An independent guide to selling your house with solar PV
This guide has been written for all those that have implemented solar PV and would like to understand their position in relation to moving house. It also provides essential information for those who are considering installing a Solar PV system but would like clarification around the whole issue of moving house before they commit to the investment. The guide focuses on domestic scale solar PV installations for owner-occupiers although we do cover selling houses with PV 'rent-a-roof' schemes briefly under Question 16 below.
1a. If I’m moving house can’t I just remove my panels and other kit and take them with me?
No, this is not possible if you still want to claim the Feed-in Tariff (FiT) at your new property. Here’s the official line from OfGem (source: http://www.mypoweruk.com/FIT-Generator-Guidance_V2_final18.10.11.pdf):
2.21. In May 2011 the FIT Amendment Order clarified the situation in relation to the re-use of generating equipment. Where Ofgem has reason to believe that any generating equipment has formed part of an installation previously accredited under the FIT or RO schemes, the installation will not receive FIT accreditation.
2.22. Where a FIT installation is moved from its site, for example where its owner moves property and takes the generating equipment to their new property, they will not be entitled to receive a new FIT accreditation, nor will they be able to continue to receive FIT payments under their previous accreditation.
1b. If I sell my house, are the buyers entitled to claim the same FiT and export payments I receive?
Yes, that's the whole basis of the FiT legislation. Buyers inherit the benefits of your investment fully. They would receive all the income without having any of the up-front cost. The assumption is that sellers assign their payments to the new property owners. The FiT stays with the property, not the people.
2. How will my solar PV installation be treated when it comes to selling my property?
We believe that solar panels will generally be classified as “fixtures”. Normally these would all be included in the sale. One residential conveyancing expert we spoke to said “it would be very unusual for the seller to exclude items like this.”
Nevertheless it is legally possible, and perfectly within their rights, for the seller to expressly reserve the right to exclude them usually via a Fixtures, Fittings and Contents form. [Nb. This form is not used in Scotland so, instead, this exclusion would need to be explicitly stated in the Missives]. Our (Scottish) conveyancing expert says “..it would have to be made very clear at the point the property is being surveyed for the preparation of a Home report, stated in the Schedule of Particulars and relative provisions incorporated into the missives. In addition the panels would have to be able to be removed without any damage to the property.”
We would suggest it would not be advisable to consider removing any of your PV kit unless they had been explicitly excluded as, by law, it is likely to be considered part of the property. If you do exclude your solar PV kit from the sale price it’s possible to negotiate a separate contract for transfer of ownership.
3. Are there pros and cons of excluding my solar PV system from the property sale price?
There are potential advantages to doing this:
- The value of your PV system is not ‘lumped in’ with your sale value so, in theory, you should be able to negotiate a better price for these two elements separately.
- It is quite likely, at this time, that your property valuation expert will effectively ignore your solar PV system when creating a value for your property.
- In discussion with your property experts, you should have the flexibility to come up with your own ‘fair value’ for your PV system although it would be more robust and trustworthy if this was based on national guidance allowing buyers to validate it (we suggest a method below).
- You should have a stronger bargaining position to get a ‘fair value’ for it, especially if you have a lot of interest in your property.
- If you can’t get a fair value you can consider options for removing it (see later).
- To reduce the Stamp Duty Land Tax payable by your buyer if your property value is near one of the thresholds for SDLT.
However there are also some potential risks in excluding your solar PV kit:
- It is more complicated to do this so adds complexity to your sale so could make potential buyers think twice. Potential buyers are likely to weigh up a large number of factors with your property - you could be better off just giving them a simple price for the ‘complete package’ rather than pricing optional ‘add-ons’.
- If you exclude it you risk your buyer saying they are not interested in buying it. If that’s the case and you’re keen to progress with the sale rather than walk away (perhaps because they’ve offered you a good price for your house) then you have two options: (1) ‘throw in’ your PV system for free; or (2) uninstall it (assuming that it offers some value even without FiT payments if you install it on your new property). Un-installing and re-installing obviously should be costs you consider.
