I’m often asked, “How is solar going to impact the value of my home?”
Much discussion takes place around the impact of solar electric systems on property values. Zillow has provided its perspective in a national study and others in the Solar and Home Industries have reviewed the topic.
The truth of the matter is that it is the perception of value by an actual buyer in a real estate transaction that determines property values. Then what drives that perception? Knowledge is the answer. And we rely highly on our real estate professionals for that transfer of knowledge.
Enter Philip Henn, Realtor with the Fulton Rizzo Team of Hunt Realty in Cave Creek to help us with the market value of solar in real estate transactions. Philip offers, “Marketing a property with solar requires that the potential buyer understands the positive attributes associated with the system. Preempting any negatives should be discussed between the seller’s agent and seller before listing. These will assure that the property receives a fair value for solar during the sale process.”
Thank you Philip!
Now, in the absence of any knowledge, solar on a property can result in a negligible value or even a negative value. The negative attributes can be very real if the potential buyer finds panels, ownership, or payments for the system to be unattractive.
Value can be driven by eight main factors: performance, consumption, cost, financing, condition, warranty, appeal, and ownership. Now, no one is going to do the math around each of these attributes to arrive at the value. However, inquiring minds need to know, so here we go with some basic explanations.
Performance is the ability of the solar panels to convert sunlight into electricity to offset your property’s utility bill. Apparent performance can also very much be impacted by consumption. Rising consumption could be driven by aging, less efficient HVAC systems, appliances, windows, doors, insulation, or pool equipment. Or simply could be related to waning consumption habits and poorer management of electricity use, especially during higher-priced on-peak periods.
Rightly or wrongly, a solar home with a rising utility bill will have that blame placed on the system’s performance. Case in point, when reviewing the consumption of a disgruntled solar owner, I found that their consumption had increased dramatically since adding solar. This included high consumption in the early morning hours due to computer gaming (and I suspect Bitcoin mining!). Their solar system performance was excellent yet their perception of its value was poor.
Adding an unforeseen electric vehicle would likely result in a higher utility bill and the perception that the solar system is not performing well. On the positive side, replacing that old AC unit with a highly efficient model may drive the utility bill into negative territory, making solar look like a rockstar.
Solar, like any other investment, is more attractive when purchased at a sensible price. Paying too much will result in less attractive returns. Even the benefit of buying solar at the right price can be wiped out by poor financing. Such as paying up to a 35% premium for its early buyout. This is a definite possibility in a real estate transaction.
Then there is leasing and remember, “Friends don’t let friends lease solar!” Talk about being between a rock and a hard place. The property owner with leased solar generally must make concessions to affect a sale. Usually, this involves cash to buy out a lease or incentivize a buyer. Either way, it definitely does not add to the property value.
Age, condition, and remaining warranty on the solar system will all influence the buyer’s perception of value. An antiquated, dirty, and out-of-warranty array may be producing power just fine, but its perceived value will be less.
Understanding the factors which should impact value are quite different than how the market ultimately determines that value. And that latter circle in the Venn diagram is outside my area of expertise, and hence I recommend a chat with Philip when considering marketing a solar property.
Engaging the right professionals when purchasing solar and when selling, will ensure that the property owner maximizes return on their solar investment. All in all, done properly, solar represents one of the best investments that you can make on a property!