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Understanding how solar panels impact property value is crucial for buyers, sellers, and lenders alike, especially as the popularity of solar energy soars across the US. With over 3.9 million residential installations by the end of 2022 and expected growth in the coming years, solar's influence on market value is a pressing question. Despite the boom, accurately assessing the added value of solar installations remains challenging, often leaving property appraisers in unfamiliar territory. 

Residential solar installations forecat

Typically, the companies selling and installing solar may not be the best to assess the value of an installed system.  It would seem property appraisers are better suited to address market values. However, many are just beginning to or are still learning about the value of renewable energy sources like solar. Installers like us need to help accelerate that education process. So, let's jump into it!

Chart from SEIA - Solar Market Insights Report 2023

 

The Impact of Solar Financing on Property Value

Installing Residential Solar Panels-Does it add value?The simple question is: Does a solar system add value to a property? There are multiple ways of financing a solar project on a property:  Options include cash, lease, loan, or PPA, and it makes a big difference which one was used.

  • Let’s start with leases and PPAs on a residential property. No additional value is likely added to the property with these financing mechanisms.  In fact, it could be a detriment to the value. The reason?  Leases and PPAs are long-term commitments with set prices that were likely compared to utility rate projections for savings when the agreement was signed.  If the utility rate escalation does not follow projections, the lease agreement or PPA could make you “upside down.”  Buyers should be wary of assuming these long-term agreements.  If utility rates climb quickly, then the lease or PPA may have some additional value, but rarely would this impact the property's appraised value.
  • For solar on a residential property that was paid with cash or a loan, the story is different. The energy output definitely has a cash benefit and adds value. So, it’s been pretty firmly established that owning a solar system does add value to your home when you go to sell it
  • For commercial systems, if the system is owned (or financed), then yes, the system adds value. If financed, the loan may need to be paid off during the property transaction.

 

The Comprehensive Value Solar Panels Add to Properties

 

Residential Solar Installation in Ohio, USAThe value of solar comes from the reduction of expense, the potential income generation, and the sustainability factors (both financial and environmental).

  • The primary monetary benefit is usually reduced electricity costs for the property.
  • In many states, an owner of a solar system will receive green energy incentive payments of some type, usually from the sale of SRECs (Solar Renewable Energy Certificates). This provides income to the system owner from those required to buy credits, usually utility companies.  This market can be very volatile in some states.
  • The system adds value to your house or business property because you have a “money printing” machine.
  • Reducing your carbon footprint, reduced CO2, demonstrates social responsibility and environmental friendliness. This can be marketed by a business to appeal to environmentally conscious customers. However, it can be difficult to quantify the true monetary value.

Assessing Solar Panel's Added Value: Methods and Tools

This has been and will continue to be widely debated.  Early studies showed a willingness to pay 4% more for a property with solar. Yet, the data was limited, and many real estate professionals argued that solar did not add value to properties. In 2008, a study in California showed homes sold faster with solar panels, with a premium of $15K for an average-sized residential system.  In 2015, a Berkeley Lab study examined eight states over 11 years and found that, on average, home buyers were willing to pay $4 per watt more for a house with solar.  That means an average-sized 6 kW residential system would add $24,000 to the property. 

In addition to having the research noted above, SEIA (Solar Energy Industry Association) suggests using one of the following three methodologies to calculate the added value of solar.

The Income Approach
The Income Approach takes the expected energy cost savings minus the ongoing operating costs.  This is often referred to as the avoided cost, which is the billing rate of the utility.  Advantage – this is the rationale that drives most solar purchase decisions.

The Cost Approach
The Cost Approach represents the current cost of replacing the solar system. This reflects the current pricing of a system, but solar systems depreciate over time, so that must be considered.  Since solar prices have fallen over the years, you do not want to pay more than a new system costs.  And incentives often affect the cost approach.  In other words, buyers are willing to pay replacement costs AFTER incentives. In 2010, residential pricing was $6.75/ Watt.  In 2016, closer to 3.25/Watt.  The cost approach takes into account the age and quality of the installation.

The Comparable Sales Approach
The Comparable Sales Approach is when comparable properties in a geographic area are matched against each other - one with solar and the other without solar. This is a common appraisal method for real property, and the more solar panels are installed, the better this method should work.  However, there may not be enough installations in many areas yet for this to work well.  And then there is always location, location, location.  When doing property comparisons, it may be hard to factor out other contributing factors to value variation.

Helpful Resources To Help Determine The Value

The reality is that much has been written and debated about solar energy's impact on a property's value.  There are many underlying determinants like age, energy production or output, quality of the hardware and installation, warranties, production guarantees, and so on.  This can seem a bit overwhelming, but fortunately, some tools can help, such as:

  • PVValue - This website gives an excellent in-depth analysis accepted by most property appraiser organizations.

Solar professionals like Paradise Energy Solutions can also provide a value assessment of a system, including system testing to verify functionality and performance. Remember that when calculating the value, you must consider projected maintenance and insurance costs. Our company always projects these in our proposal cash flows, but not everyone does.

I’ll wrap this blog up with a quote from Marjorie Youngren's article Ask the Realtor: How do solar panels affect a home’s resale value? There is so much detailed information on this topic I could go on forever, but the more that I investigate, the more I am convinced solar can save you money on energy, look sleek, and even boost the resale value.”

We agree with Marjorie and would love to talk with you and answer your questions about assessing the value of a solar system. 

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