Do Solar Panels Increase Home Value?

The cost of using solar systems are going down each year, and many homeowners are considering adding solar panels to their homes in Arizona. With an average of 299 days of sunshine in Phoenix AZ, the benefits of environmentally friendly energy and cost savings on home energy bills make solar panels look enticing. State rebates, tax credits and incentives add to the appeal.

If you’d like to know more about solar incentives available in your area, check out the Database of State Incentives for Renewables & Efficiency.

The question is, do solar panels increase home value like the solar companies profusely advertise?

The Office of Energy Efficiency and Renewable Energy says that a solar energy system will likely increase your home’s value and home buyers across the country have been willing to pay a premium of about $15,000 for a home with an average-sized solar array. Solar panels are viewed as upgrades, just like a renovated kitchen or a finished basement.

However, a home appraiser will look at several factors to determine if the solar panels actually increase the home’s value including system age, whether it's leased vs owned, and how much energy the solar system produces.

 

System Age

How old is the system? Solar energy systems last about 25 years. A new solar system with efficient technology, a longer warranty period, and less need for maintenance is ideal. If you have an older solar system, you should be prepared for some depreciation reflected in the selling price of your home.

 

Leased vs Owned

In order to be included in a property assessment, a solar energy system must be owned by the homeowner and should be an asset that can be transferred without obligation. Warranty and performance guarantees are generally transferrable with the sale of the system.

If the solar panels are leased, no, your appraised home value does not increase. If the solar panels are owned outright, then the answer depends on how much energy the system produces.

 

How Much Energy Does the Solar System Produce

According to the Appraisal Journal, every $1 decrease in energy costs increases the value of a home by roughly $20. According to a new Fannie Mae guideline, if a house has a solar energy system, the appraiser should assess its added value.

For an appraisal, assessing added value means determining the projected income that a solar installation will generate for the homeowner. Several factors determine how much energy a solar panel and solar energy system produce.

  • How old is the system? Solar energy systems last about 25 years. What it produces today, it won’t produce next year. There is a degradation of approximately 3/4% each year.
  • How is the system oriented? (shaded, full sun, etc) What is the slope of the system, and what direction is it facing (180degrees south has the highest production rate)?
  • What size is the system in kilowatts?

With all these factors taken into account, a property appraiser will estimate what the system is going to produce over the remaining life of the system and then use a Discounted Cash Flow (DCF) analysis, a valuation method used to estimate the value today of an investment (solar) based on it’s expected future cash flows, to determine the increased value of the home.

Are Buyers Looking For Homes With Solar Panels?

Arizona realtor Jill DeBord tells us Arizona buyers typically don't look for solar when searching for a home. However, having solar is an added benefit when it comes to listing all the features of a home. Homeowners who are selling can showcase the benefits of solar by having copies of their power bills.

 

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