- It's possible you could get a higher price by including your solar PV into the overall sale value - separating it out could give potential buyers the perfect excuse to ignore your solar PV system and offer you little extra for it.
- Our conveyancing expert points out potential issues with a buyers’ mortgage which ultimately can affect the seller through the price that is offered: “The amount that can be borrowed against a property is a percentage of the valuation of a property stated in the Mortgage Valuation Report. Therefore if a property were to be valued lower because the panels are excluded, then the amount a purchaser could borrow would be less and then they would have to finance the price of the solar panels from their own resources.” However, GEN understands that some mortgage lenders do recognise the value of solar PV systems and will offer their customers the ability to extend their mortgages to cover the cost of a solar PV system – so it’s hoped they would have the same attitude when their customers want to buy properties with solar PV.
- HMRC are likely to view panels fixed to a building as ‘land’ for the purpose of the Stamp Duty Land Tax (SDLT). You're unlikely to be able to reduce the SDLT liability for the buyer by having the panels made part of a separate bargain.
If you are considering this we would suggest getting guidance from you property advisers. On balance, given the current situation where there is a lack of ‘official guidance’ and potential for uncertainty with property valuation experts, we suggest you consider excluding them to see whether a better price could be negotiated between buyer and seller. There could be a stronger case for exclusion if you were selling a relatively desirable property (so you were in a strong bargaining position with multiple interested parties) and/or if you intend to move to a property that offers potential for solar PV (southerly facing, unshaded roof space).
4. How much extra will the solar PV system add to my property price?
There’s little doubt that a solar PV system, especially one based on the original tariff of 43p/unit, should be highly attractive to potential buyers provided they are aware of its benefits. The primary value is likely to be the quarterly cheques they receive from the licenced FiT supplier. Of secondary value will be the savings they can make by utilising their 'home-made energy' rather than having to buy it. However, to date there is no hard evidence to suggest that solar PV will generate any increase to the value of your property.
The property valuation experts we've spoken to have been relatively clear that currently sellers are unlikely to see any increase in their property price for having installed solar panels. Similar opinions have been expressed by property valuation experts on forums covering this subject. There is a positive impact although this is likely to be on its attractiveness and therefore its sellability (see Oxford study). Your Home Energy Report, or Energy Performance Certificate (EPC), should also show an improvement to your property as a result of your Solar PV - a further positive impact on sellability.
The process for most people selling their home is to instruct a property specialist to undertake a survey. The valuation offers guidance to the lender on the open market value at the date of inspection and as to the nature of the property, together with any factors likely to materially affect its value. We understand that RICS (Royal Institute of Chartered Surveyors) professional guidance on compiling a survey report (see their Red Book) for a residential property should reference only those matters which might materially affect the value.
The reasons for property valuers treating solar PV in this way, we would suggest, are:
- It's early days for solar PV (only about 1-2% of households in the UK have installed them to date). Estate Agents and Property Solicitors are likely to be aware of solar PV systems but, as of February 2012, there appears to be no RICS ‘standard guidance’ on how to incorporate them into a valuation. HMRC may also develop some guidance on valuation given this must be considered to be fair to avoid any likelihood of fraud.
- Valuers are currently likely to see them as a 'fixture' like a new boiler and treat them in the same way.
- Solar PV (like any form of micro-generation technology with FiT accreditation) challenges property valuation experts in terms of it being a means of generating income and savings - unlike, for example, a boiler. There are no obvious precedents for 'home improvements' like this that can be easily transferred to solar PV.
In the absence (currently) of more official guidance, you may find some property valuation experts are more likely to see a solar PV system adding value to a property than others. As one valuer told us “You should shop around for valuers – they are not all going to have the same opinion on this.” So we suggest you should ‘sound out’ your property valuer on the issue of your Solar PV installation and their attitude to its value before they come round and incur any fees!
The situation may well change over the next few years as guidance is published and more data on sales of houses with PV becomes available.
