Solar Leases May Scare Off Potential Homebuyers

Imagine saving money on your electric bill and locking in today's price for your future bills with no money down. Solar leases have helped fuel the residential solar market boom, with installations increasing by 60 percent from 2012 to 2013.  Now that some homeowners with solar leases are putting their homes on the market, the deal doesn't seem as sweet. Solar leases may scare off potential homebuyers, particularly if they don't understand them.

Some homebuyers are shying away from buying homes with solar leases, seeing them as liabilities instead of assets. The lease does require the homeowner to purchase solar electricity from the lessor, typically at a slightly lower rate than what's provided by the utility. Homeowners typically save money from day one -- while locking in the power purchase rate for years to come. SolarCity locks the electric rates for 20 years, thus serving as a hedge against rising energy costs.

Considering that home equity lines of credit have become more difficult to obtain and many homeowners can't pay the upfront cost of a solar system, a solar lease is an appealing option to utilize solar energy, reduce electric bills and mitigate the impact of rising electricity costs.

“They’re essentially moving into a home with a lower cost of ownership, a lower cost of energy, so a solar lease shouldn't make it harder to sell a house," said Jonathan Bass, a spokesman for SolarCity. “It becomes a selling point instead of a point of misunderstanding.”

Why are homebuyers shying away from leasing homes with solar systems?

Lack of understanding may deter buyers

In many cases where homes with leased solar systems are harder to sell, it is likely fear and lack of information that deters buyers. Certainly, saving old electric bills and contracts to prove how much energy the seller saves is prudent, as is hiring a realtor that understands solar leases.

Credit standards limit transfer of solar leases

The solar leasee usually requires the homebuyer (who will assume responsibility for the lease) to meet certain credit standards. In most cases, if someone qualifies for a mortgage, they will also meet the solar lease standards. In some cases, this can limit the pool of potential buyers, or require the seller to pay off the lease before selling the home. In such instances, the solar lease is truly a liability.

Foregoing tax credit and solar rebates

For home shoppers that wish to own a solar system outright, a solar lease is not usually a good deal. Although solar leases may shave a chunk off of monthly electric bills and be a good deal for homeowners that cannot afford the upfront cost of a solar system or cannot obtain financing for a reasonable rate -- leasing a system instead of buying a system does have its drawbacks.

A leasee does not receive the 30 percent federal tax credit or any local incentives that may exist. A $20,000 solar system for example (that is not leased) qualifies for a $6,000 federal tax credit. This reduces the value of taxes owed by $6,000 and is of greater value than a write-off. In addition, some states also offer rebates and other incentives for the purchase -- but not the lease of a solar system.

During a seller's market, the downsides of having a leased solar system may not be as pronounced. In a slow market, misunderstanding, credit standards, and foregoing incentives may scare off potential buyers. Unfortunately, sometimes going solar can have its drawbacks.

Image credit: Solar Service Inc. of Niles, IL

Sarah Lozanova is a regular contributor to environmental and energy publications and websites, including Mother Earth Living, Green Building & Design, Triple Pundit, Urban Farm, and Solar Today. Her experience includes work with small-scale solar energy installations and utility-scale wind farms. She earned an MBA in sustainable management from the Presidio Graduate School and she resides in Belfast Cohousing & Ecovillage in Midcoast Maine with her husband and two children.