Solar panels can increase home values. Are they worth it?

Do solar panels increase home value?

With energy prices rising and some electricity infrastructures underperforming, homeowners are increasingly looking to the sun to power their houses. A modern system can certainly reduce utility bills. But do solar panels increase home value?

The answer is yes — sometimes. When the Lawrence Berkeley National Laboratory at UC Berkeley examined this question in 2021, it concluded:

We find clear evidence that solar systems are correlated with higher selling prices if those systems are owned by the homeowner. Alternatively, we find no value or slightly lower values associated with non-owned panels.

In other words, the people to whom you eventually sell your home may well be prepared to pay extra to take ownership of your solar panels. But they’ll pay the same or even less for your home if those panels are leased from a third party.

How much do solar panels add to the value of your home?

There’s no simple answer to the question: “How much do solar panels increase home value?” There are simply too many variables to come up with a worthwhile nationwide average.

We can tell you that Zillow reported, “homes with solar-energy systems sold for 4.1% more on average than comparable homes without solar power” in 2018. And an earlier study covering 1999-2013 from the Lawrence Berkeley National Laboratory found “home buyers consistently have been willing to pay more for homes with host-owned solar photovoltaic (PV) energy systems — averaging about $4 per watt of PV installed—across various states, housing and PV markets, and home types. This equates to a premium of about $15,000 for a typical PV system.”

But beware of such studies. They may not only be out of date but also may not apply to your home. So, let’s explore the main variables, so you can assess how valuable a future homebuyer might find solar panels on your roof.

Owned vs. leased

As you’re comparing solar options, one of the biggest decisions you’ll need to make is whether to lease or own. If you’d rather own but don’t have a lot of cash on hand to install solar panels, there are many financing options available. For example, if you have accumulated equity in your home, you could be a good candidate for a home equity loan or a home equity line of credit (HELOC).

Sunshine

Although solar photovoltaic systems should still harvest the sun’s energy on cloudy days, their effectiveness is enhanced by direct sunlight. So, if you live in a sunny state, your solar panels are more likely to provide a better return on your investment than ones in duller locations.

Of course, you’re already likely to know how sunny your home is. But, if you want the stats, check out World Population Review’s map. It says the top-five sunniest states are Arizona, New Mexico, Nevada, Texas and California.

You should also bear in mind your roof’s size, orientation and environment. Ideally, you want your panels facing southward. And their effectiveness will be reduced if they’re shaded by trees or tall buildings.

Local electricity prices

Although many homeowners install solar panels because they want to reduce their carbon footprints or achieve greater self-sufficiency, most want to save money, too. And how much you stand to save will depend on your local electricity supplier’s tariffs.

There are surprisingly wide variations in grid electricity’s costs. The US Energy Information Administration reports that, in the year to date in July 2022, you might be paying 24.80 cents per Kilowatt-hour in Massachusetts compared with 10.17 cents in Washington. Check out the EIA’s table for your state’s average tariff by the time you’re reading this.

Of course, your electricity usage will also have a big effect. And the higher your current bills, the more you stand to save. So, if you own an electric car and like to crank up your HVAC in all seasons, you might find solar more attractive than others with a more Spartan lifestyle do.

Solar panel system costs

Again, the cost of installing a solar panel system varies by state. According to a 2022 Consumer Affairs review, you might pay $19,560 for a 6-kW system in Hawaii or $13,101 for the same thing in Kentucky. Other states range between those two extremes.

Naturally, the more you pay upfront the longer it will take you to recoup your setup costs in savings. EnergySage reckons that most solar shoppers on its website break even in about 9.1 years.

Nationwide, Consumer Affairs says: “The average cost to install solar panels in the United States is about $12,000 after federal tax incentives. On the low end, you can install a smaller system for around $5,000, while a high-priced Tier 1 solar panel system can cost $40,000 or more.”

It explains that the panels themselves make up only about one-quarter of the cost. The rest is eaten up by labor, operational costs and essential ancillary equipment, such as inverters and control circuitry.

You can achieve full, day-and-night self-sufficiency by hooking up your solar array to a home battery. But these are expensive. For example, the Tesla Powerwall costs approximately $10,600 to $12,850 before installation and $14,600 to $16,850 as a total cost, less incentives, according to EnergySage. And, depending on your electricity usage, you might need several to go completely off-grid.

Does a battery plus solar panels increase home value more? We know of no studies that answer that. And it depends on how much future home buyers will be willing to pay for that level of independence.

