THE BIG QUESTION: Most homeowners want to know, will I make money, break even, or lose money on my solar panel purchase? The answer is complex, and marketing claims can be difficult to verify. This article keeps it simple and lets you make an informed decision.
OWNERSHIP IS IMPORTANT: Solar panel ownership falls into four categories.
Paid Off) which usually means you paid cash or used a credit card for the purchase.
Owned As Fixtures) which means the panels are considered part of the home and were usually installed when it was built.
Owned as Personal Property) which usually means they were installed after the home was built and are financed by a 3rd party lender.
Leased)
If your panels are Paid Off, or you own your panels as Fixtures, your panels might increase your homes appraised\loan value. If your panels are Personal Property or your panels are Leased, they will not increase your homes appraised\loan value. Why? Fannie Mae and Freddy Mac, which buy home loans from lenders on the secondary mortgage market, have rules that outline these four ownership categories
Is There Data About This? A national study by Zillow in 2019 (yes that is a very dated study and its results are questionable) claimed that homes with solar panels can sell for 4.1% more than homes without solar panels. My experience as a valuation expert is that 4.1% figure changes significantly depending on your homes market area and market segment, your homes age and condition, months of inventory / number of active listings in your market, and home loan interest rates.
AN EXAMPLE: Let’s walk through a simple example. You purchase solar panels for $30,000. Four years later you want to refinance, or you want to list your home for sale. You have a nice home and have taken care of it and you generally know what it’s worth. Similar homes in your neighborhood without solar panels have sold for $480,000. So you anticipate your home will be valued at $500,000 ($480,000 + 4.1%).
THE APPRAISAL: Sales and refinances generally require an appraisal. When the appraiser comes out to look at your house, they will ask about how the solar panels are owned. If you say they are owned as personal property or leased, the appraiser will assign $0 in value to your solar panels!! The appraiser will value YOUR home no differently than homes without solar panels! In this scenario, your investment in solar panels will not increase your homes appraised\loan value. Why? Because rules from Fannie Mae and Freddie Mac dictate how solar panels are valued. To ensure they can sell their loans on the secondary market, most lenders comply with the rules Fannie and Freddie put in place.
If you say they are paid off in full or were installed by the builder when the house was built, the appraiser will compare recent sales of homes in your area with and without solar panels (paired sales analysis). This analysis will determine the increase in value attributable to solar panels. The price you paid for solar panels does not factor into an appraisal. The appraiser is only interested in what value buyers and sellers in your market placed on solar panels.
IMPACT ON YOU: You anticipated your home would be valued at $500,000. The appraiser determines that similar homes without solar panels sell for $480,000 and the value added by your solar panels is $10,000. If your panels are Personal Property or your panels are Leased, the appraised/loan value of your home will be $480,000. If your panels are Paid Off, or your panels are Fixtures, the appraised/loan value of your home will be $490,000.
If you are selling your home for $500,000, the buyer will have to make up the difference (either $10,000 or $20,000) at closing. That extra $10,000 or $20,000 amount can be challenging for some buyers and often results in a downward renegotiation of the sale price. Plus, you will have to spend some of your equity to pay off your $30,000 solar panel loan at or before closing.
- If the money you gained from electricity savings, tax credits, rebates or incentives, and improved home value is MORE THAN your loan + interest, then you made money on your solar investment!
- If the money you gained from electricity savings, tax credits, rebates or incentives, and improved home value is LESS THAN your loan + interest, then you lost money on your solar investment.
THE BOTTOM LINE: Solar panels might increase the value of your home. But they can also take a chunk of cash out of your pocket when you sell your home and pay off your solar panel loan. How you purchase solar panels is an important factor in increasing the value of your home.
Consider all potential outcomes when deciding on a solar panel purchase.
We are real estate valuation experts! Contact us if you have questions | need a floor plan | need to know how big your home actually is | need to know how much your home is worth |or need market intelligence for your specific property.
Find all our informative and useful articles here.