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Do Solar Systems Increase Property Values?

By Bob "The Clean Energy Guy" Mitchell
February 9, 2011 | 36 Comments

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In my last post, “Will Solar Sales Stay A Professional Position,” I mentioned that my previous career had been in the real estate and mortgage industries. In response to that post, I got a call from a guy who was curious about the impact solar electric systems had on real estate values.

I have to be honest here: I told the guy that I didn’t know, that my gut level was that they would be treated about the same as swimming pools are. That is, in certain markets they would add value, but seldom add enough value to justify installing one (at least on simply this basis) and that in other markets they might even detract from value.

The guy was taken back with my answer! “Oh no!!!! They’ve got to add value because they save people money on their electric bills."

He went on to say that people would pay more for a home if it had a solar electric system because solar electricity was helping to save the planet!

Well, as I told the guy, I really didn’t know because I had never looked into it. So that’s what I did this morning. I called and talked to 3 different real estate appraisers from here in the Los Angeles area and they all said basically the same thing: "It's too soon to tell."

I then got on this site and searched the term, “Real Estate Values.” I found an article that was posted here last September by Nami Sung of SunRun called, “How Does Solar Power Impact Home Value." The article basically says that a solar electric generation system will increase the value of a home.

Specifically, she quoted The US Department of Energy as saying, “a solar home will sell twice as quickly as a home without solar."

So, which is it? Do homes with solar electricity systems sell faster and for more money than homes without such systems?

While I would love to say that they do, I have to say that I’m with the appraisers on this one. It’s simply too early to tell. In the long run they just might; but in the here and now, it's not clear that they do.

Most homes are purchased with the buyer taking out a mortgage – and mortgage financing almost always requires an appraisal; the appraiser is going to have to prove that the “improvement” adds to the value. In order to prove this, the appraiser has to provide “comparables” or other properties that are similar to the subject property that have sold recently.

As of today, there simply aren’t enough properties with solar energy systems that have sold to be able to provide this proof.

That’s not to say that that this will always be the case – but for now it is. And anybody who says that investing in a solar electric system will definitely increase the value of their home is doing that potential customer a disservice.

I know that this isn’t what people want to hear. But there are a lot of other reasons for justifying the installation of a solar system.

As Ms. Sung pointed out in her article:

All other things being equal, a home with a lower electric bill will indeed tend to sell faster.
Electricity demand is increasing in most major markets and this increase in demand combined with projected higher fuel costs for utilities will probably lead to higher electric bills for most consumers; having a solar system installed will help insulate consumers from these potential price shocks.
Homes with solar systems have smaller carbon footprints. And while not guaranteed to continue, more and more people are considering this in their economic decisions.
While payback periods will vary, in most installations where a system is justifiable, the system will indeed pay for itself in a reasonable amount of time.
It’s a great thing knowing that you're doing your part to lessen our dependence on foreign oil and improving our environment.
You can become independent from your local utility (at least to a certain degree).

So, there you go. I’m curious to see what you all think. Your comments, as always, are greatly appreciated!

Bob “Free As The Wind” Mitchell

Solar Energy

The information and views expressed in this blog post are solely those of the author and not necessarily those of RenewableEnergyWorld.com or the companies that advertise on this Web site and other publications. This blog was posted directly by the author and was not reviewed for accuracy, spelling or grammar.

36 Reader Comments

Comment
1 of 36

PamelaCargill

February 9, 2011

Bob, I was considering writing about this topic but was conflicted about the studies that have been done vs. the real estate realities. Housing markets are microcosms and, as you aptly point out, it's the comparable home transaction values that drive what a mortgage lender would be willing to write a note against for a given home. Unfortunately, in many cases now the comparable values are foreclosures.

