We’re in a new year and a new decade, and neighborhoods across the country are changing for the better as more and more homeowners start to take control of how their electricity is produced by switching to clean energy solutions like home solar. In fact, in the third quarter of 2019 alone, the Solar Energy Industries Association (SEIA) tracked nearly 700 megawatts of installed residential solar capacity added to the grid!
The average home solar power system is around 5 kilowatts, so that means roughly 140,000 new homes installed solar in Q3 2019. When including commercial and utility solar power systems along with residential, there are now over 2 million installations in the United States with that number expected to double over the next few years.
Robust federal and state incentive programs coupled with solar panel costs dropping over 70% in the last decade have led to a recent surge in home solar system installations that shows no signs of stopping. However, despite the attractiveness of saving money on monthly electricity bills and lowering one’s environmental footprint by going solar, many homeowners still have concerns about whether solar is right for their home.
In particular, one common question our solar consultants frequently receive is how installing solar panels might affect property values and whether or not it can help or hurt to have a solar power system when looking to sell your home. Considering there are more solar-powered homes than ever before and that’s expected to be the new normal before too long, this is a great question to discuss, especially if you are considering adding solar panels to your home.
So let’s dive in, shall we?
What Effect Do Solar Panels Have On Home Value?
Many of the same benefits that motivate a homeowner to invest in a solar power system will transfer to the new owner if the home is sold. The panels (in most instances) stay with the property. The home buyer gets to enjoy lower electricity bills, price certainty for decades, and the knowledge that their home is using cleaner, more environmentally-friendly energy.
Installing a solar power system is similar to other home upgrades, like adding a deck or remodeling the kitchen. The homeowner has added amenity value, and that raises the total property value. Solar power systems are unique from other home remodels in that their value is dynamic over time. For example, if electricity prices in the area increase, a new owner gets the benefit of even bigger energy savings. That is one example, but many factors contribute to valuing a solar power system when selling a home.
Factors Affecting Solar Panels and Property Value
There are both geographic factors and physical characteristics that influence the value a solar power system can add to your home. The biggest is usually the price of electricity. The size of the utility bills makes a big impact on the ROI of solar. For example, Long Island’s high electricity rates have led to a booming residential solar market where existing solar-powered homes are more sought after by home buyers looking for more efficient and environmentally-friendly accommodations.
Another location-based factor to consider is the prevailing interest of the community in solar. A solar equipped home in Portland, Oregon, is more attractive and valuable to environmentally-conscious buyers that may not be as prevalent elsewhere. However, general trends show that home buyers are putting more value on energy-efficient and renewable energy features (including solar), and one report found that over 80% of home buyers consider energy efficiency features important when purchasing a home.
The physical characteristics of the system also contribute significantly to determining its value. The size, age, and condition of the system are all important. Also involved is what type of sun exposure the roof gets and the associated amount of energy the panels generate. If a system was previously installed on a part of the roof that is now shaded due to substantial tree growth, that might limit the attractiveness of that home and system.
The location of the solar array matters too. More aesthetically-concerned home buyers may prefer solar energy systems that are not visible from the front or street view.
How Much Does Solar Improve Property Value?
The factors mentioned above are needed to make an informed and accurate estimate, but research into the value of residential solar has come up with some helpful approximations. A study conducted by the real estate site Zillow found that homes with solar power systems sell for about 4% more than comparable non-solar homes. That would add an additional $9,274 to the selling price for the national median value home.
Through two studies in 2015, the US Department of Energy found that home buyers were willing to pay a premium of around $15,000 for an average-sized solar array of 3.6 kilowatts. That comes out to $4 additional dollars per watt of installed solar power. With the cost of going solar continuing to drop over the last five years, not to mention the addition of over one million new solar homes to the market, these economics have no doubt improved.
Not only have homes with solar been shown to sell for more, but they have also been shown to sell faster. A study conducted by the National Renewable Energy Laboratory found that homes in a new subdivision with solar sold 20% faster than their non-solar counterparts. After all, why would you want to buy a less efficient comparable home with a higher electric bill starting out? This study was conducted in 2003 in San Diego, so it is important to note factors like a receptive public and supportive state incentives impact those findings.
Real Estate Agents and Valuing Solar Panels
Real estate agents and appraisers have a crucial role in making sure a home’s solar power system is valued appropriately. Agents in more mature solar markets, like California, have more experience and benefit from more comparable sales of solar equipped homes to use as a reference. Areas that are newer to residential solar offer fewer examples for agents and appraisers to go off of, so valuations can be lower.
There is a growing amount of information and tools targeted to help this issue by guiding a more accurate home solar valuation. These include solar value calculators and solar guidebooks that offer techniques for reaching a correct valuation when balancing all of the appropriate factors.
It’s important to note that prospective buyers often want to have documentation showing that the installation was done correctly by a reputable company and showing how much money the system saves on electric bills. A real estate agent armed with those documents in hand can make the best case for prospective buyers.
How Does a Solar Lease Affect Home Value?
For homeowners who want to gain the benefits of a solar system without a sizable upfront investment, solar leases or power purchase agreements (PPAs) are common options. A solar lease or PPA means essentially getting solar panels installed with no upfront cost and agreeing to pay for the electricity generated by the panels. The homeowner benefits from the less expensive electricity and the environmental benefits while renting the panels. A typical solar lease runs 5, 10, or 20 years with options to purchase the system after the lease term expires.
However, when it comes to improving home resale value, these third party owner methods are less beneficial. Technically the system is not owned by the homeowner, so it is not considered an added value for the home.
In order to sell a home with a solar lease, the new owner must agree to take over the contract, or the current owner would have to buy out the remaining years in the agreement. Some new owners may happily take the lease on in exchange for reduced electric bills. Other potential buyers may balk at assuming that responsibility for a system they did not choose to install.
Leasing can still be a great strategy for those who want to avoid major upfront expenditures, but may still prove challenging for homeowners looking to sell their home in different parts of the country. When considering a solar lease, a best practice is to plan for living in your home for the duration of the agreement.
If you are considering investing in a solar power system for your home, know that the payback can come not only from cheaper energy costs but also from a boost to your home’s value if you decide to sell. In many cases, local and federal incentives can result in a payback period for a purchased solar power system of only a few years.
About Independent Power Systems
Independent Power Systems (IPS) has been designing and installing premium solar and energy storage systems for residential and commercial customers in Colorado, Massachusetts, and Montana since 1996. Our team of highly skilled engineers, electricians, and installers is committed to innovation in energy resilience and sustainability as well as helping the community achieve energy independence, do right by the environment, and save money in the process. To date, IPS has installed thousands of grid-tied, off-grid, remote wind, and microgrid systems including several challenging international projects for large commercial clients and the military.