Do Solar Panels Increase Home Value?
6 - Minute Read
PUBLISHED: Nov 3, 2022
There are enough solar energy systems in the United States to power nearly 22 million homes. Now that solar electricity is relatively mainstream, many solar homes are on the real estate market. So, how do solar panels and the often-lower energy costs that come with them impact a home’s worth?
Numerous studies show that solar panel systems increase property values. Let’s explore what makes solar panels so attractive to home buyers and review some data that puts a number on the impact of a solar energy system.
Does Solar Increase Home Value?
Multiple factors can impact home prices. Location is usually high on home buyers’ list because it affects commute time, school choices, recreational activities and many other aspects of daily life.
The size and condition of the home are also important. Potential buyers, real estate agents and home inspectors will take a close look at everything from kitchens to closet spaces to HVAC units. They’ll also keep an eye out for upgrades that make the home a better value and might improve quality of life.
Home buyers are also becoming more interested in “green” home improvements like solar panel installations – and they’re increasingly willing to pay more for homes with solar power.
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 were purchased for a greater premium.
How Much Do Solar Panels Increase Home Value?
Installing a solar system can potentially increase your home’s market value by over $9,000, on average. And, 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?
Prospective Buyers Look For Future Energy Savings
Solar-powered houses may be less expensive to operate than their nonsolar counterparts. That’s because installing a solar panel system can dramatically lower electric 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.
Home shoppers will often 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’re less expensive over time even if they have a higher asking price.
Solar Offers High Return On Investment And Tax Incentives
According to Palmetto, it takes 6 – 10 years for a solar panel system to pay for itself. This “payback period” can vary by location depending on the local cost of electricity, incentives, utility net metering policies, system size and other factors.
In California, the payback period can be under 6 years. But the systems are designed to last 25 – 30 years, allowing homeowners to 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.
In addition, the federal government offers a tax credit for installing a solar power system. Through 2032, the credit is worth 30% of the total system cost, including labor and equipment. The credit amount dips to 26% in 2033 and 22% in 2034 before phasing out in 2035, unless the government extends it.
Also, some states, municipalities and utility companies offer solar incentives, including state tax credits and rebates. When homeowners qualify and 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.
Homeowners Turn To Solar For Grid Independence
More than 60% of the electricity in the U.S. 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. According to a Consumer Affairs study, more than half of the homeowners surveyed would like greater energy independence and to produce their own energy. Solar panels enable homeowners to take advantage of the free renewable energy falling on their property every day. And this gives homeowners 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 U.S., 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 electricity bills. Home shoppers are often willing to pay a premium for energy-efficient homes.
In addition, the extra value of a solar system hinges on the system itself. Not surprisingly, new solar arrays can increase the value of the home more than a system over 10 years old. Likewise, solar systems with a higher capacity have a greater value because they result in greater utility bill savings.
Solar Attracts ‘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.
As a result, solar homes spend an average of 13.3% less time on the market and are 24.7% more likely to sell over the asking price, according to data from Rocket Homes.
Many States Protect Solar From Property Tax Increases
The downside of a higher home value is that you might also wind up with a higher tax burden. According to the Solar Energy Industries Association (SEIA), more than half of the states in the U.S. protect homeowners from property tax increases related to solar panels. Among the states that exempt solar homes from higher property taxes are Arizona, California, Colorado, Florida, Illinois, New Jersey and Texas.
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4 Key Considerations Before Buying A House With Solar Panels
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 necessary 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.
1. 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’s 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.
The solar lease agreement sometimes 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 a decade ago, and solar financing has become more popular.
2. It’s Helpful To Understand Existing Warranties Before Buying
Most solar systems come with warranties from both the solar installer and the equipment manufacturer. If you’re 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. It might, therefore, be necessary to pay for the labor to have equipment replaced, even if the item is under warranty.
3. Buyers Should Factor In Any Necessary Maintenance
With no moving parts, most solar systems don’t require regular maintenance aside from occasional cleaning. If a solar system needs a repair, it might be partially or fully covered by warranties. However, it’s a good idea to factor in a bit for future maintenance. One great way to identify whether 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.
4. 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.
The Bottom Line: Solar Panels Can Increase The Value Of Your Home
Various studies show that solar panels increase a home’s resale value, and the Zillow study mentioned earlier found the increase to be around 4% nationally. This is good news, especially for solar homeowners who sell their properties before they’ve recouped the cost of the solar system from the energy bill savings. Selling a house with solar panels can boost the sales price and help a home stand out in the real estate market, especially when there's a lot of inventory.
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.