I'd recommend people interested in this topic read the review of studies done by McCabe and Merry: http://www.sunmarketingsolar.com/white_papers/Solar_Resale_Value_Article_Analysis_Table.pdf

Comment
2 of 36

Anonymous

February 9, 2011

I'm going to have to disagree with you on this one. When my parents got their PV system installed we were told that for every $1 reduction in annual electricity bills, a homes value increases $15-$20. There are also numerous websites that state this. This google search I did shows that: http://www.google.com/#sclient=psy&hl=en&rlz=1R2ADFA_enUS382&q=electricity+reduction+home+value+increase&rlz=1R2ADFA_enUS382&aq=f&aqi=&aql=&oq=&pbx=1&fp=517884ad4e853a0b

This is a PDF of a publication from ICF: http://www.icfi.com/markets/community_development/doc_files/apj1099.pdf

I appreciate your article, but I think you went about determinig it the wrong way. You looked at PV in the same light as a pool. The problem with this is that a pool has the potential to decrease value because people might not want to have to deal with the maintenance or because they feel it is a safety concern with little kids running around. PV on the other hand is very close to maintenance free and has no safety issues. About the only problem I can see with PV is that some people find the panels unattractive, but if you can show them that that house is spending 50, 75 or 100 percent less on electricity (or less depending on multiple factors of course) that is a nice benefit.

Just to add I am not in the business, just somebody that is very interested in this, so please do not take this as fact, it is just my opinion.

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Marvin_Hamon_PE

February 9, 2011

Great stuff Bob. I agree that without the sales history we are not going to know how solar will impact residential values. Predictions are great but it's what the houses are sold for that will tell the true story.

I have to wonder why no one has published anything about the resale values of homes after a solar installation. I have to assume homes with solar installed have been resold and therefore valued.

Anon, who told you this about your parent's PV system? The mortgage company that was refinancing the house based on its determination that the PV system added value, or the installer who maybe had a little bit of incentive to put that out there to make the sale? Different sources have different value.

Many websites say UFO's are real and crystals are a secret energy source so saying that "There are also numerous websites that state this" does not support a position.

People have been quoting this same appraisal study over and over and we all really want to believe that what it says is true because it says solar increases the value of a residence. Of course wanting it to be true does not make it true. It's the closing value of a home that counts, not estimates and surveys.

As an added point don't discount a big safety downside of PV, we are putting up to 600V on a residence that normally only has 240V available. On top of that there is no way to turn it off at the source other than to physically tarp the array. Does this sound any more safe to a lay person than a pool? It bugs me and I'm in the business.

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4 of 36

Liz_Merry

February 9, 2011

Thanks for the mention Pam! And I agree with Bob and Marvin that we just don't have real analysis available yet. Even when a large study is done (and there is one in the works over at LBNL) real estate values are highly variable by region so Calif data might not mean much to NJ or CO.

The most helpful thing would be for solar salespeople to focus on what we know makes solar a great investment and leave the resale value issue to your local real estate agents.

Educating the real estate agents and appraisers about the benefits of PV and thermal would do much more for our business and recruiting customers than continually repeating unsubstantiated guidelines like the 1:20 valuation.

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Jim-Jenal-RunOnSun

February 9, 2011

Interesting thread. At the end of the day, an object is only worth what someone is willing to pay for it - that is true if the object is a bar of gold, a sack of rice, or a solar array. It is, therefore, difficult to assign an intrinsic measure - such as the 1:20 metric - to a PV array without looking at the prevailing conditions that exist between the buyer and the seller. Comps would always be nice in that regard - but comps in this housing market are not terribly meaningful for long term planning.
That said, a solar power system is *not* a swimming pool and should not be valued in a similar fashion. A swimming pool necessarily *increases* the cost of ownership over time and its value is subjective. A solar power system *decreases* the cost of ownership and its value can be measured precisely - indeed, the electric utility does that for you on a monthly basis!
I agree with Liz - as a solar installer my time is better spent educating the public (which includes real estate agents) about the value of PV. When we get to the point where everyone buying a home is as clear about the benefits of a solar power system as they are about the benefits of pools, the valuation process will take care of itself.

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SolarFred

February 9, 2011

There is new data from the National Renewable Energy Laboratory (NREL). The NREL study determined homes with solar panels sell faster and for more money. The data is from a San Diego, California real estate developer.

