Solar Increases Home Value
Since a solar, photo-voltaic (PV) system cannot easily or economically be moved to another house, it is best to think of it as a permanent home improvement. The question about selling your house with a PV system is how will it affect buyer willingness and price. Of course, these can only be discussed in the general case, and neglecting major housing market changes. Anyone's individual house, neighborhood, or city may be exceptions to these generalizations due to unusual specifics.
If you have purchased the system, it goes with the house like any other improvement. But if you are leasing it or have a Power Purchase Agreement (PPA), there are some issues of concern when considering how solar will affect the value of your home when you sell it.
Unless you have pre-paid your lease, any prospective buyer will have to assume the lease and its monthly payments in order to keep the solar on the roof. The same applies to any PPA: a buyer would have to take over the PPA contract and payments to keep the solar.
Therefore, one issue of concern is that some buyers might be reluctant to take on the responsibility for the lease or PPA. How much value is added to or subtracted to the sale price of the house in these situations depends on many factors, including the terms of the lease or PPA, the number of years remaining, and how much the buyer will be saving on electricity.
A second concern is that, although solar vendors are usually willing to transfer the lease or PPA to any buyer, they may impose credit qualifications on the buyer, and that could limit your pool of potential buyers.
For other tradeoffs among the three ways of acquiring solar, please see Solar Lease, Buy, or PPA.
For SCE customers, because electricity rates are so high and sunshine is so abundant in Southern California, there is little doubt that an existing, prepaid PV system on a house enhances a home's value and sellability. The question is by how much.
If you have purchased the system, it goes with the house like any other improvement. But if you are leasing it or have a Power Purchase Agreement (PPA), there are some issues of concern when considering how solar will affect the value of your home when you sell it.
Unless you have pre-paid your lease, any prospective buyer will have to assume the lease and its monthly payments in order to keep the solar on the roof. The same applies to any PPA: a buyer would have to take over the PPA contract and payments to keep the solar.
Therefore, one issue of concern is that some buyers might be reluctant to take on the responsibility for the lease or PPA. How much value is added to or subtracted to the sale price of the house in these situations depends on many factors, including the terms of the lease or PPA, the number of years remaining, and how much the buyer will be saving on electricity.
A second concern is that, although solar vendors are usually willing to transfer the lease or PPA to any buyer, they may impose credit qualifications on the buyer, and that could limit your pool of potential buyers.
For other tradeoffs among the three ways of acquiring solar, please see Solar Lease, Buy, or PPA.
For SCE customers, because electricity rates are so high and sunshine is so abundant in Southern California, there is little doubt that an existing, prepaid PV system on a house enhances a home's value and sellability. The question is by how much.
The Best Study of How Solar Increases Home Value
The best and most up-to-date study in this area is the latest one by the University of California Lawrence Lab, published at the end of 2015.* The most relevant part of the study for SCE customers focused on 13 homes in San Diego.
It shows that PV systems increased the sales price of the homes they were installed on by between $1.46 and $7.53 per watt (STC DC rated), with an average of $4.31 per watt. The systems ranged in age between 6 months old and 11.4 years old, and in size between 1.43 kW (tiny) to 6.30 kW (a little above average). Even eliminating the outliers in the study, such as new systems, very old systems, and tiny systems, the average remained about the same: $4.41 added value per STC watt.
The system the example homeowners are considering costs $18,440 net and is of size 5,711 STC watts. At a value of $4.41 per watt, per the study, that would add over $25,000 in value to their house, once it was installed.
That means they would buy the system for $18,440 and, if they sold their house in a few years (the average age of PV systems in the study is 3.6 years old), they'd be able to sell it for $25,000 more than if they didn't have a PV system. They would make a $6,560 profit on the deal, not counting the electricity savings they'd reap in the meantime.
A buyer at that time would be paying this premium of $25,000 for their house as opposed to a comparable house without solar. But that buyer would save over $25,000 in electricity costs over the next thirteen years alone. They'd be even in thirteen years, and would then get decades of free electricity after that for nothing.
That is how and why solar increases home value.
It shows that PV systems increased the sales price of the homes they were installed on by between $1.46 and $7.53 per watt (STC DC rated), with an average of $4.31 per watt. The systems ranged in age between 6 months old and 11.4 years old, and in size between 1.43 kW (tiny) to 6.30 kW (a little above average). Even eliminating the outliers in the study, such as new systems, very old systems, and tiny systems, the average remained about the same: $4.41 added value per STC watt.