Of course if you exclude your solar PV system from your sale then you should have more flexibility to come up with your own ‘fair value’ rather than being more dependent on an external property valuer.
5. So is there any guarantee that I will be able to recover the up-front costs of my solar PV installation?
There is unfortunately no guarantee that you won't make a loss if you sell your house before the end of the payback period, particularly if your property does not generate high levels of interest from buyers (so your bargaining position is relatively weak). Of course the longer you stay in your property the better your financial situation
6. Could you suggest a ‘standard method’ for valuation?
RICS professional valuation experts are likely to provide this guidance in time. However, if we were asked, this would be one approach which is simple and straightforward.
On average Government figures suggest that the length of tenure for owner occupiers is around 12 years. So, to err on the conservative side, let’s estimate that the average likely ‘benefit period’ for buyers of residential properties with solar PV will be 10 years. The buyers are likely to incur some costs for maintaining the system. There is also likely to be some degradation in performance of the panels over this sort of timescale. Of course there are major potential upsides for buying property with solar PV, especially if the system was registered based on the original tariffs (43p/unit).
One option would be to base the market value on a declining percentage of the FiT revenue over the 10 year period. However a simpler approach would be to base its value on a reduced, fixed term like 6 years which generates a reasonable annual return on investment for those moving relatively quickly and strong returns for those that move house after 5 years.
Bear in mind any method for valuation needs to be relatively simple and convincing for the buyer. Ideally they could validate your method through an independent process to ensure it was fair and reasonable.
In this example, the homeowner installed solar PV at an up-front cost of £12,000 with the original tariffs (43p/unit). After 3 years they decide to move house and want to sell it to their buyer – how do they value their PV system?
- Cost of 3 kWp Solar PV system: £12,000
- Total benefits to seller over first 3 years (including FiT+Export+Savings): £4,000
- Predicted annual benefit (including FiT+Export+Savings) to buyer for next 6 years (year 4 to year 9): £10,000
- Total market value of PV system: £10,000
- Total financial benefit to seller: £4,000 + £10,000 = £14,000
In this case the seller sells their PV system to the buyer for a market value of £10,000. [It is not clear how HMRC would see this ‘gain’ and it could be subject to tax on the seller.] Assuming it isn’t taxed then in total the seller has generated a financial benefit over the first 3 years of £4,000 + £10,000 = £14,000 on an outlay of £12,000. So they would have a profit of £2,000 which is an annual return on investment of around 6%.
If you run this same scenario with the seller moving house after 5 years rather than 3 years, they would have total benefits over those 5 years of £7,000. They should be able to sell their PV system for a market value of £10,000. So they would generate a gross benefit of £7,000 + £10,000 = £17,000. On a £12,000 up-front cost, this is a profit of £5,000, an annual return on investment of 8%.
This method of valuation favours those who do not move house quickly having installed their PV system. We believe that is reasonable given this was a relatively clear risk in advance of the decision to purchase it.
For most people selling, this simple method for valuation should yield a return that covers their up-front investment plus a significant additional margin to take into account the future value of the system to the buyer.
Of course if the FiT rates are cut by 50% as predicted right now (February 2012), then the value to the buyer based on predicted annual income for 6 years drops substantially. It could be justifiable to extend the fixed term from 6 years to nearer 10 years.
For those currently considering solar PV, as we have said in other articles, the risk of moving house and not getting your investment back is real. Ideally you really need to know you will be staying in your property for 15-20 years minimum to get significant benefit.
You should always ask your property valuation expert their views on valuing your PV system.
7. Is property price likely to have an impact?
A 3kWp system on a lower cost house is, proportionally, likely to add much greater value to the property than a similar system on a much more expensive property. However you could also argue that the propensity to spend, say, an extra £10,000 on top of the price of a property may well be significantly more difficult for buyers looking at lower priced properties. So it may be even tougher for those with lower priced properties and high value PV systems to get a fair price.