In a new residential subdivision owned by the developer, half of the homes were built with PV solar panels and solar hot water systems, while the other half didn't include the solar features. So which would sell faster?

The 257 homes WITH residential solar panels sold within a year of going on the market – about 2 years faster than expected.

In addition, the solar homes sold for $100,000-$200,000 *more* than their listing price (as much a $600,000 for houses were priced in the $380,000 to $500,000 range).

Here's the link to the full PDF study:

http://www.nrel.gov/docs/fy07osti/38304-01.pdf

While this one market in one state... in one subdivision, it bodes well for solar adding value compared to comparable homes.

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gary-tulie-73445

February 10, 2011

It would be interesting to see information from more mature photovoltaic markets such as Germany where hundreds of thousands of homes have had photovoltaic arrays for a number of years!

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Anonymous

February 10, 2011

Marvin,

I believe the installer did mention that fact and we did not have a mortgage company come refinance the house. Also, I posted a google search that had many results showing studies that the reduction of the annual electrical costs gives a $15-$20 increase, one study found this based soley on creating better efficiency for the house, not having solar panels.

Also, your comment of many websites claiming UFO's exist is completely nonsense. UFO's DO exist. UFO stands for Unidentifed Flying Objects, therefore when something that is flying can not be identified it is a UFO, go figure.

Lastly, about your statement about 600v and whatnot. A homeowner is less likely to be near the PV system where they can get harmed. Also, 200v coming into the house is a lot anyway, I doubt the extra 400v would really have much more affect in seriously harming somebody. A pool on the other hand is a lot more easily accessible and therefore a lot easy for a child (or a drunk person) or even an old person to fall into and drown. I can easily see why people see pools as a hazard, but solar panels tend not to be where people are going to be able to go up and touch/mess with them very easily.

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csihde

February 10, 2011

We are lucky in Delaware. The Delaware Green Energy fund pays you 1/2 of the cost plus 30% Federal Energy credit and the owner still has the REC (Renewable Energy credit) right. The REC's can be sold for anywhere from $250 to $375 per REC (1 MWh). So the PV system actually makes money for the owner. I don't see why the PV system would not increase the resale house value particularly in Delaware.

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SolarSherpa

February 10, 2011

I am always interested to read articles like this. It can be challenging to figure out if the value of a home is increased. In NJ the solar market has grown so quickly that there is a small number of solar homes that have been sold.

I've spoken with a couple of Real Estate agents who have sold homes with Solar. They each had a unique situation. First, the homes sold quickly. In one case, the seller wanted to recoup his solar investment and the buyer was not willing to pay a large premium for solar. So, the SRECs stayed with the buyer for 5 years while the new owner would receive all the electricity. After 5 years, the SRECs would revert to the buyer.

In the other case the home being sold would have all benefits go immediately to the buyer. The home sold quickly in a slow market, though not at a premium.

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FreeAsTheWind

February 10, 2011

Wow! Thanks for all of the comments! It looks like I may have some reading to do! ;-)

Pam: Foreclosures are indeed a pickle in the appraisal process and appraisers are required to take into account the fact that a property sold under duress into account when doing their valuation. That said, in some markets, foreclosures ARE the market and the chips just have to end up where they fall.

I'll read the review and if I can find them,the studies that you mentioned. Thanks for your comment!

Anon: I have no doubt that a lower electric bill would be attractive to a potential buyer and taken into account when deciding which home to make an offer on and on how much to offer, but it also has to be balanced out with the other features of the home. In the end, unless it's a cash offer, the home has to appraise and in order for it to appraise, the appraiser has to be able to "prove" that any particular feature does indeed add value.

To illustrate this point, I once went on a listing call for a home that was pretty much identical to the other homes in this particular neighborhood.

There were plenty of comparables and when I showed the lady what I thought I could get for the home, she got angry and pointed out that HER home had brand new "Thermoguard" (a high end, energy efficient window)windows throughout.

She informed me that she had paid $15,000 for these windows and wouldn't take a penny less for them.

