Even if you’re convinced your solar equipment should by appraised by an accredited equipment appraiser, you might still wonder, who needs a solar appraisal anyway?
Stakeholders associated with commercial equipment procurement and financing might already know that answer, but many residential solar system users might not. Specifically, in commercial equipment financing, appraisals performed by accredited equipment appraisers are commonplace. As an example, during my tenure at GE Capital managing a portfolio of equipment that we financed (e.g., leased) and received to inventory (e.g., returned from lease, purchased for trade), the value of that equipment was appraised often for various purposes.
For example, at GE Capital or any commercial equipment-backed lender, a current value and various forward looking values had to be determined before a lease could even be proposed or originated or renewed. Even when offering finance leases (e.g., loans), value trends are desired to identify any collateral gaps that may occur over the term of the lease or loan. Such leased assets would further be appraised periodically (e.g., quarterly) using then current market conditions and inputs in a process often referred to as a mark-to-market process.
Appraised values might also be required at certain events associated with a financing product, such as an early buyout (EBO) event or an end of lease (EOL) event. If the equipment is returned at the end of lease, various valuations are needed from time to time for remarketing purposes. The lender (e.g., lessor) might participate in all the foregoing valuation events, while the borrower (e.g., lessee) might only care about the value associated with some purchase event (e.g., EBO and EOL events, inventory purchase event).
Fundamentally, the leased solar equipment on the roof of a residential home will have appraisal requirements similar to that of the commercial installation. Like the commercial equipment-backed lender, the residential equipment-backed lender (e.g., installer, developer, lessor, etc.) still assumes the risk of return on the invested capital pertaining to the equipment and installation, and therefore has an interest in knowing an estimate of the value of the equipment over time should a negative credit event occur.
Residential homeowners with financed solar equipment, however, might have more occasions to have their equipment appraised than the commercial borrower. For example, the EBO and EOL purchase prices established in a residential solar lease agreement are not necessarily based on an estimated fair market value (FMV) for the event date. Rather, such prices from the lender might be established based on a formula that determines the price based on some target return for the lender. The homeowner desiring to purchase the solar equipment at one of these events therefore should have the solar equipment appraised to determine the then current FMV of the equipment.
In addition to EBO, EOL, or other lease purchase events, homeowners with financed solar equipment more often transfer ownership of the underlying property associated with the equipment (e.g., sell their home). Whether selling or purchasing such a residential property with financed solar equipment, an appraisal of that equipment by an accredited equipment appraiser is prudent. Even when the lease is merely transferred to the new owner, the value of the solar equipment is still vital to the overall value of the property, which can impact the purchase price. As an example, while the value of a solar installation is often viewed as insignificant as compared to the value of the underlying property, a relatively small investment in a solar equipment appraisal can have significant returns as pertaining to the overall value and purchase price of the home.
Solovar is here to help the commercial or residential lender or borrower with any of the foregoing appraisal scenarios and more. Check out our portfolio of services, all provided by accredited senior equipment appraisers, and structured and priced to fit your particular need.