How Much Will “Going Solar” Increase Your Home’s Value?
Solar photovoltaic systems for homes are becoming more and more common because not only do they generate electricity that produces income for homeowners, but they also decrease consumption of fossil fuels, which is good for the environment. Another reason for their popularity is the declining cost of purchasing and installing solar panels, as well as the increased capacity of solar panels. Since 2005, costs have declined 5-7 % a year, and now average about $5 to $6 per panel installed. While solar has many benefits, it’s effect on property value is still up in the air.
Incentives and Savings
Government subsidies in the form of tax credits are a large factor in terms of solar’s affordability. Systems placed in service by the end of 2019 qualify for a credit worth 30% of the installation costs. After that, credits decline to 26% for systems in place from February 2016 through January 2021, and 22% for those installed before 2022. Many states also offer tax incentives for solar as well.
Most homeowners install solar in order to save on electric bills. Rates — and savings — vary dramatically by locale. For example, the U.S. Department of Energy reports average electricity rates of 6.1 cents in Seattle, WA, 9.1 cents in Denver, CO, and 13.6 cents in Concord, NH. The power generated by a photovoltaic (PV) system also makes a difference, and the sunniness of the local climate also plays a role.
Is Solar Worth It?
One question that has been difficult for homeowners considering a PV system is: how much does a solar system add to the value of a home? PV systems clearly add value to a home, but until recently, many appraisers—especially those outside markets where solar is popular (such as Southern California and Arizona) have had difficulty setting values on homes with PV systems.
A new study published by the Appraisal Journal supplies some hard answers and useful advice for homeowners on how to maximize their investment in a PV system when the time comes to sell. The appraisers conducting the study, Sandra K. Adomatis, SRA, LEED Green Associates, and Ben Hoen, looked at the sales of homes with PV systems in six markets from 2010 to 2013 to determine if PV homes sell at a different rate than comparable non¬PV homes. They calculated the time between the contract date and the most recent MLS listing date.
The study found that homes with PV systems sold at a premium in all six states. The average premium for all study areas was $14,329 per home, which is 3.74% of the average sale price of the home and equates to $3.78/W for the average-sized PV system. This premium is considerably lower than the average gross cost estimate of $5.48/W to buy and install the systems, but considerably higher than the average income estimate generated by the systems. The premium as a percentage of the home sale price varied widely by the size of PV systems and the price range of homes.
The Jury is Still Out
Most of the PV homes in the study took longer to sell than non-PV homes, but results varied by market. The mean for all the sales was 48 days for PV homes (median 21 days) and 40 for non-PV homes (median 12 days) except for Maryland and North Carolina. Overall, 18 of the 43 PV homes studied sold more quickly than their corresponding non-PV homes. In summary, there appears to be no clear days-on-market difference in this sample between PV and non-PV homes.
Some other key findings:
- Unless information about a PV system is included in the MLS listing, the homes didn’t gain any value. About 3% of the homes selected for the study were eliminated because their listings didn’t inform sellers of the existence of PV systems.
- Premiums for PV systems were higher markets where PVs are more common and established than in markets where they are newer and less common. In San Diego, the most mature PV market studied, the average premium was $17,127, while in Raleigh, NC, where PVs have become widespread only the past three years, the average premium was $11,229.
- Nowhere did PV premiums pay for the dollar-for-dollar cost of buying and installing the systems, however, premiums were higher than the average estimates of income earned from the electricity they generated.
- Data on PV systems and their costs are difficult for appraisers to obtain. Multiple listing services lack fields with details of PV systems sufficient to allow appraisers to conduct an adequate search for comparable properties. PV sales agents and installers need a better understanding of how they can assist real estate sales agents and appraisers in obtaining accurate PV system data.
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