8. If I buy a new property but keep my existing one (with Solar PV) to rent out would that work?
Yes, if you are in a financial position to do this then that should be ok. However the government and HMRC are clamping down on people who claim the FiT but are not full-time residents of the property. HMRC will see your FiT returns as taxable income (see HMRC guidance at http://www.hmrc.gov.uk/manuals/bimmanual/BIM40520.htm). So it won’t be as lucrative as it is currently when your income is tax-free.
9. What’s the best way to help potential buyers see the value of my PV system?
Many of your potential buyers will still be unaware of the benefits of solar PV. We suggest that you draw up a short 'Factsheet' that you can give to your estate agent or solicitor and also anyone viewing the property. This gives them basic information about Solar PV and the Feed-in Tariff and also specific information about the benefits it offers (in both income and savings on energy bills). This factsheet can be included as part of the sellers Home Information Pack.
We have produced a typical example of a House Sellers Factsheet for Solar PV.
The Factsheet should clearly indicate the financial benefits of inheriting a solar PV system that someone else has already paid for. All the FiT payments are virtually pure profit for a new owner so it should be extremely appealing.
10. Do I need to provide any other information to a buyer?
Yes, any purchaser would certainly need to provide:
- Factsheet (as mentioned above) that sets out the true benefits of your PV project in terms of on-going savings on your bills;
- A copy of the contract with your third party; and
- Specifications and instructions for your PV kit.
- Any other documents of relevance relating to your PV project (FiT contracts, OfGem documents etc).
11. If I include the value of my solar PV in the sale price of my property what are my options if potential buyers under-value my property?
You are more limited in your options if you have included your solar PV in your property sale price.
Potential buyers may be offering you less than your asking price for many other reasons of course rather than anything to do with your PV system. You could ask them whether their offer includes an amount to take into account the potential benefit to them from the solar PV installation. They may not want to answer this! If they do and it’s not very much then you need to try and persuade them of its benefits and why it’s worth a lot more to them. Otherwise you have two obvious options:
- You can try to find a buyer that is prepared to pay the minimum amount you are looking for, particularly if there is a lot of interest in the property giving you much stronger bargaining power.
- If you have a relatively weak bargaining position, for example because you need to move quickly, then you may have to accept a lower offer that means you do not recover your investment in solar PV.
12. If I exclude my solar PV installation from the sale price but none of my prospective buyers will offer me a ‘fair price’ what can I do?
You would have two options:
- You could consider uninstalling your PV system
- You could try to negotiate to keep your FiT payments
Why would you consider uninstalling your PV system? If you knew you were moving to a property with PV potential, you could offer to uninstall your PV system and repair any issues found with the roof. You would then have the option to re-install it in your new property. BUT the key issue here is that you would not be able to claim the FiT when you re-install it on your new property so it would not be as lucrative. You could get payments for the electricity you export to the grid and savings from using your ‘home-made energy’. You would need a certified export meter fitted in your new property (which has an installation fee and annual charge) to monitor your exports. We estimate that over a 20 year period, you could generate about £5,000 in exports and savings from a 3 kWp system by doing this on your new property.
In this situation you would need to do some calculations on whether the benefits out-weighed the costs to re-install the system. If you were relatively confident that you would stay in your new property for many years this would certainly be worth considering.
We also believe that new electrical devices (including means of storing electricity in your home) will emerge in these timescales that could allow you to utilise far more of the energy you generate during daylight hours to power your energy demand in hours of darkness. This will utilise much more of your ‘home-made’ electricity and allow you to make much greater savings. Our £5,000 figure above assumes you would use 25% of your own energy every year for 20 years so the returns could be a major under-estimate if new technologies did emerge like this.
One note of caution - our property valuation expert says “We put a value on what we see on the day. If we were told by the seller that the panels would not be part of the sale and would be removed this would be a concern. The house as sold would not be what they had seen - there would be changes to the roof (albeit very minor) that would have to be made. This may then require a follow-up visit once the panels had been removed”.
