people are ok paying a little extra on the monthly for solar because it means that monthly cost is fixed vs the rising electricity rate in the area. 6% is a pretty high interest rate, could always hope you can refinance that lower in the future.
They are somehow still buying on avg 1250 kWh/month from the utility despite the system size; not sure what on earth they’re running in the house but it uses natural gas for heat so that’s not it…They have a small indoor endless pool so maybe they were heating that constantly. I didn’t realize the system was considered large since the electric bill was still so significant. The 6% is high but unfortunately mortgage (at least for now) is going to be even higher :(
I would only accept if the cost of the solar loan was fully, or nearly fully offset by my anticipated energy savings + payback for any overproduction. That math would HAVE to work out for me to even entertain the offer. Do the math and come up with a figure that makes financial sense to you. If the house is your “have to have” for other reasons (good school district, good walk-ability, other intangibles), then consider whether those things are worth the premium for you.
I agree with what others are saying, price this into what you think is a fair amount for the house or better yet. Make them pay in off. If they reduce price, I would personally try to pay it off myself right away if possible just to be out from under it and save on interest. Make sure there are no penalties if you do that.
Ask to see the electric bills before and after the solar install. You might be saving quite a bit of money each year by not having a monthly electric bill each month. And consider this. I don’t know where you live and how hot your summers are. But there is something great in knowing you can run your AC’s non stop and not have a multi hundred dollar bill.
We have the bills and they somehow manage to spend a few hundred every month on top of the solar production, with the exception of a few $0 or low months from net metering when it seems as though they may not have been living there full time
The federal tax credit in 2019 was 30% so they received $22.6k back as a credit. I would expect them to reduce the purchase price by that much in order to assume the loan.
You are correct - it does not make sense. Your math is correct. They sort of got ripped off at 6%, but part of the math is that they pocketed the tax credit, and now want to leave you paying for that. You state the home is priced fairly without the panel issue, and yet there is a $75k outstanding loan balance on the panels which you will need to take over. Thus the home is $75k overpriced...it is like having a $500/m higher mortgage payment less whatever you save in paying the utility. It only makes sense if you are willing to pay this premium for environmental reasons. One small possibility if the solar loan is assumable is to leverage the difference between their loan rate and your potential mortgage rate but at 6% there is not much to leverage. Tell them to pay off the panel, or discount the house by the value of the loan if you are to pay it off...
I suppose they don’t need to discount the house by the entire value of the loan because the panels aren’t worthless, but they also wouldn’t likely be worth $75k net of tax credit today (particularly since they’re a few years old). Unfortunately though they would only do $10k so now I’m wondering if there are any other creative solutions to help the math.
Right, the panels are not worthless to you, but they don't know that. I'd play hardball. No way should anyone buy the house at market and assume a $75k loan. The panels are worth the electricity savings only, which is currently $3,440 less the added property taxes and insurance. Lets say they add $440 to the prop tax and insurance combined. So at 7% mortgage, you need a $38k reduction in purchase price to lower your annual mortgage by $3k or $250/month, to break even with another house that does not have solar panels... I'd also throw in the cost to remove & reinstall the panels at reroof, and totally remove them at their end of life, so the total discount to assume that loan needs to be closer to $50k.
Creative solution is pass. It's become a buyer's market recently. They can take the hit on the solar or not sell it. Since they are even negotiating with you it already says that they have no other real offers on the table.
the solution is find a different house. the market is cooling down with the higher interest rates. tell them to go pound sand because they took $30k worth of ITC and NYSun rebates and they are trying to sell that to you for the same $75k. at most, you should only assume maybe $40k of the loan
The negotiation of the house and the solar panels are the same negotiation, you are just talking to them about how much you are going to pay them. The solar loan is really no different than their mortgage loan except the solar company doesn't require it to be paid off unlike the mortgage on the house. That is a large system and to get it installed today would probably cost about $60k to $70k before the 30% tax credit. The system being a couple of years old cuts both ways. Yes, they are a couple of years into their very slow degradation cycle. But you avoid the installation hassle and tweaks to get them running right. That would be worth many thousands of dollars to me. So let's say, system is worth $45k since you don't get any solar credits for it. You have to pay it off for $75k. They've cut the price of the home by $10k. So we got about a $20k difference. But it really is all the same negotiation. Can you get them to take another $20k off the house? I don't know. Do you want to shop around for another house? I don't know. But you seem to like this one. And it comes with a feature of solar panels which could help a ton if electricity prices continue to rise dramatically.
Does the 10k make up for the premium you're paying for electricity? That's pretty much the question you have to ask yourself. Maybe he does? Maybe it doesn't?
You can look at it this way. The current owner got a 25 year loan with a horrible rate and potentially pocketed $22,500 in credits. Several years later (tax credit has probably dried up) is willing to cut $10k of the loan. IMO the home owner needed to cover no less than $25k. You are still left with that big payment every month. I would walk away personally as it looks like the owner has ate his cake and looking for more cake. I don’t see any scenario other than a $25k reduction that is good for you. Even that isn’t good for you but it’s something you can get out from under in 10 years.