Subsidies and tax breaks

In August 2022, the Inflation Reduction Act became law. Among its provisions was a 30% tax credit that applies to new residential solar installations completed from 2022 through 2032, up from 26% before the act was passed. (Consumer Affairs’ figures, above, are based on that older tax credit.)

In addition, some states offer tax breaks or subsidies to actively encourage homeowners to install solar panels.

All these measures tend to reduce the premium homebuyers are likely to pay when they buy a house with an existing solar system. They make it cheaper for them to buy a similar house without solar and install their own.

The impact of owned vs. leased solar panels on home values

Owned solar panel arrays tend to add value to a home while leased ones can have a zero or negative effect.

There are a couple of principal reasons for this. First, lease payments reduce the financial benefits of a solar installation. And, secondly, mortgage lenders regard those payments as homeownership costs, meaning they count toward a borrower’s debt-to-income (DTI) ratio. In borderline cases, where the borrower already has uncomfortably high existing debts and financial obligations, this could see a buyer’s mortgage application declined.

Some leasing companies may be prepared to allow the homeowner or buyer to buy themselves out of the lease, according to The Wall Street Journal (paywall). But this rarely happens when an installation is less than five years old. That’s because younger ones likely received subsidies that have to be repaid when ownership changes within 60 months.

Sellers: Should you install solar panels?

We started asking, “Do solar panels increase home value?” But this is a wider question. And your answer may be different from other people’s. So let’s run through the pros and cons...

Pros of installing

By installing solar panels you should:

1. Save significantly on your electricity bills
2. Help save the planet by swapping from fossil fuels to a wholly green energy source
3. Enhance your self-sufficiency, especially if your solar array is linked to a battery

Those are powerful pluses.

Cons of installing

Inevitably, there are downsides:

1. It’s not cheap — And solar panels increase home value only when bought outright (perhaps using a HELOC) rather than leased
2. If you finance your installation, you need to build into your calculations your borrowing costs
3. Your potential savings will be influenced by all the factors we’ve mentioned

On balance, owned solar panels can be a solid investment. But run the numbers carefully, bearing in mind all the factors laid out above, before you decide.

Buyers: Should you buy a home with solar panels?

On the whole, the same considerations that apply to homeowners installing a solar system apply to home buyers thinking of taking one on. So take time to weigh these as they apply to the home you’re thinking of buying.

If the solar system is leased, don’t pay more than you would for a comparable home without panels. Look at the costs and then decide if you need to offer less than you otherwise would.

And check out the system’s specifications. Solar panels have become appreciably more efficient in recent years. So an old system may not deliver the benefits you expect. Always ask the owner for current utility bills, warranties and the old installation paperwork to see what you’re taking on.

Most solar systems have lives of 25-30 years. And they rarely need maintenance, though it may pay you to clean them from time to time.

Assuming the current homeowner owns the system free and clear, you should get real value from solar power. And you should be prepared to pay for that.

FAQ

How much do solar panels increase home value?

Zillow reckons that, in 2018, “homes with solar-energy systems sold for 4.1% more on average than comparable homes without solar power.” But each case is different.

Is it harder to sell a house with solar panels?

It shouldn’t be, providing the system is not leased. It should be easier because the buyer is getting lower electricity costs. And who doesn’t want those?

Is it more expensive to buy a house with solar panels?

On the whole, it is. You’re also buying cheaper or free electricity, which is worth a premium. But how much more you should pay will depend on all the factors we explored above.

How much do solar panels cost?

That depends on the state where you live and the system you want. Consumer Affairs reckoned in 2022: “The average cost to install solar panels in the United States is about $12,000 after federal tax incentives. On the low end, you can install a smaller system for around $5,000, while a high-priced Tier 1 solar panel system can cost $40,000 or more.”

How long before solar panels pay for themselves?

That depends on so many things. EnergySage has a calculator that could help you work out how long your payback period might be. And it says, “For most solar shoppers on EnergySage, you’ll break even in about 9.1 years.”

How long do solar panels last?

Forbes says: “The industry standard for most solar panels’ life spans is 25 to 30 years. Most reputable manufacturers offer production warranties for 25 years or more.”

Are solar panels worth it?

Only you can decide that. But they’re certainly growing more popular. So, many think the answer is Yes. One way to pay for solar panel installation is by using a Home Equity Line of Credit known as a HELOC.