Does Solar Really Increase Home Equity?

Understanding the Explicit Value of Solar

The first step in understanding added home value from solar is to understand the financial utility of solar before the appraisal of the home. There are 2 main components that make solar financially beneficial for the average homeowner who installs one:

1. Installing a system that produces renewable energy qualifies the owner for an Investment Tax Credit (ITC) equal to 30% of the system’s total cost. That percentage is subject to change as legislation regarding solar changes in the future.
2. Having a system that produces electricity on-site removes the need for the utility grid’s electricity. This almost always results in immediate savings for the property owner for the same electricity they were using regardless. You can read more about that here.

Because of this, the average homeowner who has a system installed on their property profits immediately. You may think this would rapidly depreciate the asset, meaning it wouldn’t add much equity to the property, but the facts surrounding Fair Market Value (FMV) argue otherwise.

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Understanding the Implicit Value of Solar

With the clear financial incentives like cost savings and the ITC explained, it’s easier to understand the more implicit financial incentives that come with going solar. There are 2 main components to this value-add as well:

1. Electricity is a highly sought-after commodity that appreciates. Systems that produce electricity appreciate because the electricity they produce continually gets more expensive. Imagine you bought a gas pump for your house 50 years ago… and how much it would be worth today! The same philosophy applies to electricity.

2. Offset costs of electricity continue to rise as rates increase. Because of this, a system that offset $50/month in costs may offset $60/month as electric rates rise, and so on.

All of these points are taken into consideration when appraising the FMV of a solar panel system.

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Understanding Fair Market Value

Before continuing, let’s make one thing clear: systems that are not owned by the property owner (ie: leased systems, systems using a PPA, etc.) do not add equity or value to the property they are installed on unless they are bought-out. While they still serve their explicit purpose of offsetting and often fixing power costs, they will not offer the added appraisal value in the form of property equity.

For owned systems, the FMV appraisal seems to tied closely to 3 major components:

1. Age and quality of the system (parts, engineering, install quality, and warranties)

2. Amount of power generated by the system

3. Local utility rates and costs of power from the grid

Using these components, an appraiser will identify how valuable the system is on the market. A good rule of thumb to know is the less the system’s out-of-pocket balance, the higher the FMV. This means that a system that has been bought outright or fully paid-off will have a much higher FMV than a system that still has an outstanding balance.

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What the Facts Say About Selling a Home with Solar

Many people seem to think that selling a home with solar is more difficult and less financially-rewarding than selling a home without one, but the literature regarding home sales strongly suggests that the opposite is true. According to Zillow, homebuyers nationwide by-and-large preferred energy efficient homes as compared to energy inefficient ones; in 2021, 67% of homebuyers preferred buying an energy efficient or energy independent home. Additionally, they concluded that the average home’s value nationwide increases 4.1% comparative to similar homes that did not have solar.

The National Renewable Energy Laboratory (NREL), cites The Appraisal Journal, stating that the average home value increases $20 for every $1 of annual offset power costs, meaning a home that owns a system that saves the homeowner $1,000 per year would have an increased property value of $20,000! Additionally, Berkeley Lab posits that the average home value increases by $4 for every watt of owned solar.

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Going Solar the Right Way and How to Sell a Home with Solar

No matter how you look at it, appraisal is an art, not a science, and the results will vary for each property and solar system. At Spartan, we believe in maintaining a clear and transparent process for converting a property to solar power, including preparations to move out and sell the home and system when the time comes. If the jury is still out for you and your property, we’d love to chat and clear up exactly how going solar could pay you now… and later!