The system the example homeowners are considering costs $18,440 net and is of size 5,711 STC watts. At a value of $4.41 per watt, per the study, that would add over $25,000 in value to their house, once it was installed.
That means they would buy the system for $18,440 and, if they sold their house in a few years (the average age of PV systems in the study is 3.6 years old), they'd be able to sell it for $25,000 more than if they didn't have a PV system. They would make a $6,560 profit on the deal, not counting the electricity savings they'd reap in the meantime.
A buyer at that time would be paying this premium of $25,000 for their house as opposed to a comparable house without solar. But that buyer would save over $25,000 in electricity costs over the next thirteen years alone. They'd be even in thirteen years, and would then get decades of free electricity after that for nothing.
That is how and why solar increases home value.
The Test of Reason
A second way to estimate how much solar increases home value is the test of reason: put ourselves in the shoes of reasonable buyers and consider their alternatives: no solar or a new PV system, regardless of housing market conditions at the time of sale.
By the time you're ready to sell your house, the 30% ITC will either be decreased or gone (in 6-1/2 years from now). Whatever rebates and local tax incentives you may be able to take advantage of now will almost surely be gone. Even SCE's Net Metering and Time Of Use programs are slowly getting less advantageous for solar owners, although people with solar are grandfathered in for twenty years from when they got their systems. All these factors will increase the cost of a new solar system and decrease its electricity-cost savings. These changes make your existing system worth more than a new system to buyers, up to a point in your system's age, of course.
While prices for solar equipment and so-called "soft costs" to vendors and dealers will continue to decrease, they can't keep pace with the loss of the ITC, rebates, incentives, and utility programs, as well as increases in labor costs. Therefore, the net cost of a new PV system is likely to be more than you paid for your system.
For the example homeowners, buyers would have to choose between paying $26,000 more for their house with its existing PV system or buying a similar-sized system on a different house. Although solar panel prices will continue to decline, total system prices will do so more slowly, because the system costs besides the panels are declining only very slowly. But this new system may well be without the 30% investment tax credit, and the buyer would no longer be grandfathered in on utility bills, as they would be with your system. All in all, your system could turn out to be a bargain for a buyer.
In addition, it should be worth something to buyers not to have to go through the hassle and wait that goes with shopping for and acquiring a PV system themselves. Although yours will no longer be new, if it is a top-quality system it will still be producing nearly as much electricity as when it was new, and can be counted on to continue to do so for many more years. So depreciation of the system doesn't really factor into this consideration.
By the time you're ready to sell your house, the 30% ITC will either be decreased or gone (in 6-1/2 years from now). Whatever rebates and local tax incentives you may be able to take advantage of now will almost surely be gone. Even SCE's Net Metering and Time Of Use programs are slowly getting less advantageous for solar owners, although people with solar are grandfathered in for twenty years from when they got their systems. All these factors will increase the cost of a new solar system and decrease its electricity-cost savings. These changes make your existing system worth more than a new system to buyers, up to a point in your system's age, of course.
While prices for solar equipment and so-called "soft costs" to vendors and dealers will continue to decrease, they can't keep pace with the loss of the ITC, rebates, incentives, and utility programs, as well as increases in labor costs. Therefore, the net cost of a new PV system is likely to be more than you paid for your system.
For the example homeowners, buyers would have to choose between paying $26,000 more for their house with its existing PV system or buying a similar-sized system on a different house. Although solar panel prices will continue to decline, total system prices will do so more slowly, because the system costs besides the panels are declining only very slowly. But this new system may well be without the 30% investment tax credit, and the buyer would no longer be grandfathered in on utility bills, as they would be with your system. All in all, your system could turn out to be a bargain for a buyer.
In addition, it should be worth something to buyers not to have to go through the hassle and wait that goes with shopping for and acquiring a PV system themselves. Although yours will no longer be new, if it is a top-quality system it will still be producing nearly as much electricity as when it was new, and can be counted on to continue to do so for many more years. So depreciation of the system doesn't really factor into this consideration.
Quality of the PV System
However, these forecasts assume that your system is working well and of high quality, reliability, and durability, so that a buyer can rest assured that your system will produce close to its rated electricity, trouble-free, for the rest of its expected 40-year life. This is true only for the best equipment. Other cheaper, lower-quality systems may well have serious problems after a few years. Their output will certainly be degrading much faster than a top-quality system will, and they will have a much shorter life.