The home which will slay most of you, was only worth about $105,000. She wouldn't list it for below $120,000 so, I passed on the listing.

She listed the home with another Realtor and after almost 2 years on the market it finally sold for under $100,000.

My best guess would be that if she would have listed the home for $110,000, she could have recouped some of her investment. As it was, the market spoke loud and clear to her!

Thanks for your comment.

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FreeAsTheWind

February 10, 2011

Another example would be a home seller attempting to recoup the cost of a new roof. Buyers expect the property to have a roof on it and for the roof to be in good condition when they buy.

If it's a brand new roof, the home seller might recoup a small percentage of their costs, but as time goes on and the roof gets to be 5 years or so, it's simply a roof at that point.

Clee: I agree with you to a certain extent, but I don't know about you, but if I was making an investment in my home (which is statistically the largest investment that most people ever make)I'd want to at least have an idea what, if anything, I could expect to get back on my investment.

Yeah, my first concern should be the "utility" that I get from the improvement, but I think that it's human nature to want to know if that was all I was going to get back. Make sense?

Marvin: To answer your question about why there isn't much out there to document the effects of a solar installation on value is because there really hasn't been that many sales. Also, the ones that have been made have probably had the value discounted because of the appraisal issues that we've talked about.

Excellent point on considering the source! Thanks for your comment!

Liz: I agree with you that the solar sales person should "focus" on their area of expertise, BUT.....the effects on value is naturally going to be something that potential customers are going to ask about and I think that Solar sales people should be able to intelligently be able to address the issue. That is, address it in a forthright, honest and substantial-able way. Thanks for your input!

Bob "Free As The Wind" Mitchell

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FreeAsTheWind

February 10, 2011

Fred: New homes are generally valued a bit different than resale homes. For example, if you spring for the upgraded flooring in a new home, you might end up paying, say..$20,000 for the upgrade.

Now, when you go to sell that home a year or two or three from now, it only makes sense that you would attempt to recoup the cost of the upgrade. And let's say that you find somebody who does value that upgrade as much as you did and is willing to pay for it and gives you your price.

Unfortunately, there are three other homes that didn't spring for the upgraded floors that are still very similar to your home that have sold for $20,000 less than your buyer is willing to pay. Guess what the appraiser is going to say?

You guessed it, that the buyer is paying too much for the home!

In all my years in real estate and mortgages I only saw a new home not appraise out ONE time!!!! I scratch my head at this, but it's true! Thanks for your input!

Clee: The fact that it is difficult to actually calculate your "savings" is problematic because a confused mind generally says, "NO!". That said, as utility rates increase, which they are very likely to do, I would think that the savings will become more and more apparent. Thanks for your comment.

Gary: Very interesting point! I've got a friend who is in the real estate business in Munich, I'll drop her an email and see if she knows???

Anon: As my story earlier about the high efficiency windows points out, it doesn't matter what the window company tells you, but rather what the market says.

I do agree with you regarding the safety issues though. As long as the system is properly installed and maintained, I don't think that safety is really an issue. There are a lot of things in a house that can kill ya! Thanks for participating!

Bob "Free As The Wind" Mitchell

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FreeAsTheWind

February 10, 2011

Csihde: While those subsidies do appear generous, my gut level is that buyer's will take the "net" value of the systems into account (if at all) when making their offer. Thanks..

Solarsherpa: Sorry to bore you with another war story, but your point reminds me of a home sale that I was involved in where the seller spent something like $100,000 (on about a $600,000) home automating EVERYTHING. It was cool!

If you were a guest in the home, the owner gave you a little key thing that you programed with your likes such as what kind of music you liked. When you walked into a room, the house changed the music to what you had told it that you liked. Even cooler, if you walked into the room with somebody else, it took both of your likes into account and attempted to play something that you both would be okay with...

It also turned lights off and on and took voice commands and such...like I said, it was a neat house....it sold for right at the top of the market, but not at any major premium!

Thanks all for your comments!

