How Much Does Solar Increase the Value of Your Home?
Economics of Renewable Energy | February 11, 2014 | Posted by Fred Greenhalgh
Share this post
An investment in solar today will deliver an annual return of 8-10%. But what happens if you decide to sell? Because solar has become mainstream, a number of recent studies have been conducted on this subject, helping to guide homeowners, appraisers, and real estate professionals through the process of assigning the appropriate value for a solar energy system on a home in the event of a sale.
- The Berkeley National Laboratory (“Exploring California PV Home Premiums“) found that “each 1-kW increase in size equates to a $5,911 higher Premium“
- The National Bureau of Economic Research (“Understanding the Solar Home Price Premium: Electricity Generation and ‘Green’ Social Status“) found that PV systems “add 3.6% to the sales price of a home … [which] corresponds to a predicted $22,554 increase in price for the average sale with solar panels installed”
- The Colorado Energy Office (“The Impact of Photovoltaic Systems on Market Value and Marketability“) found that “owned PV systems typically increase market value and almost always decrease marketing time.” Leased PV systems caused problems with the sales transaction in a number of cases
We appreciate that market research proves what to us seems obvious: solar is an excellent investment, whether you are staying in the home long-term or need to sell. Solar provides a powerful suite of benefits not seen in any other home improvement:
- Proven ROI in the form of reduced energy costs for the life of the home
- Environmental ROI in the form of reduced carbon emissions
- Long-lived and durable equipment increases in value over time as costs of traditional energy rise
Standing Out in a Crowd
While the actual dollar value of PV improvements is still an area of study, what is more easily observed is how solar helps sell homes more quickly. In addition to findings in the Colorado report (which realtors reporting feedback like “PV was a major marketing factor,” “Sold very fast,” and “Listing agent liked the system so much, he had it installed in his own personal home after this sale”).
A 2008 Ryness study found that “homes with solar systems were outselling others by as much as 2:1 in 13 California communities” (Businessweek).
In the Northeast, there is little data, but anecdotally several of our customers have said that they are very happy in their solar homes, but feel confident that their solar investment will be recouped should they need to sell it.
Chris Rhoda of Belgrade told us that “My wife and I were talking about what might happen in 20 years when we’re empty nesters and want to downsize – but we can’t imagine finding a home that’s more efficient than ours already is. The realtors we have talked to have told us they would love to sell a ‘green home.’ They have very few green homes to sell yet people are asking for them all the time.”
More Data Needed
One of the tricky parts with the current solar valuation of solar is the lack of data for appraisers to use when comparing like homes. To help with this, the Sandia National Laboratories has developed a new tool, PV Value, which uses the income capitalization approach to assign value to PV systems. This approach factors in the anticipated production of the PV system, along with estimated maintenance costs, to determine a fair market value of the energy savings. This approach is discussed in detail in their paper, “Standardizing Appraisals for PV Installations.”
This approach, properly called the “Income Approach using a Discount Cash Flow,” more fairly assesses solar compare to the cost approach (looking at costs to have the equipment replaced) or comparable sales (looking at similar homes that have sold, which are often scarce with solar improvements). Sandia Labs reports that there have been over 2,500 downloads of their tool and early feedback from appraisers is very positive.