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Do Solar Panels Increase Home Value?

Sep 14, 2022


There are enough solar energy systems in the United States to power nearly 22 million homes. Now that solar electricity has become relatively mainstream, many solar homes are placed on the real estate market. Therefore, it is increasingly important to understand how solar panels impact home value.

Numerous studies show that solar panel systems increase property values. Because the financial aspects of going solar are an essential consideration for many households, understanding how much solar panels increase property value is vital.

What Impacts Property Value?

Numerous factors impact home prices, which can vary considerably over time. One of the top considerations is the location. Is the home in a desirable area? Are there high-quality jobs nearby? How are the schools? How much are the property taxes? In fact, even identical homes in different parts of the country or even other neighborhoods in the same city will have different home values. Often, real estate comps are used to determine the value of a home, which involves looking at comparable homes in the area.

One factor that has a significant impact on property values is the condition and size of the home, including the amount of usable space such as a basement and garage. In addition, upgrades and home improvement projects also influence home values. Renovations, especially in older homes with outdated features, can really increase their value. In particular, bathroom and kitchen updates can significantly impact property values. However, homeowners typically do not recoup the full cost of such renovations. Therefore, some home upgrades do not make sense when looking strictly at the project finances. 

One big exception is solar panel installations because these projects can boost property value and reduce the utility bills considerably before the home is sold. A 2019 study by Zillow compared similar properties with and without solar energy systems that sold in 2018. The study estimated the median-priced home with a solar PV system sold at a 4.1% premium compared to homes without solar. That means the median-priced home with solar sold for $9,274 more! In some areas, including New York City, solar-powered homes sold for a greater premium.

Solar Panels Can Impact Your Home Value

On average, installing a solar system can increase your home’s market value by over $9,000. Also, solar panels can help your home stand out in a crowded real estate market. So why are residential solar systems so attractive to home shoppers?

Future Energy Savings Are Appealing To Prospective Buyers

Solar-powered houses are far less expensive to operate than their non-solar counterparts because installing a solar panel system can dramatically lower electricity bills. Although the exact savings vary depending on the capacity of the solar system, the climate, home energy use, and local electricity rates, homeowners could stand to save $10,000 to $35,000 over 20 years after additional incentives according to EnergySage. Also, as utility rates increase, so do the solar savings.

Often, home shoppers will calculate the total cost of ownership, including property taxes, insurance, electricity costs, and needed repairs. However, when compared to homes with higher energy bills, solar homes become highly appealing because they are less expensive over time.

High Return On Investment And Tax Incentives

According to EnergySage, solar panels pay for themselves with utility bill savings in just over 8 years on average. In California, the payback period is under 6 years. But, the systems are designed to last 25 – 30 years, so homeowners enjoy many years of benefits. By contrast, homeowners rarely fully recoup the total cost of home renovations, such as installing new flooring, adding a patio, or renovating the kitchen. While these projects add resale value to a home, they may not impact operating costs for the home over time like solar panels will.

In addition, the federal government offers a tax credit for installing a solar power system. In 2022, the credit is worth 30% of the total system cost, including labor and equipment. Also, some states and utility companies offer solar incentives, including state tax credits and rebates. When homeowners can take advantage of the federal solar tax credit, it dramatically boosts the return on investment (ROI) of the system while shortening the payback period.

Grid Independence

Much of the electricity in the United States is generated from large fossil-fired power plants that use coal, natural gas, and even oil as a fuel source. Often, this power is then transmitted over long distances to homes. However, many homeowners would like greater energy independence and to produce their own energy. Solar panels enable homeowners to take advantage of the free energy falling on their property every day to have greater control over their home energy.

For installations with solar batteries, homeowners can even have power during blackouts. As extreme weather events become more common in parts of the United States, greater resiliency becomes even more appealing.

Energy-Efficient Upgrades Fetch A Premium For Sellers

Going solar is an investment in the future value of your home because energy-saving homes are more appealing to home shoppers. In fact, other energy-efficiency upgrades, such as insulation and air sealing, can have a big impact on home comfort and energy bills. Home shoppers are often willing to pay a premium for energy-efficient homes.

In addition, the added value of a solar system varies by the system itself. Not surprisingly, new solar arrays can increase the value of the home more than a system that is over 10 years old. Likewise, solar systems with a higher capacity have a greater value because they result in greater utility bill savings.

Attracting Green Home Buyers

Concern about climate change and a desire to protect the environment are encouraging some homeowners to decrease their greenhouse gas emissions. Living in a solar-powered house is highly appealing for people wanting to lower their dependence on fossil fuels, decrease their carbon footprint, and live more sustainably.

Before Buying A House With Solar Panels, Keep These Things In Mind

Some homeowners go solar by purchasing a home instead of hiring a solar contractor to install panels. This means they may know less about the solar system itself, such as needed maintenance or existing warranties. When buying a home with a solar system, try to get as much information as possible about it, including equipment warranties, monitoring data, and the original price.

Leased Solar Panels Could Complicate A Sale

There are two main ways that homeowners install solar panels on their properties: buying a solar system and leasing solar panels. The latter means that a company owns the panels and the homeowner pays each month to lease them.

It is usually possible to change the name on the lease agreement, but it can complicate the home sale. Typically, the lease needs to meet a criterion that includes running a credit check. In some cases, a home buyer may not qualify, complicating the sale process.

Sometimes, the solar lease agreement allows the homeowner to buy out the remainder of the lease, but this comes at a price. For these reasons, solar leases are less popular now than they were a decade ago and solar financing has become more popular.

Understand Existing Warranties

Most solar systems come with warranties from both the solar installer and the equipment manufacturer. If you are thinking about purchasing a home with a solar system, ask for a copy of the solar system proposal. Before buying a solar home, determine if the system is still covered under warranty and if these warranties are transferable to the new owner.

The most critical elements to consider are the warranties for labor (typically through the installer), the inverter, and the solar panels, which are through the solar manufacturers. Often, the labor warranties are shorter than the equipment warranties. Therefore, it might be necessary to pay the labor for having equipment replaced, even if the item itself is covered under warranty.

Factor In Any Maintenance Needed

With no moving parts, most solar systems do not require regular maintenance. If a solar system requires a repair, it might be partially or fully covered from warranties. However, it is a good idea to factor in a bit for future maintenance. One great way to identify if the solar system is operating properly is to review solar monitoring data. Some monitoring systems provide panel-level data, so homeowners can easily identify and troubleshoot issues.

Adjust Homeowners Insurance As Needed

The majority of homeowners insurance policies will cover damage to the solar system in the case of fire, vandalism, or extreme weather. However, some homeowners insurance policies have limits that are too low to fully cover the value of the solar system. If you purchase a solar home, verify with your insurance agent that the solar system is covered and that the policy limits are adequate.

So, Do Solar Panels Increase The Value Of Your Home?

Numerous studies show that solar panels do increase a home’s resale value and the Zillow study found the increase is around 4% nationally. This is good news, especially for solar homeowners who sell their properties before they have recouped the cost of the solar system from the energy bill savings. In addition to boosting the sales price, the solar panels can also help a home stand out in the real estate market, especially when there is a lot of inventory.

If you are interested in installing solar panels on your home, contact the Rocket SolarSM team today to get started!

Rocket Solar does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

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