Bob "Free As The Wind" Mitchell

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FreeAsTheWind

February 10, 2011

Clee: I agree with you. Regarding the kitchen, up until this year I was one of the contributors on the Remodeling Magazine's annual cost vs. value report and as you can probably guess, I wasn't one of the reader's favorites because I just didn't buy into that 75% - 85% figure that generally gets tossed about.

Especially when people end up paying too much for a new kitchen, bath or other home improvement (which they do with remarkable frequency!). Thanks

Bob "Free As The Wind" Mitchell

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bill-geils-64430

February 10, 2011

Hay Bob,

Great article, I own a swimming pool and I purchased my home because it came with one. There's nothing more enjoyable for me, than floating in your own swimming pool, WOW it's the most fantastic feeling, THIS MINE, I love it. As for maintenance it's all part of the adventure of owning something that needs to look great all the time. I find it harder to grow grass than maintaining a pool.

I am a Connecticut certified home inspector, our job to observe; we observe what is right and could be wrong with the structure. It's not our job to say what dose and what doesn't bring value. With any system that we are not licensed or trained in, inspectors can only recommend to the buyer to hire a licensed, insured and in this case, a solar company to evaluate the effectiveness of the solar system. It's not our job to do comps, that's the Realtor job.

I am also a real estate investor with fishermanbuyshouses and we have been purchasing, holding and selling real estate for more than 12 years, I agree with The US Department of Energy as saying "a solar home will sell twice as quickly as a home without solar." A seller can think that a solar system could bring added price tag, with today's real estate market we find it difficult to move inventory which has been marked above the comparable area. The name of our game now is how fast I can sell the property. I truly believe a solar system adds value. A solar home will sell twice as quickly as a home without solar, fantastic. The faster I sell a home the less holding costs I have to endure. I acutely made money by not holding on to it longer then if I were holding out for another $1000.00 or two.

I welcome the opportunity of solar for our rentals I would install a system, so I don't have to pay the electric company for our common hallway electric light bills.

Sincerely,

Bill

Fishermanbuyshouses <(((~~~< =========

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17 of 36

bill-geils-64430

February 10, 2011

Hay Bob,

Great article, I own a swimming pool and I purchased my home because it came with one. There's nothing more enjoyable for me, than floating in your own swimming pool, WOW it's the most fantastic feeling, THIS is MINE, I love it. As for maintenance it's all part of the adventure of owning something that needs to look great all the time. I find it harder to grow grass than maintaining a pool.

I am a Connecticut certified home inspector, our job to observe; we observe what is right and could be wrong with the structure. It's not our job to say what dose and what doesn't bring value. With any system that we are not licensed or trained in, inspectors can only recommend to the buyer to hire a licensed, insured and in this case, a solar company to evaluate the effectiveness of the solar system. It's not our job to do comps, that's the Realtor job.

I am also a real estate investor with fishermanbuyshouses and we have been purchasing, holding and selling real estate for more than 12 years, I agree with The US Department of Energy as saying "a solar home will sell twice as quickly as a home without solar." A seller can think that a solar system could bring added price tag, with today's real estate market we find it difficult to move inventory which has been marked above the comparable area. The name of our game now is how fast I can sell the property. I truly believe a solar system adds value. A solar home will sell twice as quickly as a home without solar, fantastic. The faster I sell a home the less holding costs I have to endure. I acutely made money by not holding on to it longer then if I were holding out for another $1000.00 or two.

I welcome the opportunity of solar for our rentals I would install a system, so I don't have to pay the electric company for our common hallway electric light bills.

Sincerely,

Bill

Fishermanbuyshouses <(((~~~< =========

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18 of 36

ALIVEIndustries

February 11, 2011

See this article: http://cleantechnica.com/2010/10/23/solar-homes-sold-20-faster-and-for-17-more-nrel-study-finds/

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Anonymous

February 11, 2011

Selling faster? Sure; but good luck trying to get a penny extra for your solar system here in the Sunshine State. With home values hovering around $100K, and properties sitting on the market for many, many months, any price increase would knock you out of the comps range. The $0.099/kwh rate from the utilities does not help.

