How Does Solar Impact Property Value

Solar power has demonstrated tremendous growth over the years. 135,000 homes and businesses converted to solar power in the first half of 2015 alone. As this growth continues in the residential sector, questions are raised on how solar impacts property value.

Tangible estimates are available for any number of home improvement projects. Install a new kitchen and you have a pretty good idea what that does to your overall property value.

Realtors have long been able to provide estimates for traditional home improvements; however it still remains unclear what the impact is to value when solar is installed.

Confusion Regarding Solar Impacting Property Value

A number of factors are dictating how solar impacts your property value. The most significant is how you financed the installation. Did you purchase the system outright or was it leased? A second factor impacting value is the limited education many realtors and property assessors have in evaluating green home innovations. Many assessors lack the proper education to assign a value to a system and often list it as negligible.

Economists in California wanted to demystify how much property values were impacted. They identified that systems required an average initial investment of $35,000. It’s important to point out that once subsidies and rebate programs are included, the initial investment dropped to around $21,000. Upon property resale, homeowners were experiencing a bump to property values of $20,000.

A study conducted by the Lawrence Berkley National Laboratory for the Department of Energy (DOE) also conducted an evaluation on the impact to property values. They analyzed the sale of 22,822 homes (3,951 had actual photovoltaic solar panels installed). Their data spanned eight states and a period of over 10-years. Finally, none of the 3,951 homes with solar panels were leased – all were owned systems.

In the end, they concluded that an average sized system would yield an increase of $15,000 to a homeowner’s property value.

Other factors that the DOE study identified included factors that helped to influence property values. Some of those factors included:

  • How affluent is the neighborhood.
  • Size of the home – smaller homes do not typically have solar installations.
  • Saturation of registered Democrats.
  • Higher educated neighborhoods.

Leased Versus Owned Solar Panels

Homeowners have two fundamental choices when financing a solar installation. They can purchase it outright or they can lease it. In a leasing situation, the homeowner pays little or no money up-front. The homeowner goes through a credit approval process with the solar leasing firm. Upon approval, they enter into an agreement with that firm. Agreements are typically for 20 or 25 years. In this agreement, the homeowner does not own the equipment. In the event of any failures the firm is responsible.

Other factors to consider in this arrangement include:

  • The firm is able to substitute the quality of materials as they see fit in the installation process. This does not happen if you purchase the system outright.
  • The leasing agreements typically include an annual increase in lease fees thus diminishing the value of the agreement.
  • If a homeowner sells their home, the purchaser is required to assume the remainder of the agreement. The home purchaser must be approved for the lease agreement as well. If not, all fees for the balance of the lease duration are due upon sale completion. This can up to $20,000 in fees as many homeowners have learned.

The nature of these lease deals are causing home sales to fall through. In some cases, the buyer has no inclination to assume a contract with a company they didn’t select. In others, the buyers just don’t want to deal with the hassle.

Note that this is not about the solar installation. The buyers like the idea of owning a home with alternative energy. The problem is in the leasing agreements and the lack of education for many realtors.

The result of these transactions is that many sellers have to sell their homes well below market value – the Realtors own trade magazine has shown examples that have fallen through or cost the sellers money.

In the case of Fannie Mae, their December 15, 2015 Selling Guide explicitly states the following recommendation to Appraisers:

Solar panels that are leased from or owned by a third party under a power purchase agreement or other similar arrangement are to be considered personal property items and are not included in the appraised value of the property.

There you have it – according to Fannie Mae, lease agreements for solar are not to impact the appraised property value.

Realtor & Appraiser Education

The intrinsic value of solar is the reduced energy costs and independence from utility companies. As a result, these transactions should be fairly simple to navigate as realtors and property appraisers become properly educated.

Simple calculations demonstrating the net savings and the ongoing return on investment to the buyer including the savings expected through the remaining life of the system should be the focus of education in addition to education on how these sustainable solutions provide a benefit to beyond the homeowners.

While it is true that solar installations will depreciate over time as they approach the end of life, the market continues to grossly overstate that rate of depreciation.

Final Assessment – Does Solar Impact Property Value

Now back to our original question – does solar impact property value? Solar installations clearly have an impact to property values. While the data on owned systems indicates that owners should expect a premium in the sale of their home (assuming a useful life of the system and the roof remains), there is much more analysis required on leased solar installations.

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