Do solar panels increase or decrease the value of a home?
Homeowners are increasingly interested in installing solar photovoltaic (PV) systems (i.e. solar panels), and there are strong economic and environmental arguments for doing so.
Let's ignore that for a minute and look just at what effect solar panels have on house prices. Do solar panels increase or decrease the market value of the house itself? It's still early, but it looks like they generally increase the price, especially when owned by the homeowner. The picture is less clear for leased systems. Here are some considerations:
A recent study sponsored by the Department of Energy looked at almost 23,000 homes. It concluded that when the system was owned by the homeowner (i.e. not leased), it added an average of $15,000 to the value of the home. Most of the homes studied (96.5%) were in California, but the premium was still "highly statistically significant" for homes in other regions, including in the northeast. Positive.
Under new Fannie Mae guidelines, appraisers can add value for homeowner owned solar panels if warranted by market data. An excerpt: “Appraisers must compare energy-efficient features of the subject property to those of comparable properties... If the appraiser’s analysis determines that an adjustment is warranted based on the market reaction to such item(s), the adjustment must be include...” This new guideline can help justify a higher price to a bank. This is not permitted for leased systems; only for owned systems. Positive.
What are we actually seeing in the marketplace? Only 9 (0.3%) of the almost 3,000 single-family homes reported sold in the MLS in the past 12 months in this area (Brookline, Dedham, Framingham, Natick, Needham, Newton, Wayland, Wellesley, and Weston) advertised that they had solar panels. In other words, there is not a lot of data to go on, possibly because, if you install a new system, you probably aren't planning to move for a while. Of those 9 properties, I looked more closely at 3, in Newton and Weston:
- Two of those had owned systems, and one had a leased system. For the owned systems, the agents felt that they were “neither a positive or a negative because they were owned,” and felt that if the panels had been leased it would have been a negative. For the home with the leased system, the agent felt it to be slightly problematic, because some buyer agents are not yet knowledgeable about transferring solar leases. In the event, however, it did not harm the sale. Neutral.
- When I pulled rough comparables for each of those three properties, in each case the property with solar panels had a lower "days to offer" and fetched a higher price per square foot than the average. This is of course a small sample, and could be a case of correlation not causation. (If you have solar panels maybe you are also more likely to have a well-maintained, higher-end home.) Positive.
What about when the solar system is leased? The picture is less clear, and one risk, according to Sandra Adomatis, one of the authors of the study, is that "if you're in a market where the market participants — the buyers in the market — don't understand solar leases and they're fearful of it, they may totally steer away from homes with a leased system." (NPR)
I spoke with a sales consultant with SolarCity, to better understand the nature of PV leases and what happens when the homeowner wishes to move. According to him, a homeowner with a leased system has two options when they sell their home:
- The homeowner can pay to have the system moved to their new home, as long as it is within the service area of the same electric utility.
- The homeowner can transfer the lease to the homebuyer, as long as the homebuyer agrees. In 98% of cases this is what happens.
As leased systems become more common, the market will become more educated and I think it will be less of an issue. If you have a leased system now, when it's time to sell your house a knowledgable agent can mitigate many of the risks by marketing the property appropriately.
In summary, solar photovoltaic systems that are owned by the homeowner likely have a positive effect on the market value of a house. It’s not yet clear the effect, if any, of leased systems on home sale prices in Massachusetts.
If you'd like my full report, or would like a referral to a solar company, please do not hesitate to contact me! email@example.com