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KLarson

February 11, 2011

An interesting thread of content which my company must deal with monthly.
In a nutshell - the question is - does a solar system add to the net worth of a home during an appraisal and eventual sale of the home. I believe the answer is should be yes and yes the real estate market has not fully caught up with this additional value.

Compare a home for sale that has an existing 1960's oil fired hot air furnace with an air conditioning coil within the ductwork. The energy efficiency of this system for both heating & cooling is generations behind what is presently available. Most home buyers would take into the cost of replacing this HVAC system "if" they purchased the home. Due to the age and efficiency factors of this existing system - I am certain this would affect the selling price. A brand new HVAC system can only save on energy costs.

A home with a solar PV panel system will not only save on the homes energy costs - but also possibly create an additional level of income for the homeowner by selling excess electricity back to the electric utility and selling the PV systems Solar Renewable Energy Credits. Note: There is no other system within a home that can save energy and provide an income except for a renewable energy system.

To close: As the price of renewable energy systems drop and standard energy sources (electric, fuel oil, propane, natural gas) increase – a home with a renewable energy system will be seen as added value by both buyers and appraisers across America in the very near future.

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NJ-Solar-Man

February 11, 2011

Bob, Thank you for asking this question. I sat in a session related to this question 2 years in a row at SPI and no one really answered the question. So I did a study based on the NJ market.

I tried to have the study published in a peer reviewed journal but was rejected because the R ssquared was relatively low and as others mentioned there is little data available. That said, the data set is large enough from a statistical persepctive, over 30 and the variable (i.e. solar or not) was very statistically significant.

What I found was in NJ the value of solar for residential resale was in the high five figures. This was based on actual sales and comparable homes. I am reluctant to be more specific because I would prefer to have it vetted and accepted by a peer reviewed journal first.

I will be happy to discuss it with anyone off line. I can be reached at greenalternatives@comcast.net

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FreeAsTheWind

February 11, 2011

Alive: I've read that study and while it might have some validity regarding new home sales, particularly in the San Diego market prior to the housing bust, I don't think that the same would apply to the existing housing market.

Above, I used the example of a home buyer purchasing a flooring upgrade, while the nicer floors might bring about a faster sale when the home goes back on the market, I doubt that they would bring much of a premium, especially when the property is appraised.

Having a good number of home equipped with solar will start to give the appraisers the "proof" that they need to grant the extra value to a home, but it will take awhile before the full value of the system is able to be added (if ever). Thanks for your comment!

Bill: I used to flip homes myself and in that business you are required to walk a fine line between improving the property in order to sell it and spending too much improving it. That said, while solar would be a neat feature on a property, I don't know that I would spend the money if I was going to flip it.

The problem with putting solar on a rental is that the owner isn't generally the one that pays the electrical bill. If you only look at covering the cost of the common areas (that a landlord does generally pay) you run into an economy of scale problem. Thanks for your comment.

Bob "Free As The Wind" Mitchell

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FreeAsTheWind

February 11, 2011

Anon: Florida was one of the worst hit states in the crash and I can definately see that people there would be too busy licking their wounds to even think about adding solar and believing that they would ever get their money back.

Florida will recover eventually though and for somebody who is going to own their home for a while, solar can still be a great investment! Thanks for your input!

Klarson: You're right, if a home has an antiquated HVAC system, potential home buyers will definately take that into account when making their decision to make an offer.

However, say that you replaced that system with a standard efficiency system, the chances are that you would probably get your money back (as long as you didn't pay too much). Now say, that the salesman talks you into bucking up for a 90+ High efficiency setup that costs $4000.00 more than the stander efficiency system. Chances are that you're not going to recoup that additional cost or at least much of it.

It will be a selling feature, but not one that is generally rewarded by the market. Thanks for your comment!

Bob "Free As The Wind" Mitchell

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FreeAsTheWind

February 11, 2011

NJsolarman: It would be interesting to see your study. If I understood you correctly, it seems that homes in your market that did have solar averaged in the high 5 figures...this would make sense to me because I would think that people who own more expensive homes would be more likely to be able to afford an improvement such as solar???

