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Enhance Your Home's Value

Understanding the Impact of Solar Panels on Home Value

Solar energy adoption is commonly motivated by the promise of energy savings and environmental advantages. However, an often overlooked benefit is the potential increase in property value and expedited home sales facilitated by solar panel installations.

Research conducted by Zillow and the Lawrence Berkeley National Laboratory highlights this trend, revealing that homes equipped with solar panels tend to command higher prices compared to their non-solar counterparts.

This article delves into the specifics of the financial boost solar panels can offer, their implications on property taxes, and key considerations for both sellers and buyers in transactions involving solar-equipped homes.

Quantifying the Added Value of Solar Energy Systems on Home Resale Prices

Zillow's analysis revealed an average 4.1% increase in home value for properties with solar panels compared to similar homes without. This equated to a $9,274 increase in median home value during the study period (2018-2019).

Additionally, a 10-year study by the Lawrence Berkeley National Laboratory (concluded in 2015) found that solar panels contribute approximately $4 per watt of installed capacity, translating to $4,000 per kW. The cumulative impact on home value varies based on the size of the solar panel system.

Factors Influencing Solar's Impact on Property Value

The exact value that solar panels add to your home depends on a variety of factors, including location, size, age, and efficiency. In general, the value added is roughly in line with the cost of the solar system and changes over time. Of course, the Zillow and Berkeley Lab figures are averages based on hundreds of thousands of home sales.

But here’s the kicker: If you claim the full 30% federal tax credit, then you essentially pay for 70% of the solar system and still receive 100% of the value it adds to your home. For example, say you purchase a 6 kW solar system for $24,000 and it adds $24,000 in value to your home. Your solar tax credit would be worth $7,200 bringing your net cost down to $16,800. So you ended up paying $16,800 for something that added $24,000 in value to your home.

And, remember, added home value is just the secondary means of solar savings. The primary means is energy bill reduction, which can add up to hundreds of thousands of dollars over the life of a solar system.

Boost Home Value by Owning Your Solar Panels

If you have a solar lease or Power Purchase Agreement (PPA), the solar panels don’t add value and can actually complicate the home sale.

While the ads for zero-down solar leases and PPA’s sound tempting, purchasing the system in cash or with a solar loan is often far more lucrative. The other thing to consider is that solar panels only increase your home value if you own them.

Will Installing Solar Panels Increase My Property Taxes?

The good news is that, as of October 2022, there is some form of property tax exemption for solar panels in 34 states plus the District of Columbia. If solar increases your home value, the obvious follow-up question is if that will lead to higher property taxes. After all, your property taxes are based on your home value and tend to increase as your home appreciates.

To get a better understanding of how solar panels will affect your property taxes, look up your state or local tax code. Solar property tax exemptions vary from state to state, with some applying to 100% of the system cost for the lifetime of the system, while others are limited to 5, 10, or 20 years. However, this article does not constitute tax advice. Consult a tax professional for advice regarding solar property tax exemptions.

Tips for Selling a Home with Solar Panels

According to a 2021 report by Zillow, energy efficiency is becoming increasingly important among homebuyers. The other great thing is that solar panels attract buyers and help your home sell faster.

This is especially important in 2022 with skyrocketing mortgage rates eroding the pool of homebuyers. The great thing about solar panels is you can typically recover the cost of the system (and sometimes more) in the sale of your home. That’s because you’re basically selling the system to the homebuyer as part of the house — just like a new roof, updated flooring, or remodeled kitchen.

As a long term investment, the longer you own your solar panels, the more money you can save. But life is full of surprises and you never know when you’ll need to pick up and move.

Home Buying Guide: Considering Properties with Solar Panels

With a properly sized solar system, you pay zero. Based on the average household electricity consumption (10,632 kWh per year) and the average grid electricity price (16.7 cents per kWh), the average household spends $1,775 on electricity per year. And that’s just the first year. Homes with solar panels tend to be listed higher than comparable homes without them. But here’s the important thing to remember: You’re buying a house without an electricity bill. Grid electricity prices tend to rise over time, and have at an average rate of 3.51% per year since 2017.

Here’s what your annual savings would look like based on typical utility rate increases:

$1,837 in Year 2
$1,901 in Year 3
$1,968 in Year 4

And here’s what your cumulative electricity savings could look like if that trend continues:

If you’re in the housing market, seeking out a home with solar panels and other energy efficiency upgrades can help you qualify for a larger loan. Plus, a house with solar panels is a long-term investment, providing clean electricity from the day you get your keys and bypassing the 3-5 month process of going solar.

Key Takeaway: Solar Panels Boost Property Values

Homeowners typically recoup the cost of the solar systems in the sale of their home. In fact, since energy efficiency upgrades are becoming more popular among homebuyers, solar panels can help your home sell faster and for more money.

To recap, it’s well documented that solar panels increase home values. Exactly how much value they add is up to debate, and depends on factors like location, condition of the panels, and the value of your home.

As a homebuyer, you can look at a house with solar panels as a house without an energy bill and an opportunity for long-term savings.