How about negotiating with a potential buyer to keep the FiT payments even though you are moving to a different property? Technically it is possible to assign FiT payments to a third party. The FiT regulations allow the generator (ie. you, the seller) to advise OfGem that they have nominated a third party recipient of the FiT payments:
4.11. The FIT generator is able to assign FIT payments to a nominated recipient in respect of an accredited FIT installation owned by that FIT generator.
4.12. The nominated recipient is permitted to provide generation and/or export meter readings in respect of an accredited FIT installation they have been nominated to receive FIT payments for.
There are a number of website discussions and comments about doing this but we’ve never seen the detail of any contracts. While we’re aware it is technically feasible, there are risks and we have practical concerns over trying to keep the FiT payments through assignment.
13. What are the risks to retaining the FiT payments through assignment?
There are risks to both the seller (it could put buyers off your property) and the prospective buyer (who may feel it is too big a constraint and not one they would consider).
The potential buyer does have an obvious ‘benefit’ in inheriting a solar PV system even without the FiT payments – they get the free electricity generated by the system. While that sounds good, the reality for most is that this is not that significant (somewhere between 10-20% cut in their ‘grid-sourced’ electricity is achieved by many households). In the eyes of the buyer, this reduction in energy bill could be out-weighed by the fact that you, the seller, would maintain a financial interest in the property you no longer own.
There would need to be a legal ‘assignation’ contract drawn up between both parties (which would require legal fees payable by the seller) that made it clear that the FiT is assigned to the new owner but the electricity generated by the system can be used by the new owner. The detail in this agreement is critical.
What happens if there are problems with the panels that mean they are not operating at 100% or fail completely? Who’s responsible for making sure problems are fixed quickly? What happens if the new owner wants to convert the roof space and needs to remove the panels completely – do they have the right to do this? What happens if the new owner then wants to sell the property to someone else?
We would see these factors being potentially detrimental to the sellability of your property.
As the seller you could try to put together a contract that:
- Defined the duration of the contract as the remaining number of years before FiT payments ceased;
- Assigned all the income from the FiT and exports back to the grid to you (wherever you were living);
- Allowed you the right to change the FiT recipient details (eg. address) if you move house again;
- Made it a responsibility of the new owner to maintain the system in good working order and fix any issues in a timely manner for the duration of the contract;
- Made it a responsibility on the new owner to not do anything that would adversely impact on the performance of the system eg. let trees grow up and shade the roof, convert the attic etc.;
- Made it a responsibility on the new owner to maintain the terms of this contract should it be sold to a new owner for the remaining term of the FiT period.
However it would not be surprising if a buyer was unenthusiastic about such a contract!
14. Are there any examples of assignation contracts like this?
All the ‘Rent-a-roof’ companies use assignation contracts to assign the FiT payments across to them. We have not seen the specific terms they include although some will allow the property owner to terminate the contract early and have the panels removed – however we believe this can generate an ‘early termination fee’.
It’s possible such a contract could be drawn up to assign FiT payments to the seller for, say, a more reasonable 6 year period while the system was operational and generating electricity after which the FiT payments would revert back to the buyer.
For any contract to be acceptable to most buyers, it is likely to be weighted in their favour. Otherwise it could put too much onus on the buyer and affect their willingness to purchase the property.
Bear in mind if you are considering this option that you, the seller, would not be living in the house with the solar PV system and using the electricity so HMRC would tax you on this income.
Overall we are sceptical that a suitable contract could be developed that would not overly restrict potential buyers and, in many cases, could put them off buying the property.
15. If all else fails, can’t I just remove my PV kit and sell it to someone else – or stick it on eBay?
The value of second-hand panels is low as there is not much demand unfortunately. MCS accredited installers know they can’t buy second hand panels, install them at a new property and allow the owners to claim the FiT. You could try to find someone who can give you a decent offer – perhaps they don’t care about claiming the FiT, or they have an ‘off-grid’ system that needs power.
Just a small point but if you're property is in a conservation area, you may not formally have the right to take the panels off your house without planning permission, and if it's a listed building, then you may formally need listed building consent. Whether councils would take enforcement action or not on this is questionable.