The question would be how the price that they demanded would compare to similar homes that don't have the solar?

Let me know what you think?

Bob "Free As The Wind" Mitchell

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jpmcdonnell79

February 11, 2011

Be aware that Residential and Commercial are two completely different animals. With a background in Commercial real estate, the value of a building is based primarily on the income and area. But mostly income. If you eliminate expenses (by reducing electric costs), then that money directly relates to a higher value via an increase in the net operating income (NOI). How much? Market rates of course i.e. capitalization rates. A $10,000 reduction in expenses/increase in NOI would be more valuable in a stronger market like NY or LA, as opposed to rural towns/cities.

Residential comes with a different valuation. Most often valued by what has sold in the area. So until residential solar has a big enough sample size to show data on how much it increases value, we will have to wait and see.

But as for commercial (income properties) you can definitely track the value of the solar generating facility by what it is producing. Numbers don't lie. For future values, that is for the investor/buyer to decide on what the exit "cap" rate will be.

If anyone would like to discuss further, please let me know. Email me at john@sunrenu.com

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FreeAsTheWind

February 11, 2011

John: Having done commercial mortgages for a couple of years, I would agree with you that the reduction in expenses would be reflected in the NOI.

Thanks for pointing this out!

Bob "Free As The Wind" Mitchell

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bkarney

February 11, 2011

I blogged about this a while back at http://mvsolar.blogspot.com/2009/05/how-much-does-solar-system-increase.html

The biggest issue, as I see it, is that many residential solar installers make outlandish claims about increased home value during the selling process. By outlandish, I mean any claim that a PV system adds more value than its initial cost.

These claims can be easily refuted, as my blog posting explains. In a nutshell, I believe that, on Day 1, solar adds an amount equal to what you paid but that its market value declines rapidly over the useful life of the system, much the same way that automobiles depreciate. Please read the blog post for details.

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Anonymous

February 11, 2011

I recall FHA residential mortgage underwriting -to determine the amount to loan - took into account the reduction in housing energy expenses resulting from extra energy efficiency and or electricity production revenue... Smaller monthly power/heat expense outlays left more for the mortgage payment. Not the same as a higher market value, but greater affordability for the buyer. kk

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Buck

February 13, 2011

I love the Idea. But does anyone consider the age of the roof under the panels and what goes on if you need a new roof before its time to replace the panels. How many roofers have taken off a solar system then re-roofed and replaced a system. How many roofers are certified or qualified?? I know the parameters are to set up a system on a less than 5 year old roof. But these are home owner cost also. These are a few question that haunt me what about you??

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NJ-Solar-Man

February 14, 2011

Bob: I apologize for not being clearer. It's hard to comment about this without boring people with too many details.

I compared the price a home with solar sold for versus what comparable homes in the same neighborhood and time period sold for. By the way, it wasn't just expensive homes that had solar.

The study wasn't intended to answer why the homes sold for a higher price but I believe it had to do with the expected value of income from selling SRECs (Solar Renewable Energy Certificates). In NJ you don't just save money on your electric bill you also are able to generate income from the SRECs.

bkarney: Part of the reason I did my study was because I don't think the study evryone quotes is completely relevant to the value of solar. However, its the closest thing available. Hopefully there is a journal that believes my study should be part of the conversation.

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FreeAsTheWind

February 14, 2011

Hey Bruce, I went to read your blog and the link was broken..just wanted to give you a heads up.. Regarding your point that the installation would increase the value on day 1 dollar for dollar, I just don't agree.

As with most home improvements, you're looking to get a percentage of the amount that you paid back.

For example, I used to "flip" homes..that is, buy them, fix them up and sell them again (hopefully for a profit). In order to do this, I got discounts from my various contractors because they knew that I would be back time and again.

Even with these "discounts" I still had to factor the fact that the end price of the home couldn't be more (or at least very much more) than the other houses in the neighborhood that didn't have new furnaces or roofs or windows, ect...

