Does Solar Increase Home Values?
Biggest Factor is Whether You Own or Lease Your Solar Panels
There are many benefits to solar power. As more homeowners go solar and the years of savings pile up, the new question people are asking with greater frequency is, “How does solar affect my home resale value?”
Now that reports and studies have ample data to work with, we can answer this question with greater confidence. And the short answer is:
Owning Your Solar Panels = Higher Home Value
If you own your solar panels, your home will likely sell at a higher price. However, if you lease your panels, you may actually lose a little bit of value, though that depends on where you live and how much people in your area value what solar represents beyond just the financial benefits.
One study on the value of homes with solar panels showed an increase in $15,000 for homes with an average solar array size of 3.6kW (which is small for many home – 5kW is a more typical size). The value goes up along with the size of the array. This study included homes in eight states and 11 years of sales data.
Another study in California saw an average increase of 3-4% in home value, and still another in Arizona found a 4-6% increase.
Except When It Doesn’t
All that sounds terrific. In fact, the California study found the average increase in San Diego for homes with solar panels to be $22,554, which is in the ballpark of the initial cost of many residential solar arrays. That means, from one perspective, these homeowners got very cheap electricity for free because they were able to fully recover their solar installation costs as part of their home sale. Great deal, right?
Yes, but there are a few catches to this.
First, all these studies only showed increased home values from solar for homes that owned their panels and any solar power storage (batteries) systems. But many homeowners (up to 75% in Arizona) lease their panels. They do this because it takes away the big upfront costs.
Why do homes with solar leases often sell for less than similar homes with no solar at all?
The main reason is because there’s still a monthly payment. New homebuyers likely don’t perceive an increased home value when they still have to pay for the solar panels each month in exchange for much lower power bills.
Plus, many lenders include the cost of the solar lease as part of their debt-to-income ratio calculations (reducing the perceived value of the home). But they do NOT include the savings on the utility bills, even though these can be over a hundred per month depending on the solar array size.
This is one of several reasons Coastal Solar generally recommends buying your solar panels instead of leasing them.
5 Complicating Factors between Solar Panels and Home Values
Clearly, if you want to increase your home resale value through solar panels, you need to buy and not lease. Here are five more factors you need to consider when determining how much your solar panels affect your home value.
Many lenders haven’t seen the data about solar panels and home values, and they don’t understand the effect solar has on monthly power bills. You just saw what they do with solar leases. But this same lack of understanding can affect what they’re willing to lend. And this also depends on what the appraiser says, which leads to factor #2.
Some homeowners presume their homes are now worth much more – about the amount they paid for the panels (which the San Diego data supports). But some appraisers don’t see it that way, and do not value the home as high as the seller expects. To help combat this, an online tool called PV Value was created. Find the explanation for PV Value here, and access the tool itself here.
Solar Home Sale Tip: This is a great resource for you to give your real estate agent, so they can communicate the value of solar to everyone they interact with about your home.
Age of Your Solar Array
Most solar panels come with a 20 or 25 year warranty (Coastal Solar’s is 25 years). Your panels will last a long time. But, suppose you bought solar panels in 2005, and want to sell your home in 2020.
From the buyer’s perspective, your panels are only guaranteed for another 5-10 years before they’ll start producing less energy, or may need to be replaced.
Now, in reality, you can realistically expect your panels to produce lots of energy for well over 30 years. But while a home buyer may accept that fact in their head, they may not accept it in their wallet. They may figure they’ll have to replace the panels or just let them wither away and therefore lose the benefit on their power bills.
And that may lead them to conclude your solar panels don’t justify paying extra for your home. So you do need to consider how old your panels are. If they’re less than ten years old, you have a stronger case. If they’re more than twenty years old, their contribution to your home’s value may be lower.
Is Your Solar Array Grid-Connected?
Most solar panel installations are. But some aren’t, and an off-grid solar array doesn’t have all the same benefits, such as net metering. However, the real truth is, there just isn’t as much data for off-grid installation and home resale value. These studies were all done with grid-connected homes. So off-grid solar panels may increase home value, but there really isn’t enough data to say for sure. (Compare the benefits of off-grid and on-grid solar)
Plain ol’ Doubt
Some people just won’t believe you. Here is where you can provide your own data. Keep your power bills – ideally ones before and after your solar panels were installed. You can use these to show monthly and yearly savings. And if you’ve lived there long enough, you can even show the value of the solar panels against inflation increasing over time, as the cost-per-kilowatt on your power bill goes up.
With enough years of data, you can actually show energy inflation on your own power bills. Your savings magnify, and the perceived value of your panels increases.
Conclusion: Solar Panels Do Increase Home Values, But…
Keep it all in perspective. Don’t be a money fanatic. For example, if you spent $25,000 installing your solar panels 15 years ago, and you’re able to get $20,000 more for your house than you otherwise would have gotten, that’s a pretty good deal.
When you consider that you bought your array to save money on your bills, and you’ve been saving big every month since you installed the array, you are coming out way ahead.
On the other hand, if you just installed them two years ago, then that’s not a good deal, and your buyer needs to be educated more. And remember to educate your real estate agent (and they can educate the appraiser) using the PV Value tool. It will give them some real data so they don’t just dream up numbers out of thin air.
Learn: How much does it cost to install solar panels?
Want More Resources to Educate Your Agent and Potential Buyers?
Give them the solar basics, with the 2-part ‘How Solar Works’ series.
Top 11 benefits to solar power, with rebuttals for each argument against
Show them the money – how much solar can save.
(When it comes to money, your own actual power bill data will be more convincing – show them the data!)