There have been repeated studies aiming to quantify the increased sales price of homes with solar energy systems. Across the country, the evidence is clear that homeowners who have taken the leap to go solar not only save money through reduced energy expenses, but they benefit should they sell their home. See our previous post summarizing key points. But not everyone may be in a position to sell their property a few years after going solar. The good news is there is now further evidence that installing a solar PV system can be just as financially rewarding as many other home improvement choices.
Home appraisers typically need historical data and not academic modeling to inform their choices in valuing homes and especially in valuing modifications and updates. Enter the Appraisal Institute (AI), which sponsored and led a 2015 study in conjunction with the Lawrence Berkeley National Labs (LBNL). Here we summarize key findings which give homeowners insight for their own benefit as well as to inform professionals they may be selecting to appraise their homes.
Purpose of the Study
As with most professions, there are guidelines that must be followed to ensure consistency and accuracy within the profession. The Uniform Standards of Professional Appraisal Practice (USPAP) is that quality control measure followed by real property appraisers. Specific to improvements such as the addition of a solar energy system, a paired sales analysis is used to compare equivalent sales where the only difference is the attribute being evaluated. The AI recognized the challenge for local appraisers to find such data, and collaborated with LBNL to leverage the accumulated information used in the repeated studies of the sales of homes across the country over more than a decade. Appraisers would never have access to so much data nor the time to analyze it.
The study cannot provide perfect paired sales analysis for every locale. The goals were more broad: To give appraisers, real estate agents, and mortgage lenders who increasingly encounter PV homes what they need to understand the factors that contribute to, and detract from, market value. It will serve as a primer giving examples and guidelines for professionals to follow in adapting techniques to their local work. Ultimately, the USPAP will reflect these experiences and give proper guidance for industry quality control. This is not new. The AI has a long history of adding practices for a variety of green building improvements.
The Study Results
It is no surprise that in broad terms there were two general results: The new research found that the appraisal premiums were in agreement with the results of past, larger statistical or academic studies. It also found there to be significant variance tied to a number of factors such as location, system age, and community recognition for environmental value – the “green premium”, if you will.
Using the original data collected over a decade from hundreds of thousands of home sales across the country, the study isolated 4,000 home sales transactions in six states: California, Florida, Maryland, North Carolina, Oregon and Pennsylvania. Seven appraisers evaluated 43 pairs of home sales in their local markets. The appraisers compared the sale price of a property with PV to a similar home without PV, and they considered details such as how many days the property was on the market, the gross cost of the PV system on the date of the home sale, and the estimated net cost, which was the gross cost minus incentives and rebates.
For each of these 43 pairs of comparable PV and non-PV homes, appraisers found premiums were highly dependent on the underlying system and market characteristics. These include the size of the system, the available incentives and installed prices at the time of sale, and the underlying retail electricity rates.
Some specifically summarized findings:
- Because of the original data collection time period, the systems were no older than 12 years. But the average age solar PV systems on homes included in the study was 2.7 years.
- The final home sales datasets included transactions dating between May 2010 and October 2014. This represents relatively recent activity so is not complicated by the economic issues of 2008/9, or the robust markets before.
- The average premium across the six states was $3.78 per Watt.
- The premium correlates well with a group of factors such as location, age, size, efficiency, and prevailing electricity rates. Just as important, the premium was found to have little relationship to the home sale price, indicating the value is related more to the system than to the existing value of the home.
- In one market, signs of the “green premium” were quantified. In the Portland, OR, area the average premium was $3.92 per Watt. In the Bend, OR, area the value was $5.50 per Watt and that was a significantly higher proportion of the value of the home. System sizes or age did not appear to be a cause, however Bend is known for being an environmental and sustainability hub for central Oregon. It is very possible there is a cultural factor affecting the premium.
There cannot be a one-size-fits all approach to assigning value to residential solar energy systems. A number of factors, both physical and cultural, impact the results. But if forced to find the significant few factors, AI found both the replacement cost, specifically one that takes into account federal state and utility incentives, and the present value of energy savings are likely good predictors of premiums found in individual markets.
Readers can access the full study here.
At YellowLite we recognize that the decision to go solar is an important one that demands knowing much more information than simply cost and technical specifications. It is an investment not unlike many other large improvements that impact the home’s value. Whether making an addition, or adding a pool, or other expenses, the homeowner needs to know their financial upside. That can often improve the personal satisfaction that comes from such work. Rest assured that as solar energy systems become more popular and prevalent, there is data proving that they increase the value of your home. And you don’t have to sell it to find that value.
Interested in learning more about YellowLite’s renewable energy solutions? Reach out to us today to learn more.