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How much value does a solar installation add to a property? It’s a question increasingly on the minds of consumers who are interested in the cost-benefit analysis of residential solar installations, also known as photovoltaic systems. If you haven’t already sold a property with solar panels, you probably will soon, so it’s important to understand the industry pitches and the potential gains for homeowners and investors.
Currently, the U.S. has 2 million solar PV residential and commercial installations, up from 1 million three years ago, according to the Solar Energy Industries Association. The total is expected to reach 3 million by 2021.
The growing interest in solar installations is easy to understand. “A lot of people like the idea that, number one, they’re going to be paying less for electricity, and number two, they’re locking in the price for electricity; they know exactly what they’re going to pay for electricity for the next 20 [or] 30 years,” says Vikram Aggarwal, CEO of EnergySage, a website that screens PV system installers and allows homeowners and businesses to request competitive quotes.
Once a system is installed, a homeowner typically pays a small monthly charge to be connected to the utility. This means they can divide the cost of the system by the monthly cost they have been paying for electricity to find out how long it will take to break even; after that, the savings continue indefinitely. For example, if homeowners have a monthly $215 electric bill, and $15 of that is the connection to the utility, they can install a PV system costing $15,000 to save $200 per month and pay off the cost of the solar installation in just over six years.
In parts of the country where power outages are common, solar installations with battery storage have an additional appeal because homeowners can store electricity for times when the grid is down. Battery storage is growing in popularity in California, the top state for solar installations, where concern over wildfires has caused utilities to repeatedly shut off power, and in Florida and Texas, where hurricanes led to power outages.
Comparison Shopping
But how do you help buyers and sellers assess the value of a solar installation for a home on the market? The dollar value depends on several factors, including the size, location, and age of the system, and the local cost of electricity. Until recently, that made assigning a value to a residential system difficult, but the free online PV Value tool, developed by data scientist Jamie Johnson, allows real estate agents, appraisers, and mortgage lenders to put a number on the current market value of a residential system, even if a seller no longer has the original contract with the system’s specifications. “We have a data set of almost every solar installation nationwide to help agents and appraisers know the value,” Johnson says. “We’re now at a point in the industry where you can do the sales comparison.”
Buyers are demonstrating they find the extra cost of solar panels worth it. “Home buyers are consistently willing to pay PV home premiums across various states, housing and PV markets, and home types; average premiums across the full sample equate to approximately $4/W or $15,000 for an average-sized 3.6-kW PV system,” according to “Selling Into the Sun,” a 2015 study prepared for the U.S. Department of Energy.
Survey Findings
Buyer interest in features that promote energy efficiency, like solar, was born out in a 2019 sustainability survey by the National Association of REALTORS® in which 69% of REALTORS® said energy efficiency promotion in listings was very or somewhat valuable, and 77% said a home’s utility bills and operation costs were either very or somewhat important to clients.
There are some caveats in a transaction to keep in mind: If the solar equipment on a home is leased, not owned, that can add complexity to the sale of the property. If this is the case, a potential buyer should calculate whether it would be better to assume the lease or to have the seller buy out the lease and add that to the price of the home. “When you merge it in your mortgage, the incremental cost is barely anything on a monthly basis and you get peace of mind and resiliency,” Aggarwal says.
But making the immediate financial savings of a solar installation clear to buyers may assuage concerns about their upfront costs. “If you’re an agent trying to sell a home with panels on it, put the savings in real numbers,” says Nick Liberati, communication manager for EnergySage. “Show the buyer utility bills, the savings before and after the system was installed. It helps them understand the value of paying a little extra on the cost of the house.
Talking Taxes
It’s tax season, and homeowners who purchased and installed solar photovoltaic systems last year can look forward to filing their returns. That’s because they can claim a 30% federal tax credit, on top of whatever state incentives they qualify for, for the full cost of their PV systems. (The federal tax credit goes down to 26% in 2020, still a strong incentive.)
The federal Residential Energy Efficient Property Credit (also known as the Investment Tax Credit) covers not only the cost of solar panels but also the installation of the system, so homeowners who spent $20,000 on a PV system for their home in 2019 can deduct $6,000 from their 2019 federal tax bill. If the credit exceeds what they owe, they can roll the remaining credit over to 2020.
One caution: Some solar companies try to sweeten the incentive by claiming that homeowners who have a new roof installed as part of this process can claim a tax credit for that cost as well. IRS guidance is unequivocal that only solar roofing (tiles or shingles that generate electricity), not standard roofing, qualifies for the credit. Moreover, a solar installation must be owned, not leased, to qualify for tax incentives.