My sister and I discussed solar panels tonight. The topic: How much do solar panels change the value of the home, if at all?
I was confident when I told her what I thought I knew: solar panels impact the buyer’s budget, but they do not increase the value of the home. Because my sister and I are “detail” people, I followed my gut feeling with actual research. I dissected articles by smart people across the nation, and then I looked at actual sales in Bakersfield, CA, from March 5, 2020 through March 5, 2021. The results: They shocked me! I had been wrong, and the information below is what I discovered.
If you want the short summary, click here to skip to the conclusion paragraph of this article. If you want all the details, keep reading, because I will share with you information from Zillow, CNBC, Sunrun, and the Bakersfield MLS that paints a picture of perspectives and data across the US and in Bakersfield alone from 2019 to today. Naturally, I do not ask you to take my word on the information I provide, so I provide links to all sources and allow you to download the data that I use to come to the conclusions at the end of the article.
Zillow reports an average 4.1% increase in home value with solar installations
Zillow reported that across the whole United States, the homes with solar systems sell for an average of 4.1% more than homes without solar.1Mikhitarian, Sarah. Homes With Solar Panels Sell for 4.1% More (Apr. 16, 2019) https://www.zillow.com/research/solar-panels-house-sell-more-23798/. The average changes depending upon which city you live in. For example, the same study showed New York City homes with solar sold for an average of 5.4% more than homes without solar. 2Mikhitarian, Sarah. Homes With Solar Panels Sell for 4.1% More (Apr. 16, 2019) https://www.zillow.com/research/solar-panels-house-sell-more-23798/. For Zillow, the reason appears obvious: “houses with solar-energy systems sell for more than those without them is because they can provide substantial future energy cost savings. For homeowners who know they consume a lot of power, these future savings are worth spending a bit more money up front.”3Mikhitarian, Sarah. Homes With Solar Panels Sell for 4.1% More (Apr. 16, 2019) https://www.zillow.com/research/solar-panels-house-sell-more-23798/. And, “More than 80% of home buyers say energy-efficient features are important, according to the Zillow Group Consumer Housing Trends Report.”4Mikhitarian, Sarah. Homes With Solar Panels Sell for 4.1% More (Apr. 16, 2019) https://www.zillow.com/research/solar-panels-house-sell-more-23798/.
CNBC says your state may impact your valuation
CNBC reported even better results in October 2019, just a few months after the Zillow report.5Sanchez, Valentina. Solar power can boost your home’s value — especially in these 10 states. (Oct. 6, 2019) https://www.cnbc.com/2019/10/05/solar-power-can-boost-a-homes-value-in-these-10-states-the-most.html. According to CNBC, New Jersey home sellers enjoyed 9.9% improvement in sales price with solar versus without solar. 6Sanchez, Valentina. Solar power can boost your home’s value — especially in these 10 states. (Oct. 6, 2019) https://www.cnbc.com/2019/10/05/solar-power-can-boost-a-homes-value-in-these-10-states-the-most.html. The top ten states reported by CNBC are New Jersey (9.9%), Pennsylvania (4.9%), Louisiana (4.9%), North Carolina (4.8%), Washington (4.1%), Florida (4%), Hawaii (4%), Maryland (3.8%), New York (3.6%), and South Carolina (3.5%).7Sanchez, Valentina. Solar power can boost your home’s value — especially in these 10 states. (Oct. 6, 2019) https://www.cnbc.com/2019/10/05/solar-power-can-boost-a-homes-value-in-these-10-states-the-most.html. CNBC also notes that the relationship between the improvement in home value and the increase in value often depends upon the city that you live in, because the increase in values (called “solar premiums”) vary widely from city to city within the same state.
Sunrun reports increases based on the size of the system.