The quality of the installation will also matter to home buyers. How good the system looks on the roof - is it nearly flush-mounted or sticking way up, for example, and whether the roof is well sealed or leaks will naturally concern buyers. So having your system installed in a first-class way by a top-notch installer can make a big difference in how much solar increases home value.
As solar systems become more common, more and more people are becoming savvy about these differences, and value systems accordingly. Your solar system is an asset. How well it retains or increases its value as an improvement to your home depends on the quality of the system and of its installation.
The quality of the installation will also matter to home buyers. How good the system looks on the roof - is it nearly flush-mounted or sticking way up, for example, and whether the roof is well sealed or leaks will naturally concern buyers. So having your system installed in a first-class way by a top-notch installer can make a big difference in how much solar increases home value.
As solar systems become more common, more and more people are becoming savvy about these differences, and value systems accordingly. Your solar system is an asset. How well it retains or increases its value as an improvement to your home depends on the quality of the system and of its installation.
Effects on Home Value at Different Sale Dates
If you sell your home a few years after you get your PV system, you should be able to at least recoup its net cost by adding it to your home's sale price, although if sooner than 5 years, you would have to return a proportional part of the Investment Tax Credit (ITC) to Uncle Sam. For example, if sold after 3 years, you would have to return 40% of the ITC.
If you sell in 7 to about 15 years after getting the PV system, the ITC will be gone, so new systems will probably cost more than you paid for yours. But this higher cost may be offset by higher efficiency and longer remaining life of a new system. So again, you should be able to recoup most if not all of your original cost of the system.
If you sell your system when it is more than about 15 years old, it will have already more than paid for itself in electricity savings, so how much value it adds to the sale price of your house is less important. It should still add something significant, perhaps about half its original net cost, especially if it is a top-quality, long-lasting system, since it will continue to save on electricity costs for many more years.
What If You Don't Sell Your Home
If, on the other hand, you do not sell your house but just continue to save on electricity for many years by keeping your PV system, your cost savings will just keep increasing.
For the example homeowners, using the best financing, the savings would be over $37000 in 20 years, over $57,000 in 30 years, and over $72,000 in 40 years. Those savings are the difference between what they paid for your system and what they would have paid SCE for electricity without solar.
For the example homeowners, using the best financing, the savings would be over $37000 in 20 years, over $57,000 in 30 years, and over $72,000 in 40 years. Those savings are the difference between what they paid for your system and what they would have paid SCE for electricity without solar.
The True Cost of Solar
The Solar Panel Cost & Savings Calculator doesn't include what you will get for your system when you sell your house, because there's no way to know when or if that might happen. It considers that just to be gravy on top of the savings shown.
The true cost of solar, after including increase in home value, is nearly zero in most cases. And that's without considering any electricity savings at all! That means when you buy a PV system for cash, you are just exchanging one kind of asset for another: cash for a home improvement worth the same (or more in the early years) than the cash. Or if you finance the purchase, you are only acquiring an asset and a liability of equal value: the PV system (the asset) for the loan (the liability). In accounting terms, it means such a transaction has zero effect on your net worth. Again, that's without considering the tens of thousands you'll save on SCE bills.
Right now, many real estate agents, appraisers, loan underwriters, and lenders have not had enough experience with selling houses that have PV systems to know how to value them properly. This is changing rapidly, especially in Southern California. You can expect these professionals, for whom the various studies like the one from Lawrence Labs are written, to catch up soon and value homes with PV properly.
The true cost of solar, after including increase in home value, is nearly zero in most cases. And that's without considering any electricity savings at all! That means when you buy a PV system for cash, you are just exchanging one kind of asset for another: cash for a home improvement worth the same (or more in the early years) than the cash. Or if you finance the purchase, you are only acquiring an asset and a liability of equal value: the PV system (the asset) for the loan (the liability). In accounting terms, it means such a transaction has zero effect on your net worth. Again, that's without considering the tens of thousands you'll save on SCE bills.
Right now, many real estate agents, appraisers, loan underwriters, and lenders have not had enough experience with selling houses that have PV systems to know how to value them properly. This is changing rapidly, especially in Southern California. You can expect these professionals, for whom the various studies like the one from Lawrence Labs are written, to catch up soon and value homes with PV properly.
* Sandra Adomatis and Ben Hoen, “Appraising Into the Sun: Six-State Solar Home Paired-Sale Analysis, An Analysis for Appraisers and Other Valuation Professionals” Lawrence Berkeley National Laboratory, November 12, 2015.