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Solar Panels May Affect Your Home’s Value, In Either Direction

There is no shortage of newspaper and magazine articles that extol both the virtue and the value of solar panels for residences. Curiously, there is a similar abundance of articles telling of buyer resistance to homes with solar panels and how the presence of solar panels has caused either price concessions or failed sales. (Try googling: solar lease scaring buyers.)

Actually, there is no contradiction here. We just have to read the fine print. In short, solar panels per se — with no qualification regarding financing — are generally perceived by buyers in a positive way. But, when the panels come along with a lease that may have 15-20 years to run, the reaction is somewhat different.

Two studies looked at the effects that solar panels have had on sale prices. One was published by the National Bureau of Economic Research (“Understanding the Solar Home Price Premium“). It looked at utility data, sales records of single family homes and building permit data in San Diego County and Sacramento County (Calif.) from 2003 through year-end 2010. For the average installation, the authors found that solar panels added a $20,194 premium to the sale price of a home (in the mid-$500,000 range), based on repeat sales data.

Another study, released by the U.S. Department of Energy’s Lawrence Berkeley National Laboratory showed that homes with solar panels typically sell for $15,000 more than those without (accounting for the effects of square footage, lot size, and age of the home). The analysis showed “a consistent price premium for solar panels across all of the data analyzed roughly equal to $4 per watt of installed solar capacity…” The data was collected from sales of 3,951 solar-equipped homes compared to 18,871 comparable homes without panels. The homes were in eight different states from different regions of the country. The sales took place from 2002 through 2013.

For the most part, though, these studies looked at homes that had panels installed prior to the advent of solar panel leasing programs. In June of 2014 a Bloomberg report said this: “Leasing is driving a boom in solar sales because most require no money upfront… [Leasing has] made solar affordable for more people, helping spur a 38 percent jump in U.S. residential installations in the past year.”

To date there have been no voluminous studies of the sales effect of leased solar panels. The evidence is only anecdotal. But stories have been surfacing all around the country, and have been reported in a variety of news outlets and internet posts.

The issue is that many buyers are resistant to assuming the solar panel lease, which might have 15 years or so left to run.

Some argue that the leases are too long (commonly twenty years at the outset) for an item that may be technologically obsolete well before the lease term is up. Others are concerned about the long-term viability of the companies that provide the panels. Will they be there to provide service for the life of the lease?

Even those who are ok with a lease have to face the fact that they will be taking on new debt at the same time they are trying to qualify for a mortgage. Most people who can qualify for a mortgage will meet the credit standards for assuming the lease. But, taking over the lease will, in many cases, lower the amount of mortgage for which the home buyer can qualify.

Of course there are many ways to skin this cat. The considerations involved in selling a home with leased solar panels are certainly not insurmountable. Sellers of such homes are well advised to do some homework in preparing to go to market. Find out about the lease-assumption process from the company doing the financing. Investigate buy-out provisions as well. Most of all do the math on the energy cost savings. Have records available.

You might even want to have some information on those studies that show the price premiums that panels can add.