The article below was originally posted by Aurora Blog and can be found here.
Does Solar Increase Home Value? The Latest Data for Solar Clients
Selling a solar PV system is not always easy. Prospective solar customers have concerns about everything from ROI and how to finance it to how it will affect the aesthetics of their house. And they’ll likely want to know what having a PV system will do to the value of their home–now and in the future if they want to sell.
The more specific you and your sales team can be about the benefits of installing solar, the better. A number of studies provide compelling data about how solar increases home value. This information can go a long way towards helping a prospect feel confident making the leap.
In today’s article, we highlight some facts about how solar affects home value–and the studies behind them–that your clients will want to know.
Their House Will Sell for More
Lawrence Berkeley National Laboratory (LBNL) conducted a report that definitively showed that homes with solar sold for more than houses without it. The 2015 study, Selling Into the Sun: Price Premium Analysis of a Multi-state Dataset Of Solar Homes, analyzed 22,000 home sales in 8 states, 4,000 of which included PV systems, from 2002 to 2013.
The study found that each watt of solar added an average of $4 to the home’s value in California and an average of $3 per watt elsewhere. This amounted to an average increase to the home’s selling price of $20,000 in California ($4 x 5,000W for the average system size) and $15,000 outside California ($3 x 5,000W).
Another study, An Analysis of Solar Home Paired Sales Across Six States, published in the Appraisal Journal–the nation’s largest professional association of real estate appraisers–found similar results. Their examination of sales of homes with solar systems in six states from 2010 to 2014 found that properties with PV systems sold at a premium in all of the markets.
The average premium was $14,329 per home, which was 3.74% of the average sale price. They did find that the premium as a percentage of the property’s selling price was very dependent on the size of solar system and the home’s price range. Another point was that the multiple listing system (MLS) that posted the house had to include information on the PV system to factor into the value of the home during an appraisal.
Their House Will Sell Faster
An earlier study by the National Renewable Energy Laboratory (NREL) looking at high-performance homes in California found that homes with PV systems sold 20% faster (and for 17% more) across several subdivisions built by different California builders. Their study of several hundred home sales also revealed that if a solar system was already installed and factored into the price, buyers were more likely to choose that house over others without solar. Some other interesting findings include: the aesthetics of a PV system were not identified as an obstacle to purchasing and the resale value was not damaged by the presence of a solar system.
They’ll Likely Recoup the Cost of the System When They Sell
The $15,000-20,000 addition to the selling price found in the LBNL study Selling Into the Sun (cited above) is similar to the typical cost of the average rooftop solar system. Given that the average cost of a new 6kW PV system is between $16,260 and $21,420 (before the 30% federal Investment Tax Credit), it is a pretty good bet that the homeowner will make back the money from their initial investment in the resale.
There are many factors that could influence the extent to which a PV system adds value to a home. Here are few considerations your customer may want to be aware of when considering the increased home value solar may provide.
Regional Markets and Electricity Costs Matter
One factor to keep in mind is that the largest increases to the value of a property may tend to come in regions with high electricity rates and strong solar incentive programs. High energy costs can make a home with a PV system more sellable. For instance, Long Island’s high energy rates have been a boon for the solar market there; the area is home to about 40% of all solar systems in New York. Gerard O’Connor, a local appraiser, stated that buyers are “certainly willing to pay more” for a home where high electricity prices increase the savings from PV systems.
And higher energy costs can mean higher home value for homes with solar during the appraisal process. When appraisers consider the role of a PV system in the calculation of a home’s value, electricity produced by the system can be considered income, whether due to savings or from utility production credits, as noted in appraisal guidelines for green and high-performance properties from the Appraisal Foundation (see p. 36-38).
Ensuring PV Is Factored Into Home Value
Lenders, real estate agents, and appraisers should account for the value added by a solar system–and some may not know to do this (so your customer should point it out). The Federal Housing Authority (FHA) and Fannie Mae both have guidelinesfor valuing the system during appraisal. Sandia National Laboratories has a free tool designed to help real estate appraisers and others calculate the value of a new or existing PV system.
(Note: If you want to help your customer understand some of the metrics used to quantify the value of a home solar system (property value aside), our blog post on the topic is a good place to start. Plus, Aurora’s financial analysis tools are able to calculate all of these metrics easily, including payback period and projected cash flows over the life of the system, so you can easily communicate that value in your sales proposals.)
Most Data Focuses on Owned PV Systems
Much of the research to date, including the LBNL and Appraisal Journal studies discussed here, focus on homes where the PV system is owned by the homeowners–not third-party owned systems financed with PPAs and leases. The authors of the LBNL study recommend more research into the impact of leased systems on home value. Also, leased systems or ones paid through a PPA will not be included in an FHA or Fannie Mae appraisal.
Beyond the need for more data on how third-party owned PV systems affect home resale value, these types of systems present their own unique complexities in the home sale, such as the need to transfer a PPA or lease to the buyer.
System Size and Age
One factor found to affect resale value was PV system size. The Appraisal Journal study found that the premium as a percentage of the property’s selling price was very dependent on the size of solar system, and the LBNL study also found value corresponded to the capacity (W) of the PV system.
Another influencing factor in the extent to which solar increases home value might be the age of the system when the home is sold. The LBNL study notes that the depreciation of aging solar systems may decrease the value added to the home during appraisal. However, as the study authors note, exactly how system age impacts the numbers is unclear because there has been little research about it given the immaturity of the American solar market.
Adding a PV system is a significant decision for any homeowner; it requires careful consideration about the pros and cons and a good amount of trust in the contractor they work with. Being prepared to provide research-backed information about the benefits of solar, including the value it can add to the home, will help build trust with prospects and keep customers, both past and present, glad that they chose to work with you.