How Much Does a Solar System Add to Home Value?

As an appraiser and a real estate broker who completes some residential assignments I get asked about the contribution of solar systems more often than you would think. While there is research on the topic, see the following paragraph, and it indicates that home values increase, there is no guarantee that your appraiser will find the same contribution that you imagine.  The following is a research finding that I noted on the Internet:

According to research from the National Renewal Energy Laboratory, each kW of an installed solar panel system can add $5,911 to the value of your home. The typical home system produces 4 kW of power, which would increase your home’s value by $23,644.  (Source: RC Energy Solutions via the Internet at https://rcenergysolutions.com/do-solar-panels-add-value-to-your-home/)

What this study and many others do not tell you is a lot.  There are a number of variables that home buyers will consider during their analysis of the value of a home, it’s not just about how many KWs of power your home was estimated to produce when the package was installed or is estimated to now produce, the solar system is one element that add or detracts from it value. 

One of the most important questions that a real property buyer will always ask is, “are the installed solar panels / solar system 100% owned by the homeowner?”  If not there may be some serious resistance to accepting the lease that you entered into with your solar company.  If there is a balance that must be paid on the lease a potential buyer may not feel the solar panels contribute as much as you owe.  The buyer could be found not acceptable to the solar company and cost you a sale or a problem after the sale if you guaranteed the transfer.  The buyer may be qualified but they may not like the terms, the balance or the provisions of your lease.

Homeowners buy solar systems looking at the big positive, the tax credit that they are going to take away from the deal.  “I’m going to save a lot of money this year on taxes” is what they say, but very few think about the downsides.  That’s what they are looking at in the Henderson, Nevada and most real estate markets.

An important negative for solar is the fact than in many places energy companies no longer have to buy your excess energy.  In Nevada you can generate five times more energy than you need but the power company doesn’t have to pay for it if you installed the system after a certain date. 

Various sources note that solar panels can decrease their output over time.  Some note a 3% loss the first year and a 5% loss each year after that.  So the panels that have been in place for years may have decreased their output.  There are a number of solar companies that now guarantee a high output level, but a buyer will ask you, when were your panels installed and did you get a guarantee?

Can you show a buyer how much of an energy savings they can expect over time?  If there is a lease then they can see how much they are going to have to pay each month, but what is more important to them is how much they are likely to save.  All of those parties who can make decisions about the value added to your home by your solar system can be in partly convinced by hard numbers.  If you have tracked your power consumption over the years and you can show that are saving $ 2,000 a year, it’s not difficult for an appraiser to present value your savings over the remaining life expectancy of your solar system.  It’s what appraisers do in their income approach analyses.  

Many home buyers look at a solar system as being just another amenity.  A swimming pool / spa may cost $ 35,000 but it often adds only $ 20,000 to property value.  Your solar system amenity may have cost you a great deal, any you may even be able to prove a good estimate of future savings, but it has to be perceived as valuable by a buyer who may not be all that sold on solar systems and doesn’t really want to pay for estimated future savings or your investment choices.  So it’s not as simple as saying “you will save X dollars over 5 or 10 years of ownership.”

Update: I hope that we all understand; appraisers, solar companies and the buying public, that if there is market evidence that supports higher values for homes with solar power installed appraisers are going to find that the enhancement exists and the enhancement will be reflected in the market value conclusions.  Appraisers are not biased against solar improvements, we just base on conclusions on evidence and if none exists most of us don't just "wing it."

For more appraisal information contact Glenn J. Rigdon MA, MRICS, IFAS, ASA who is a Las Vegas / Henderson Nevada based broker and appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas  (http://www.appraiserlasvegas.com), or http://www.horizonvillageappraisal.com, or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/

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