Do solar panels add value to your home?
One of the most important aspects of owning your own house is building equity, so whether or not adding solar panels to your house will help or hurt the resale value is a common question.
For many people who are thinking of adding solar panels to their house, knowing whether they will add or reduce the value of your house is a really important question. While it makes sense that any type of improvement to your home, including solar panels, should increase its value, there are a few caveats to be aware of when it comes to solar.
First of all, when it comes to the question of whether or not solar will increase your home value, the answer in most cases is yes. Studies show that when looking at houses with equal comparables, solar panels will add $4 per watt in value to the home. This means that a 6 kw solar system could add $24,000 in property value. However, there are a couple other factors to consider: whether you own the system yourself, and what the public awareness of solar is in your area. In this article, we’ll discuss this in depth.
|Size of system||Value added to home|
The growth of residential solar and what it means for house values
First, a little background. The price of solar panels has been dropping for decades, and that’s why residential solar has grown into a mainstream product you can find on any ordinary suburban house in any state in the US.
Decades ago, solar power was something that was of interest mainly to hard core ethusiasts. Because solar was so much more expensive back then, you could only afford to power your home if you were wealthy or if you used very little electricity. Also, net metering was not available, so if you wanted to go solar, you had to use lead acid batteries to store your power to run your home. There was no widespread home solar industry, which most likely meant that it was going to be a DIY undertaking.
Today, decades later, it’s a completely different story. Solar is cheap enough to compete with fossil fuels, environmentalism has grown from something in the fringes to the mainstream, and solar is a big industry that employs many more people than coal.
This graph shows the steady grown in annual solar installations. This means that the cumulative installations is even more dramatic, with the result that there are almost 2 million solar homes in the United States. Check our solar map: there could be hundreds of solar homes near you that you didn’t know about.
What does this mean for property values?
All of this growth is important for your house value because of awareness: the more people know about the benefits of solar, the more likely it is that prospective home buyers see your photovoltaic system as a positive addition. The environmental benefits are a big win of course, but for most people solar provides a clear financial benefit that fully pays you back after less than 10 years. After that, you’re essentially getting free electricity.
Free electricity for decades. Hard to argue against the value of that.
How much does solar increase the value of your home?
To find out exactly how much value solar panels can add to a home, we’re going to look at two important studies into this topic. The first is an academic study by the Berkeley Lab, published in 2015.
Berkeley lab study, 2015
According to a study by the Lawrence Berkeley Laboratory, having solar panels on your home increases its value by an average of $4 per watt installed. This means that if you have a 6 kW system, you could be adding $24,000 of value to your home!
This is an amazing number when you think about it, because the average installed cost of solar in 2015 was less than $4 per watt on average. This means that you could get back more than 100% of your solar installation cost when you sell your home. As far as return on investment goes, this means that solar ranks among the best things you can do to increase the value of your home.
One possible reason why the home value may increase by more than the actual installation cost is mentioned by the authors, who conclude that there may exist what they call a “green cachet” for solar homes. Since being green is becoming mainstream, it’s possible that buyers may be willing to pay a little more for a product that is seen as being more environmental and more virtuous. The authors also refer to this as the “Prius effect.”
This study was thorough, looking at 12 years of data and 22,812 homes across 8 states. It improved upon previous studies, which had smaller sample sizes and were focused on California. The Berkeley study also corrected for house attributes to ensure when comparing a solar home to a non-solar home, variables such as square footage, bedrooms, and location were adjusted for.
You can read more about the study:
Zillow study, 2019
According to a study by the website Zillow in 2019, the median sale premium for a solar home is 4.1%. This differs from the Berkeley study which gives a hard dollar-per-watt premium. What does this mean for sale prices? According to Zillow, it would mean that in San Francisco, where house prices are very high, having solar panels could increase the resale value of your house by $41,658 on average.