Although potentially biased, Sunrun, “an American provider of residential solar panels and home batteries, headquartered in San Francisco, California”,8Sunrun. Wikipedia. (Accessed March 5, 2021) https://en.wikipedia.org/wiki/Sunrun. reports that the size of the solar premium depends upon the size of the system.9Sunrun. Do Solar Panels Increase Home Value? (Apr 20, 2020) https://www.sunrun.com/go-solar-center/solar-articles/do-solar-panels-increase-home-value. For every 1 kW of solar panels that you install, Sunrun reports an increase in value of $4,020 to $5,911.10Sunrun. Do Solar Panels Increase Home Value? (Apr 20, 2020) https://www.sunrun.com/go-solar-center/solar-articles/do-solar-panels-increase-home-value. “At $4,020 per kilowatt, a 5 kilowatt solar panel installation would add an average of $20,100 to the market value of a mid-sized U.S. home.”11Sunrun. Do Solar Panels Increase Home Value? (Apr 20, 2020) https://www.sunrun.com/go-solar-center/solar-articles/do-solar-panels-increase-home-value.
Sunrun’s words need to be taken with caution, however, because later in the same article, that they estimate your increased equity on a per-killowatt basis, they also state “the wattage generated by a solar installation does not proportionally raise the value of a home.”12Sunrun. Do Solar Panels Increase Home Value? (Apr 20, 2020) https://www.sunrun.com/go-solar-center/solar-articles/do-solar-panels-increase-home-value, emphasis added. To truly understand whether solar installations will improve the value of your home, Sunrun says that you should consider the following factors:13Sunrun. Do Solar Panels Increase Home Value? (Apr 20, 2020) https://www.sunrun.com/go-solar-center/solar-articles/do-solar-panels-increase-home-value.
- Region of the country
- Local price of electricity
- Solar installation prices
- System replacement value
- Environmentally conscious community
- Frequency of power outages
- Age of solar system
- Amount of energy generation
- State incentives
- Local understanding of solar technology and benefits
The investor’s perspective: Are Solar Panels worth it?
In doing research for this article, I was excited to see an article by FortuneBuilders written this year. I affiliated with FortuneBuilders on 2016 before starting my real estate investment company. FortuneBuilders is one of those companies that educates people on how to buy houses cheap, rehab them, and then sell them for the most profit. They keep detailed records on all their transactions and usually disclose to their members the data at annual seminars.
When I saw the article by Paul Esajian, one of the company’s founders, I thought that I would, for sure, see information that is useful for a person who is considering a resent sale. Unfortunately, Mr. Esajian took a very conservative approach to his analysis and did not share any personal company insights. Toward the end of the article, he did share the following tips:14Esajian, Paul. Are Solar Panels Worth It? 5 Factors to Consider (Feb. 3, 2021, Accessed Mar. 5, 2021.) https://www.fortunebuilders.com/are-solar-panels-worth-it/.
- “If you plan on selling the house before you break even, you might want to lease the panels or forgo installing panels altogether . . .”15Esajian, Paul. Are Solar Panels Worth It? 5 Factors to Consider (Feb. 3, 2021, Accessed Mar. 5, 2021.) https://www.fortunebuilders.com/are-solar-panels-worth-it/.
- “If you plan on owning the property for a longer period, or if it’s your primary residence, you’ll benefit most from buying solar panels[.]”16Esajian, Paul. Are Solar Panels Worth It? 5 Factors to Consider (Feb. 3, 2021, Accessed Mar. 5, 2021.) https://www.fortunebuilders.com/are-solar-panels-worth-it/.
- “If you’re an investor, you might think about installing solar panels so you can earn the federal tax incentive—very helpful if you’ve sold assets in 2021 and owe a significant amount of capital gains tax[.]”17Esajian, Paul. Are Solar Panels Worth It? 5 Factors to Consider (Feb. 3, 2021, Accessed Mar. 5, 2021.) https://www.fortunebuilders.com/are-solar-panels-worth-it/.
Based on these tips, I surmise that the house flipping company owned by Paul Esajian only purchases solar panels when and if the company needs the tax incentives, because CT Homes frequently sells homes only 6 months after the initial purchase.
