What is "fair market value" in a lease buyout?

Contract basics · 7 min read · Updated May 5, 2026

If you have a solar lease or PPA and want to buy out the panels — to sell the house, to refinance, or just to get out from under the contract — your installer will quote you a number called “fair market value” or FMV. That number is rarely simple, and it’s rarely actually fair-market.

What FMV is supposed to be

“Fair market value” in tax and finance contexts means the price a willing buyer would pay a willing seller in an arm’s-length transaction for that asset. For a 5-year-old residential solar system, the actual market value is modest — there’s no real secondary market for used residential panels.

What installers actually quote

Most solar lease/PPA contracts define FMV in a way that bears no resemblance to economic FMV. Common formulations:

• “Net present value of remaining payments.” Effectively: pay the rest of the lease in advance. Not “market value” — this is the contract value to the lessor.
• “NPV plus a multiplier” (e.g., NPV × 1.1 or NPV plus a fixed fee).
• “As determined by Lessor in its sole discretion.” Yes — really. Read the buyout clause.
• “Greater of NPV or appraised value” — with the appraisal performed by an entity selected by the lessor.

The result: a “buyout” on a 10-year-old system that should be worth a few thousand dollars instead costs $25,000–$45,000.

Why this matters in a home sale

Buyers (and their lenders) often demand the seller pay off the lease at closing. If the FMV quote is punitive, the deal can collapse. Sellers sometimes end up dropping the sale price by tens of thousands to absorb the buyout — money that effectively goes to the installer, not the buyer.

How to challenge the quote

• Demand the calculation in writing. Ask the installer to show how the FMV was derived. Many will not, because the contract gives them latitude they don’t want to expose.
• Compare to economic FMV. A solar appraiser (or a residential roofing contractor familiar with solar) can give a comparable replacement value.
• Read your contract’s exact language. If the buyout formula is ambiguous, that ambiguity may be construed against the drafter (the installer) under standard contract-interpretation rules.
• Negotiate. Installers routinely accept lower buyout figures than initially quoted — especially in transfer scenarios.
• Document everything. If the installer’s number is materially different from any verbal representations made at signing, that may be relevant to a UDAP or fraud claim.

When FMV claims become legal claims

If the buyout formula was misrepresented at the point of sale (“just pay it off whenever you want”), or if the installer arbitrarily calculates FMV in a way the contract doesn’t support, those are facts a consumer-protection attorney will want to see. Submit your buyout quote and contract for a free review →