In contrast, in Riverside, CA where house prices are lower, an increase of 4.1% means a $9,926 premium. This is still a significant increase in house value, but not nearly has high as in San Francisco.
You can read more here about the Zillow study.
Which study is more accurate?
Both studies contain great news for solar homeowners: adding solar to your home increases your property value significantly. But is the increase a fixed price per watt increase, like the Berkeley study suggests? Or is it a percentage increase like Zillow says?
The Zillow study is essentially just a press release with a single paragraph describing the methodology. This makes it impossible to independently assess the quality of their work.
In contrast, the Berkeley Lab publication is a 40 page formal academic paper with its methodology, assumptions, calculations, and references fully documented.
Because of this, even though the Berkeley study is a couple years older, if you are going to make a financial calculation, we think that the Berkeley numbers are more likely to be trustworthy.
The effect of expiring solar rebates on your home value
The most significant solar incentive for home owners - the federal tax rebate - is set to expire after 2022. Other state and local rebates in your area may expire in the coming years as well. While this probably will the unfortunate effect of reducing the amount of residential solar that gets installed, it could have a positive impact on the value of your home.
If you purchase a home solar system in 2019, you will get a 30% federal tax rebate. But in 2023, the rebate will be gone, unless Congress renews it. That means in just 4 years, it may cost a person up to 30% more to buy a home solar system. This makes your solar system suddenly worth that much more to future prospective home buyers, because they won’t have access to the tax rebate that you were able to access in 2019.
Of course, we should expect the cost of solar to continue to go drop, although its probably unlikely for it to drop by as much as 30% in 4 years, meaning that if you think you may sell your house in a few years, your solar home should carry a significant price premium relative to what you paid for it.
The price premium from your solar panels will go down over time
No matter what improvements you make to your home, whether it’s a new roof, a renovated kitchen, or solar panels, the value of that investment will go down over time. Roofs wear out, kitchens go out of style, and when it comes to solar panels, they slowly degrade over the decades and will eventually need replacement.
In the case of solar, that investment may continue working well beyond even the typical warranty period of 25 years, and could continue to provide free electricity for more than 30 years before a major system component needs replacement.
Nonetheless, panels do lose efficiency over time. For a panel purchased today, expect about 0.5% less electricity production every year.
In addition, the cost of solar will continue to go down over time, and technology will continue to improve. That means that your solar panels that are cutting edge today may seem competely obsolete and inefficient to a home buyer looking at your house 20 years from now. And 20 years from now, if price trends continue, who knows how inexpensive solar might become.
All in all, this means that $4 per watt premium that you get today will be less in future decades. But if you’re holding onto your house that long, your solar investment should have already paid for itself in lower electricity costs.
Can solar panels hurt the resale value of your home?
There is a very important caveat to all of this, which is that it assumes you own your photovoltaic system, and don’t lease it or have it under a power purchase agreement. If you do have a solar lease or PPA, when it comes time to sell your home, it means that you either have to transfer the agreement to the home buyer, or pay the solar company buy out the contract early. A Consumer Reports story describes one California couple who had to pay $21,000 to buy out their contract. That amount of money would have been enough to purchase a system outright at the start.
Ending a contract early in most cases mean that you purchase the system from the company. This can be an expensive proposition, and it means that you ended up owning a PV system but never got to take advantage of the solar incentives that you would have gotten if you bought the system from the start. (This is another reason why it’s often better to buy a system if you can.)
Your other option is to convince the home buyer to take over the contract. Most solar companies, like Sunrun, advertise that they provide sales support for this part of the process. It’s certainly in the financial interest of the solar company to do so. In the best case, the home buyer sees the benefit of solar panels and takes over the contract. But if not, you may be stuck.
The bottom line
If you own your solar photovoltaic system, independent studies show that you are adding thousands of dollars in property value. When you consider that in addition to equity, your solar panels also generate you electricity and lower your electric bills, you can see that this is one of the best personal investments you can make.