We used to laugh at the people who got into the business after watching tv shows like, "Flip this house" and who would over-price the house in order to recoup their investment. Saw a lot of people lose their shirts doing this! Thanks for your comment.

Clee: The unstable price of electricity is and will be an important selling point...excellent point!!

Anon: You are 100% correct that FHA does allow the "ratios" to be expanded if the home has documentable energy efficiencies. Thanks for pointing that out.

NJ: I guess that would be like selling a home in Green Bay that included the rights to buy season tickets to the Packers! :-) I'm sure that home would bring more money, but for the rest of us I don't think that it would be as easy to monetize or set a capitalization rate. Thanks for your input to the conversation!

Bob "Free As The Wind" Mitchell

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NJ-Solar-Man

February 14, 2011

Bob: Yes to your Green Bay analogy. Unforunately I'm a Giants fan. :) NJ isn't the only state that has SRECs. PA,MA,DE, MD, Wash DC and OH all have SRECs. Although I think SRECs are a better way to go, conceptually jurisdications with feed in tariffs would offer a similiar future income stream. Also, in NJ at least the SRECs are only 2/3s of the savings/income stream.

I agree with you. There needs to be a policy mechanism in place to internalize the benfits of solar into the "price" you receive beyond net metering. In my opinion SRECs do a pretty good job of this but a feed in tariff does serve a similiar function. Other states would have more robust markets if they adopted one of these policy alternatives.

To some of the other commentors point. There should be more than enough data points in California to do a proper study. No one paid me to do my study and I don't know the nuances of that market as well but I bet NREL could make a go of it.

Bkarney: Although I agree with you on the inappropriateness of the Appraisal Journal article I disagree with your car analogy. A personal car rarely if ever saves you money and I would doubt it makes you any money either. Also, historically, the price of electricity has been going up. So even with decreased output the savings should increaase over time.

Regards NJ

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SamStreubel

March 7, 2011

I was recently in Florida, the Sunshine State, looking for a home and was amazed by an almost total absence of home PV systems. I would think if solar was a big selling point contractors building on a mass scale would recognize this and include them in new builds.

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FreeAsTheWind

March 7, 2011

Sam: I wonder if Florida wouldn't be that great of an example due to the fact that they were probably one of the hardest hit in the real estate crises.

A lot of builders are still building on land that they purchased at the elevated prices of when they bought the land and are probably unwilling to go out on the limb.

I don't know, but over-all I think that the new home market will be where we see a lot of the earliest adopters.

Thanks for the comment!

Bob "Free As The Wind" Mitchell

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j2martin

October 27, 2011

Very informative article and conversation. Thank you, Bob and everyone who commented. I've written a short article about focusing on Australia. A recent survey revealed 8 in 10 Australians view solar power favourably. Whether this directly translates into higher values for homes with solar systems is questionable, but it is certainly not a preposterous proposition, as many commenters have agreed here. In fact, there seems to be an abundance of information indicating the that the basic premise is true.

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FreeAsTheWind

October 31, 2011

J: I don't think that the question is whether potential buyers would appreciate the solar system on a home, it's whether they would be willing to pay a premium for that home over one that didn't have a solar system and if so, what percentage of the cost of the system would they be willing to pay as that premium.

A secondary question would be if they were willing to pay the full price of the system (so that the homeowner who originally paid for the system would be able to totally recoup their investment or possibly even make a profit of the transaction), would the appraiser be able to justify that premium.

On a cash purchase, it wouldn't matter, but since the vast majority of home purchases involve a mortgage, the appraiser's ability to justify the premium is very relevant!

As mentioned above, right now, according to the appraisers that I talked to, this isn't the case. As solar power systems become more prevalent and comparables become more available for the appraisers to factor in, this should become less of an issue. Right now though, installers shouldn't tell people that they'll be able to get all of their investment back if they sell the home before their break even point!

Thanks for the comment and I'll check out your profile so that I can read your article!

Bob "Free As The Wind" Mitchell

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About: After spending the last 27 years in the real estate and mortgage banking industries I went back to school in order to "reinvent" myself in the renewable power i... more »