How Solar Increases the Value of Your Home
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Many people ask us how solar affects a home’s resale value. The quick answer – solar can be a huge asset when it comes time to sell your home, though there are a variety of considerations you should take into account.
Lower Utility Costs Equal Increased Value
Let’s look at the purely rational economics of a solar energy system.
In the 1998 Evidence of Rational Market Valuations for Home Energy Efficiency report (link, PDF Download) by The Appraisal Journal there’s a section they call the “Rational Market Hypothesis” which describes the relationship of market value to energy savings.
Using fixed (and very conservative) utility costs savings, compared to the cost of the investment, they are able to project an economic value for energy improvements:
Fuel costs may be considered just one of many complex factors affecting the decision to buy a home, but the same can be said about other determinants of home value—from number of bedrooms to the quality of local schools. In a rational, competitive market, the value of energy efficiency, like the value of any other housing characteristic, should reflect its marginal value to home buyers. If home buyers expect stable fuel prices, then the marginal value of energy efficiency in recent years should be $10–$25 for every dollar reduction in annual fuel bills. (emphasis added)
Note that this 1998 report reflects a very different energy situation than what we face today. We would now argue that the $10–$25 value increase per dollar of reduction in annual fuel bills is only a starting place, as home buyers should NOT expect stable fuel prices for the future.
Over the life of a 30 year mortgage, the fuel cost/utility savings will rise dramatically as fossil fuel heating and energy resources become increasingly scarce.
In addition, purchasing solar electric is particularly attractive right now because solar panel prices have reached record lows, so the payback time is greatly reduced.
Solar as an Attractive House Feature
There is huge emotional value to a solar hot water or solar power installation in addition to the purely logical economic argument. A renewable energy system makes a strong statement about your commitment to sustainability and the environment, which is increasingly desirable in the marketplace.
In a down market, a solar system may be the differentiator that makes your house attractive to potential buyers.
An recent article on sunpluggers.com featured a subdivision in Northern California that is using solar panels in its homes as a way to differentiate itself.
How successful is it?
“We are the bestselling project in the market right now,” [Hal Woods, president of privately owned CenterStone Communities] says. “All of our Phase 1 and Phase 2 are sold out. We expect to have the project complete in the spring of 2010. A number of other builders are scouting us and looking at the success that we’ve had.”
While the attractiveness of a solar system will vary depending on your location and potential buying pool, it stands to reason that interest and excitement about renewable energy will only grow in the future as the need to move away from fossil fuels becomes more critical, and all things “green” become more mainstream.
Both solar hot water and solar electricity are proven, mature technologies that will provide a payback for you as long as you live in your home, and a more competitive position should you need to sell your home.
Like all investments, the earlier you put solar on your house, the sooner you will reap the rewards. As we sometimes say, payback doesn’t actually start until the system is installed!