16. What if I am selling a property that has a ‘rent-a-roof’ PV system installed?
We would suggest you review the detailed terms of your contract so you are clear on your obligations for passing on the contract to a buyer. Assuming you are tied into the contract and don’t have much option (without ‘exit fees’ etc) to get out of it at this point, then we would suggest you prepare a ‘Buyers Pack’. This would include:
- Factsheet (as mentioned above) that sets out the true benefits of your PV project in terms of on-going savings on your bills;
- A copy of the contract with your third party; and
- Any other documents of relevance relating to your PV project.
This should give any potential buyer all the information they need before making any commitments to purchasing the property.
17. Does the situation differ in Scotland where the house selling process is different?
We don’t believe there are likely to be major differences between Scotland and the rest of Britain - property valuation experts are likely to adopt similar practices. If you are including your Solar PV system in the sale then the ‘closed bidding’ process that can be used in Scotland could limit the ability for a seller to enter into negotiations with a potential buyer to increase their offer price to better reflect their solar PV investment. That said, if potential buyers are aware of the income potential from solar PV this could encourage them to submit higher bids. That's why it's important to make sure they are fully aware of all the benefits.
In Scotland (unlike the rest of the UK) the majority of residential property sales require a Home Report. The Solar PV 'buyers pack' prepared by the seller could be included as an additional item in this.
18. Are the Government considering the idea of financially supporting second-hand solar PV kit?
At the time of writing this guide (February 2012) the Government published its long-awaited FiT Review – details of this are in our Blog Post.
One of the ideas they are consulting on is the ability to support second-hand Solar PV kit through some form of reduced FiT payment. It is not clear how seriously this is being considered and there are significant issues in making this change. However, if this is something that is introduced later in 2012 it could have a major impact on this whole area.
It would provide the impetus to creating a market for second-hand PV kit. Instead of very little being available through the likes of eBay, this could transform the situation and generate much more favourable prices for sellers.
It also offers an obvious route to those that do not feel they would benefit from including their Solar PV installation in the sale of their property. Instead they could un-install it and either re-use it elsewhere or sell it. Given prices of new kit are dropping fairly fast, the most lucrative option would probably be to re-use them if you can.
19. Any final thoughts?
Since the summer of 2011 GEN has raised concerns that a proportion of households that have installed PV systems may not have been fully aware of the risks around moving house. The current consensus around this issue appears to be that solar PV can make your house easier to sell but not necessarily generate a higher price. Certainly a move within the first 5 years of installation [and with the new tariffs from April 2012 this is likely to be extended] may make it difficult to recover your up-front investment. If you can move from your property in these timescales and ‘break even’ financially this would be a relatively favourable outcome in our view.
Buying a house tends to be a complex process with many factors being considered regarding a specific property. Common high priority factors like property location, space, number of rooms and garden availability together with the level of interest from others in the property are likely to have a significant impact on a buyers tendency to offer a higher price. The presence or absence of microgeneration technology like solar PV is, in our view, unlikely to achieve this status for the mainstream of the population unless energy prices rise dramatically.
The fact that property prices are highly inflated compared to other purchases also makes them less susceptible to any significant increase as a result of home improvements. For this reason it could be argued that a solar PV project on a lower priced house could have a bigger relative impact on its value than an equivalent sized project on a higher priced one.
There has been research indicating that adding more internal space, for example through attic conversions or building a conservatory, does have a direct impact on property value. To date there has been little time for similar research to take place on solar PV installations. We can speculate here on the expected impact of solar PV on house prices but the picture will only become clearer over the next 5 years when the process is more common. In that time we hope that guidance will be published by RICS on valuation of properties with Solar PV that takes more account of energy issues including measures that conserve energy and generate electricity and income for households. If this guidance is favourable to those ‘PV pioneers’ that have invested in this technology then there is a much stronger case for inclusion of your Solar PV kit into the overall sale of your property.
See also solar panel templates on the Building Societies Association website