Yes, you read that right. Solar panels are now a requirement for new construction in California.  The state passed a law that requires solar panels on new construction of single-family residences, and condos or apartments up to three stories. Not just a few panels, but enough to provide 100% of the power needed

Mark Buhler
Mark Buhler, Certified Residential Real Estate Appraiser

for the structure. As of January 1, 2020, California Building Code now requires builders to build ‘Zero Net Energy’ (ZNE) structures, which means that the new home will produce as much electricity as it uses. The intent of the law is to reduce greenhouse gas emissions and improve air quality. The net result will be similar to removing 150,000 cars from California roadways over a three-year period. The California Energy Commission estimates that on average mortgage prices will increase by $40 per month, while electric costs will be reduced by $80 per month. That math sounds enticing, spend $40 to save $80. However, what is the real cost to the homebuyer?

Solar panels are not inexpensive, although the prices have fallen significantly over the past decade. The requirement to achieve ZNE will increase the builder’s construction costs. In my opinion, the most cost-efficient way to ZNE is not to plaster the roof with solar panels, but to build to a higher quality of construction. Implementing green building techniques could reduce the number of solar panels required to achieve ZNE and in turn, lower builder’s construction costs.

California home builders average 100,000 new homes annually, with approximately 15,000 of those homes built with solar panels. In 2020, all new SFRs, condos, and apartments with up to three levels in California will have solar panels.

How does this affect appraisers? Over time, there will likely be more comparable sales with solar panels available, which will make the sales comparison approach less cumbersome. Appraisers need to understand their market is affected when policies have enacted that result in increased building code standards. California appraisers should be aware that a home built in 2020 will be built to the new building code standards, which will likely be a higher quality of construction than homes built prior to 2020. Appraisers should consider that the cost approach and quality of construction of a property built in 2020 may be different than those built prior to the new solar policy.

California appraisers already experience more homes with solar than our counterparts in other states, but from this point forward, the number of solar powered homes will increase exponentially. It is incumbent on appraisers to become acquainted with solar photovoltaic systems, and how to value this feature. It does not appear too far-fetched to think that other states may follow suit and move towards renewable energy sources.

Lawmakers in many states have followed California’s lead in setting 100% clean energy targets (HI, NV, WA, and NM). Coal plants across the country are being shut down and replaced with solar and wind farms. States are setting goals and enacting legislation that requires fewer fossil fuels and increases reliance on clean energy sources. The California cities of San Jose, Berkeley, and San Mateo, Menlo Park have outlawed gas appliances in an effort to electrify the new housing stock. California appraisers need to prepare for the proliferation of homes with solar and become adept at the valuation of solar. It’s no passing fad, it is now a requirement. Buckle up California appraisers, solar is coming to your town.

Published in Appraisal Buzz February 19, 2020