The Difference is in the Details
Is Solar Right for You?
The option to add solar panels to your home is becoming more widely available in the Charleston area, but have you thought about how much value it truly brings to your home? The various solar companies are quick to advertise, "FREE Solar!", and "Tax benefits expiring soon!" There are many questions you should consider when deciding if this feature is right for you and your home. We recently helped a client sell their home after having solar panels installed, and we'd like to share with you what we learned from that experience.
Our clients were sold on the idea of reducing their energy bills, locking in a standard cost for their energy use, and adding value to their home. Those are all potential benefits to adding solar panels to your home, but what they didn't consider was how that value would be determined.
When our clients were initially approached by a solar company they decided to finance the panels. This option seemed appealing because they did not have the $21,000 on hand that it would take to purchase the panels outright and install them. The loan would be over 20 years at a rate of about 14%. Their monthly payment was determined by looking at an average cost of their existing electricity bill, $150. Now, part of the plan also included them surrendering the federal and state tax benefit payments that they would receive after they filed their tax return the first year after installation as a bulk payment to the solar company. Therefore, since they decided to finance the panels, the only benefit they received compared to their previous electric source was a standard monthly payment, and the promise that their electric company would credit their account if the solar panels generated any energy that they did not use.
Now, here's where we come in, a couple months after having the solar panels installed our clients decided that they would like to have a larger house in the same neighborhood. We currently had one listed, so we met and quickly decided to help them buy the larger house and sell their current home. After just a few days they had a buyer and were under contract, great! The buyer was briefed about the solar panel financing, and while he saw value in the panels, he did not want to assume the loan. He was willing to pay some amount more for the home, and that would be based on the appraiser's determination of the home's value with the panels.
Giving the solar panels an exact valuation was truly a first time experience for the appraiser assigned to do so. Since there were no other comparable homes that had sold recently in the subject home’s neighborhood the appraiser used a national study to help him calculate the market value of a home with solar panels. Part of any equation when assessing market value is whether a particular feature is desirable to the buying population, and how desirable.
Another complicating factor to assessing how valuable the added solar panels were to our subject home was that the system was so new the homeowners had not yet received a full month’s electric bill showing how much cost was offset by the solar energy being produced. If that information had’ve been available, then the appraiser’s job would’ve been somewhat easier in using a discounted cash flow analysis to help determine value.
Now for the details, the text below is from the appraisal report and all personal identifying information has been removed.
“Regarding the "Energy Efficient Items" adjustment for the subject's solar panel system, the appraiser notes that an extensive search of the local MLS was made for any comparable properties with solar photovoltaic (PV) systems like the subject's. The appraiser's research located a case study sponsored by the US Department of Energy and conducted by the University of California's Lawrence Berkeley National Laboratory. The case study examined sales transaction in eight states (CA, CT, FL, MA, MD, NC, NY, and PA) from 2002-2013 and analyzed 22,822 homes total, 3,951 of which had PV systems. The study focused only on owned PV systems (as opposed to leased systems), and found that home buyers are consistently willing to pay PV premiums across various states, housing and PV markets, and home types. The study's conclusions found that based on an average sized PV system, which was determined to be a 3.6 kW system, the average premium across the full sample equates to approximately $4/watt with the majority of the data coming from California.
The case study's conclusions stated that premiums for PV systems ARE evident in east coast markets, however the data from east coast markets shows a lower average premium paid than the average seen across the entire study's data sample. The appraiser reconciled all of these facts and findings and determined that a roughly $2/watt adjustment is reasonable in this appraisal and supported adequately by the case study. The adjustment figure was rounded to $10,000, in additional value to the subject property.”
You can see that a significant amount of value was determined to be added to the home by having solar panels, but it was still less than half of the panels' cost.
As we reflect on this learning experience our take away notes are that solar can be a great benefit to a home and your quality of life. The ideal time to add solar to your home would be just after you have replaced your roof or purchased a newly constructed home, and the homeowners that will see the greatest benefits will be those that can purchase the panels outright and that plan on staying in their home for several years after installation.
There are several different companies that offer solar panels in our area, and different ways to initiate the service, whether you purchase or lease. We hope that by sharing this information it will help you make a more informed decision about whether adding this feature to your home is right for you and your family. If you have any questions about this case, the solar costs and benefits, and to discuss whether it would bring market value to your home please contact us. We’d be happy to talk with you about whether solar energy would be a smart investment decision for your home!
The case study cited in this report can be found here: https://emp.lbl.gov/sites/all/files/selling-into-the-sun-jan12.pdf
Please contact us if you have any questions or comments.