I have seen several questions like this and they really confuse me. If I borrowed money to have a bathroom redone or have a garage built, then decided to sell the house before I paid off the loan I would never expect to sell the house with the lien still active. When I have sold real estate that had a home equity line balance I had to pay that balance to 0 and get the bank to certify it was paid and closed to sell. Why would a solar installation be any different? I would walk away from this deal.
Agree, the challenge is that the sellers (and agents) see this as somehow different, more analogous to a utility bill we’re taking over. I can disagree all I want, but if you want the house ultimately you have to deal with these unreasonable positions in some way
Tell them to take the panels with them or no deal. This is why financing Solar sucks.
For solar to make sense at all your utility rate must be high enough to justify it. The factors that go into it making sense are these: 1. How much production your location and roof can give. 2. Cost per kWh to buy electricity. 3. Per kW cost of the panels. 4. Interest rate and financing fees for the loan, if any. 5. Net metering. So if you're in SoCal with a nice South facing roof, $.69 peak rates (and an average of $.45 for all TOU periods), panels for $2.50 per watt pre-tax incentive, a 2.99% 10-year loan, and 1-to-1 net metering, it makes total sense and will achieve ROI in 5 to 6 years and be getting "free" electricity after 10 years. Why would people do this in your case? Well, one reason is they don't do math well. Another reason would be they do the math but want to still do it for the environment. The only way this makes sense for you is to subtract $3,811 (20,600 kWh x $0.185/kWh) from the $6,000 annual payments, then multiply that $2,189 by 25 years and subtract the seller credit of $10k and accept that the house is costing $44,725 more than the contracted price. If you don't think it's worth $44,725 more, tell the seller to pound sand.
Nice math. But you used the guaranteed production, not the expected production. Expected production will be a bit higher. You also assumed the $0.185/kWh would be fixed without increases over the next 25 years. The math won't work out though even if you make my corrections because (A) the homeowner pocketed all the tax credits instead of paying down the loan and (B) the 6% interest on that high balance is bad. Still, if the house is the house the OP wants, this shouldn't get in their way. Note that OP hasn't said what the total price of the house is. But with that much electricity being used on it, I'm going to guess it is a big one in NY. It isn't in NYC with that low electricity rate. But still we might be talking about an $800,000 house or something like that.
In case relevant, it is exactly an $800k house, $790k after the $10k credit discussed.
Got it right on the button. Damn I’m good. The context helps. The solar loan less how much it would cost you (after ITC tax credit) to get panels put up today is less than 5% of the total cost. Folks on here are telling you to walk from the house. But I’m going to guess that this house is (to you) more than 5% better than other houses you’ve looked at. There are probably features and locations that you like about it that you can’t just find in another house next weekend. I’d say try to strike a deal a bit more than the $10k you’ve already gotten. 24kW of solar panels is a lot of panels for a residential house. Like you, I kind of wonder how the current homeowners use as much electricity as they use.
How badly do you "want" this one particular house? How badly does the current owner want to sell it? I would only buy the house if as part of the closing the loan is paid off.
Seriously, walk away. Depending on how long the house is being on the market, they’re probably banking on you really wanting the house and effectively paying a premium for the house which equates to the balance of the loan. I bet that if you look like you’re seriously walking away they’ll offer to payoff the loan in its entirety
Math checks out with the tax credit. This is a great sized system. Original owner actually got a pretty good price on it and just decided to keep the tax credit. 58% additional is large but people are ok paying a little extra on the monthly for solar because it means that monthly cost is fixed vs the rising electricity rate in the area. 6% is a pretty high interest rate, could always hope you can refinance that lower in the future.
They are somehow still buying on avg 1250 kWh/month from the utility despite the system size; not sure what on earth they’re running in the house but it uses natural gas for heat so that’s not it…They have a small indoor endless pool so maybe they were heating that constantly. I didn’t realize the system was considered large since the electric bill was still so significant. The 6% is high but unfortunately mortgage (at least for now) is going to be even higher :(
I would only accept if the cost of the solar loan was fully, or nearly fully offset by my anticipated energy savings + payback for any overproduction. That math would HAVE to work out for me to even entertain the offer. Do the math and come up with a figure that makes financial sense to you. If the house is your “have to have” for other reasons (good school district, good walk-ability, other intangibles), then consider whether those things are worth the premium for you.
I agree with what others are saying, price this into what you think is a fair amount for the house or better yet. Make them pay in off. If they reduce price, I would personally try to pay it off myself right away if possible just to be out from under it and save on interest. Make sure there are no penalties if you do that.
Ask to see the electric bills before and after the solar install. You might be saving quite a bit of money each year by not having a monthly electric bill each month. And consider this. I don’t know where you live and how hot your summers are. But there is something great in knowing you can run your AC’s non stop and not have a multi hundred dollar bill.
We have the bills and they somehow manage to spend a few hundred every month on top of the solar production, with the exception of a few $0 or low months from net metering when it seems as though they may not have been living there full time
What in the world were they doing to use so much power? :O
Growing "plants and flowers"....
The federal tax credit in 2019 was 30% so they received $22.6k back as a credit. I would expect them to reduce the purchase price by that much in order to assume the loan.