There are 4.7 million solar systems in the United States, according to the Solar Energy Industries Association. As rooftop solar installations become widespread, more homes with solar energy systems will enter the housing market. Therefore, many are wondering, do solar panels increase home value.
Prospective solar customers frequently want to know the financial implications of going solar. Although the electricity bill savings are relatively easy to estimate, how exactly a solar system impacts the home’s sale price is a bit more complicated. It’s useful to understand how going solar impacts the property value so solar installers can pass this information along to potential clients.
How Much Do Solar Panels Increase Home Value?
Numerous studies have shown that solar houses sell for more. In other words, installing solar panels is a home improvement that increases the property value, similar to adding a deck or remodeling the kitchen. Although the exact findings of studies on the resale value of solar houses vary, many conclude that solar panels add significantly to the home’s value.
A Zillow study found that homes sold with solar panels sold for 4.1% more than comparable homes without them. This equals an additional $9,274 for the median-priced home. Interestingly, the price difference varied by location. Solar homes in Riverside, California, sold for a 2.7% premium compared to a 5.4% premium in New York City. The premium sales price in Orlando, Florida, and San Francisco, California, were nearly identical, at 4.6% and 4.4%.
A study by the Lawrence Berkeley National Laboratory found that solar homes sell for about $4 per watt more if they have solar panels. Thus, a house with a 3.6-kilowatt solar panel system would sell for an estimated $15,000 more. However, this study is getting a bit outdated, and solar energy system costs have fallen since it was written. Thus, the Zillow study may be more accurate data on how much solar panels increase home value.
Why Do Solar Panels Increase Home Value?
Solar panels can increase home value for several reasons. Solar panels are seen as a home upgrade, similar to a renovated kitchen or a finished basement. This added value allows sellers and real estate agents to increase the asking price for a home.
Another reason solar panels increase home value is the potential for savings on utility bills. Solar panels generate electricity from sunlight, reducing the need for traditional grid-supplied electricity. This can result in significant savings on energy costs over the long term. Numerous studies show that energy-efficient homes sell for more money than less efficient homes. This is because the operating expenses associated with the dwelling are lower overall. Some home buyers may also find an energy-efficient home more appealing because it is greener and consumes fewer fossil fuels.
Also, residential solar panel systems have become more affordable and available in recent years. Federal residential solar tax credits, which allow taxpayers to claim a 30% tax credit on the cost of solar systems, have made solar panel installation more affordable for homeowners.
How Much Solar Panels Increase Home Value Varies By Location
Studies also show that how much the solar panels add value depends on the location of the home. One reason might be that the cost of electricity varies so much in different areas of the United States. For example, electricity rates in Hawaii can be $0.33 per kilowatt-hour or as low as $0.07 per kilowatt-hour in Louisiana. Some utility companies don’t offer net metering, and they don’t credit solar energy system owners at the retail rate for the power they supply to the electric grid. Thus, the solar savings from the solar panel installation varies by location.
Also, attitudes may vary depending on location. Home shoppers in some markets might better understand the benefits of solar energy, while others might be more hesitant to live in a solar-powered house.
Does Leasing A Solar System Impact The Home Sales Process?
Selling a house with a leased PV system can be a bit more difficult for the homeowner. The Zillow and Lawrence Berkeley National Laboratory studies examine properties where the solar system is owned, not leased. Although owning a solar array is a home improvement, solar leasing arrangements are different because homeowners actually rent equipment. This means that the new homeowner may be asked to take over the solar lease payments.
The terms of solar leases vary by the installer, but some homeowners may need to buy themselves out of the contract if they cannot find a home buyer who will take over the lease contract. In this case, this expense could eat into the potential profits of selling the home. To take over the solar lease, the new homeowner may need to meet credit requirements, and not all home shoppers will qualify.
Why Do Solar Panels Increase Home Value?
The main reason that solar homes sell for more is because they are cheaper to live in.
Lower Electric Bills
Houses with solar panels are cheaper to operate because the electric bills are dramatically lower. This is especially true for solar systems that are owned and not leased. When customers can take advantage of net metering, they might only pay the delivery fee on their monthly electricity bill and pay nothing for power consumption. This happens when the solar system’s production throughout the year is equal to the annual electric consumption, and the home is considered net zero.
Numerous studies show that energy-efficient homes sell for more money than less efficient homes. This is because the operating expenses associated with the dwelling are lower overall. Some home buyers may also find an energy-efficient home more appealing because it is greener and consumes fewer fossil fuels.
Reduced Environmental Impact
Renewable energy is growing in popularity partially because it’s a clean source of energy.
Many people are striving to reduce their reliance on fossil fuels and gain greater energy independence. For home shoppers who want to reduce their carbon footprint, a solar-powered home is appealing, attracting potential buyers.
Given the growing awareness and concern about environmental issues, including climate change, many homebuyers are actively seeking eco-friendly and sustainable options. Solar-powered homes align with these values, providing an attractive selling point that can increase demand and market value.
Backup Solar Energy During Power Outages
A grid-tied solar system with battery storage also helps make a home more resilient during power outages. In some cases, solar batteries can help prevent costly damage, such as pipes freezing, perishable food spoiling, or decreased productivity in a home office. Emergency power during grid outages can run a heating system, refrigerator, or electronic.
People who work from home might also experience a loss of productivity during a power outage, potentially reducing their income, yet solar batteries can provide electricity to run communication equipment and computers. In addition to preventing damage, living in a house with solar batteries can offer peace of mind, especially during natural disasters or extreme weather events.
Calculating How Much Solar Panels Increase Home Value
The Solar Energy Industries Association produced a guide on how to value a residential solar system. They highlight three primary methods that home sellers and appraisers can use.
It’s important to note, too, that if the system requires any repairs or maintenance, it helps to do this before listing the home. If a home buyer identifies potential issues, it may make the house less appealing.
Income Approach for Solar Panels & Home Value
This approach values a solar system based on the estimated income a solar system will produce for the new owner for the remaining lifespan of the equipment. This involves calculating the energy-cost savings that the new owner would have paid the utility company for electricity. It is essential to consider equipment degradation when taking this approach because solar equipment is less efficient at producing energy over time. Then, any costs associated with owning the solar system are subtracted.
Cost Approach for Estimating Value
This methodology uses the cost of reproducing the system that is currently installed on the home. The downside of this approach is that photovoltaic solar equipment does depreciate over time. This might be a good way to calculate how much solar panels increase home value if the system is new, but less accurate if the system is several or more years old.
Comparable Sales Approach
This valuation method involves examining comparable homes with and without solar systems, similar to the approach in the Zillow study above. Doing this requires finding at least two pairs of similar homes, where one has solar, and the other doesn’t. As more homeowners go solar, this method will be easier to conduct, especially for people who are knowledgeable about the real estate market.
How To Determine If A Homeowner Has Recouped Their Initial Solar System Investment
Solar homeowners recoup their investment, including the solar equipment and installation costs, in three primary ways. One way is through the federal solar tax credit and applicable local solar rebates. Homeowners can take advantage of the solar tax credit when filing their taxes the following April, so they typically see the benefit of this incentive pretty quickly. Solar rebates and other solar incentives are only available in certain areas and vary by state or utility territory.
Next, solar arrays can significantly reduce energy bills. In much of the United States, a solar system's payback period is between five and ten years. The return on investment varies widely depending on net metering laws and the cost of electricity and the solar system.
Finally, the solar system can significantly increase property value. If the home is sold after the payback period, the increased home value is pure profit. If the home is sold before the solar system has paid for itself in savings, the homeowner can likely recoup their initial investment and potentially make a profit during the sale of the home.
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