Energy efficiency is a growing concern among homeowners, and solar panels are a well-known resource in improving efficiency and helping the environment. The amount of money a homeowner can save by using solar power is attractive enough, but how do solar panels affect property value? Is there a difference between owned and leased solar electric systems?
Solar Adoption is Growing
Over the last three and a half years, the U.S. exceeded 100 gigawatts of installed solar electric generating capacity and the researchers at Wood Mackenzie Power & Renewables forecast an additional “160 GW of solar capacity to be installed from 2021 to 2026.”
High demand and supply chain issues will drive up the cost of new system installations for the foreseeable future. Homes with existing solar systems have the potential for a faster sale and/or a higher sales price, but there are still a few other factors that will impact the value of your home on paper.
According to a Zillow Economic Research report, “During the past year, homes with solar-energy systems sold for 4.1% more on average than comparable homes without solar power.” For the median-valued home in Hawaii at just over $1M, that translates to an additional $41,000.
The report finds, however, that the increase in home value varies, sometimes substantially, by region. If solar panels are popular in your area, they may provide a bigger boost to your home value than in less popular areas. This is another area where “lucky we live Hawaii!” applies.
Owned or Leased? Buyer Beware!
When you sell your home to a buyer who will need financing to purchase it, the appraiser has the final say in what the home is worth. Whether the solar array on your roof increases the appraised value will depend largely on ownerhsip, financing, or lease of the system.
The most common solar panel ownership scenarios, according to the appraiser guidelines at fanniemae.com, include:
- The panels are owned. Owned panels may be included in the appraised value of the property.
- The panels are leased or covered by a Power Purchase Agreement. Leased panels may not be included in the appraised value of the property.
- The panels are financed as personal property. If the solar panels are financed as personal property (and therefore serve as collateral for the loan), they will do nothing to increase the value of the home.
- The panels are financed as fixture to real estate. Panels that are considered fixtures (permanently affixed to the property) can be used in the appraisal but only if they can’t be repossessed should the seller default on the terms of the financing agreement.
If you decide to have a solar system installed on your home, it is important to understand the implications of purchased versus leased systems. There can be a significant impact to the return on the investment and the future sale price of your home.
A leased system can also become a major roadblock to the sale of your home. The perfect buyer may not be able to qualify for both the loan to purchase the home as well as the lease they will be assuming. Even if the perfect buyer can qualify to take over the lease, some leases have very negative terms for a new owner taking over a lease and the buyer could decide to walk away from the home because of the solar system lease.
If you’ve already leased a solar system and you are considering selling, be sure to READ your lease so you understand the terms and transfer process. You will also want to contact the leasing company early to ask what needs to be done during the sale process. If you’re considering a leased solar system, please be sure to read the lease carefully and get a second opinion.
If you’d like to talk about the pros and cons of purchasing or leasing solar systems, or if you’d like more information about our local market conditions, reach out to me anytime.