How to determine the “solar premium” for your city.
There appears to be a consistent opinion over the last three years that solar panels do increase the value of your home. However, whether the increase in value is enough to justify the immediate cost of the system depends on the average price of the homes in your area. The solar premiums reported by Zillow for 2019 are similar for both San Francisco, CA (4.4%), and Riverside, CA (2.2%), but when you translate these solar premiums to dollars they are dramatically different.18Mikhitarian, Sarah. Homes With Solar Panels Sell for 4.1% More (Apr. 16, 2019) https://www.zillow.com/research/solar-panels-house-sell-more-23798/. The average solar premium in San Francisco is $41,658, but the average solar premium in Riverside, CA, is just $9,926.19Mikhitarian, Sarah. Homes With Solar Panels Sell for 4.1% More (Apr. 16, 2019) https://www.zillow.com/research/solar-panels-house-sell-more-23798/.
Given these differences in value and in premium, it is important to determine how the market reacts in your city. The best way to do this is to contact your local association of Realtors. Ask for a real estate agent who knows how to analyze market data for statistical trends (not all agents can), or ask if the association has done any recent studies from their own MLS data regrading this issue.
I performed a review of sales in my own market, and this is what I discovered:
|Rank||Category||Sales||Avg. Sale Price||Median Sale Price||Std Dev||Min Sale Price||Max Sale Price|
To be honest, this data surprises me. As a real estate agent, I don’t personally observe a difference between my buyer’s behavior as we approach solar homes vs. no-solar homes. Frequently I have buyers who tell me they don’t want a solar system, but otherwise, the house prices appear to be unaffected by the existence of a system. The numbers tell differently.
That being said, take the numbers above with a grain of salt. This is a very simple analysis that does not take into account the other factors of the home. It looks at the status of the solar system on the listing and assumes that all other variables are the same: number of rooms, number of bathrooms, square footage, quality of construction, age of the home, etc. This is reflected most in the range of sale values, which go from $3,500 to $2.2 million. (Note, that. is not a typographical error, the range is from three-thousand-five-hundred to two-point-two-million dollars!)
Looking at the median price alone, there is a $111,900 difference between the median price without solar and the median price with solar. This is likely a greater reflection on the type of homeowner who puts solar on his or her home rather than a reflection of the value added by the solar system. To check this, I filtered the data to just homes that are between 1700 square feet and 1800 square feet for two categories:
|Rank||Category||Sales||Avg. Sale Price||Median Sale Price||Std Dev||Min Sale Price||Max Sale Price|
This data shows smaller standard deviations, which means that we are removing many of the things that cause variance. However, the variance on “no solar” houses is still very large, and the range of prices is from $36,500 to $1.3 million. With this smaller data-set, we see that there is a $35,000 solar premium for houses in this size. The $35,000 premium equates to 12.3% of the median no-solar home value ($35,000/$285,000.00 = 12.3%).
Conclusion: Solar does increase your home value
From 2019 through 2021, the sources are consistent that solar does increase the value of your home, and the effect changes from city to city, within every state. In Bakersfield, CA, we see an average increase in sale price of $35,000 for houses between 1700 sqft and 1800 sqft over the last 12-months of sales. Still, professional home flippers who intend to sell the home quickly say that you should only install solar if you need the tax credit. In Bakersfield, CA, that may not be true for houses in the 1700 sqft to 1800 sqft range, but we did not review other house sizes.
If you are curious about my own personal choice. . . Then I am happy to report that I jumped on the solar train two years ago. The company offered me 2.9% financing when the mortgage market was still offering 4.25% on home loans. At that rate, and with the premium for Tier 4 electric at $0.40 per kWhr, it just made financial sense. Not only did my wife and I save thousands each year on our electric bills, but we also chose to purchase the system rather than lease it so that we could be with an even smaller payment down the line. In my opinion, it was a smart decision then, and now that I see the numbers from recent sales, I feel even better.