Do Solar Panels Increase Home Value?
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Solar panels come with numerous benefits, including increased home value, which can make a solar investment worthwhile. Our guide takes a closer look at how much installing solar panels can boost your home’s market value, factors that influence your final listing price, and the effects on your property tax. Plus, we’ll share how you can score additional savings with solar tax credits and incentives.
How Can Solar Panels Increase My Home’s Value?
Home improvement projects such as new roofing or plumbing can increase your property value, and solar panel installation is no different. The U.S. Department of Energy’s Lawrence Berkeley National Laboratory (Berkeley Lab) conducted the largest-ever study of solar homes between 2002 and 2013 in eight states to determine how adding solar panels impacts home value.
- The study found that buyers in six of those states were willing to pay $15,000 more for homes with solar panels than comparable homes without them.
Additional studies have discovered that the added value from solar panels directly correlates to your long-term energy savings. The National Renewable Energy Laboratory (NREL) shared details from a study published in The Appraisal Journal, which is a quarterly academic publication for the Appraisal Institute, the largest professional association of real estate appraisers in the United States. This 2008 study concluded that home value increases by $20 for every $1 reduction in yearly utility bills. So a solar system that reduces energy costs by $500 per year can increase home value by $10,000.
More recently, Zillow found that homes with solar panels sell for an average of 4.1% more than comparable homes without solar power. This added value allows sellers and real estate agents to increase the asking price for a home. Buyers benefit from an energy-efficient home, and sellers can profit from an increased resale value. Depending on the value of your home, that 4% bump could easily make a $9,000 difference—if not more.
What Factors Influence the Property Value of a Solar Home?
Installing solar panels won’t always result in a higher home value. Several external factors, including location, local electricity rates, and your solar panel system’s value, can affect your bottom line. Here’s a closer look at the variables that can increase or decrease your property value.
Location
Not every state has the defined laws, solar installers, or local support needed to make solar panels profitable for a homeowner. Some areas actively encourage homeowners to convert to clean energy, making a solar energy system more valuable in those markets. The Solar Energy Industries Association (SEIA) named the following states as top solar markets based on their solar energy capacity (in order):
These locations support homeowners in their transition to solar energy with laws and regulations that benefit solar customers. They may also offer additional solar incentives and credits that help maximize your return on investment (ROI).
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Electricity Rates
Areas with high electricity rates benefit the most from solar panel installation. This is because solar power allows you to create your own energy more affordably, rather than relying on utility companies with expensive electricity rates. In turn, you’ll spend less on monthly energy bills.
Areas with high electricity rates include California, Colorado, Florida, New Jersey, and New York. This means that homeowners in San Francisco, Orlando, or Denver can sell their solar-powered homes at a higher price than homeowners in Chicago because residents in these cities will save more by using solar power.
Installing a solar battery can be another selling point. These batteries store excess energy your solar panels generate throughout the day to use at night or during power outages. The most powerful solar batteries can potentially power your home for hours. You can also use the energy when electricity rates are highest to save more money.
Solar System Age
Newer solar systems are more valuable than old ones because they’ll provide more years of use and savings to a homebuyer. An older system could also be close to or near the end of its warranty coverage, meaning the buyer could be stuck paying for necessary upgrades, replacement parts, or a completely new system.
Solar systems usually last 25–35 years, possibly 40 years if they’re in optimal condition. We recommend staying up-to-date on solar panel maintenance to ensure your system remains valuable, as well as getting it assessed and serviced before a home sale.
Quick Tip
- If you’re considering buying a home with a solar system, be sure to get the full details on the system’s age and any repairs or upgrades that have taken place since its original installation. If you plan on selling a home with a solar system, it’s your responsibility to maintain the panels and the system before the sale.
Newer solar panels may also incorporate more efficient or durable materials. Solar technology is still a relatively new and rapidly evolving landscape. To get an idea of just how much better new systems may be, check out this video with Ross Trethewey and Professor Vladimir Bulović of the Massachusetts Institute of Technology (MIT):
Solar Panel Ownership
Who legally owns your solar panel system significantly impacts your home value. If you bought your solar panels in full or have already paid off your loan, you can include them in your home sale. This is the most straightforward ownership transfer and the most high-profit option for the seller. Affordable solar panels can make solar ownership realistic for homeowners that aren’t prepared to pay a premium for solar.
The situation is more complicated for leased systems. Since you don’t legally own the system, the buyers must decide if and how they want to take over ownership. Leased solar systems can be transferred to the buyer with a buyout or transfer:
- Buyout: With a buyout, you can choose to pay off the remainder of your solar lease, and the buyer has the option to start a new lease under their name. However, you’ll have to pay the remaining lease balance all at once, which can be hefty depending on your contract’s length and age.
- Transfer: The second option is to transfer the lease to a new owner willing to take it over. This is the most cost-effective option when selling a home with a leased system, as you won’t have to spend as much of your own money to complete the sale. However, the new buyer must meet the qualifications for a lease, including a credit check.
In either case, ownership of a leased system does not transfer to the new homeowner automatically. The buyer must qualify for a solar lease on their own merits.
How Do Solar Panels Affect My Property Tax?
Because installing a solar panel system increases your home value, your property taxes may increase as well. However, many states have introduced laws that exclude solar equipment from sales tax or property tax. Currently, 36 states offer a property tax exemption for solar equipment, and 25 states offer sales tax exemptions for residential solar equipment.
Property tax exemption laws allow you to benefit from increased home value without paying more taxes. The exemption percentage varies significantly from state to state. For example, some states offer 100% exemption, while others may stipulate a limited number of years for your exemption. Take time to understand your state’s policy when considering going solar.
How Can I Save Money on a Solar System?
Installing a solar energy system requires a sizable initial investment. According to solar industry research data from the SEIA, solar panels cost an average of $3.43 per watt in 2023. This amounts to $20,520 for a standard 6-kilowatt system.
The total cost of installing solar panels can vary based on the type of solar panels you buy, system add-ons, additional services, and local pricing. However, you can save a significant amount of money thanks to solar incentives, rebates, and tax credits.
Solar Tax Credits, Incentives, and Rebates
If you own your system, you can take advantage of all federal and state tax credits available. The federal solar tax credit allows you to claim 30% of your total solar system costs on your federal taxes. It will remain at 30% until the end of 2032. The credit lowers to 26% in 2033 and will reduce to 22% in 2034.
State tax credits vary depending on each state’s laws. Additional rebates and credits may also be available from your utility company or city government. You can check the Database of State Incentives for Renewables and Efficiency (DSIRE) for the latest information about solar incentives in your area.
It’s important to note that only new solar customers can claim these incentives. The original owners can only claim these credits one time. If you buy a home with a preexisting system, you cannot apply for these credits. However, you may be able to participate in ongoing rebates and programs, such as net metering.
Net Metering
Homeowners can benefit from net metering programs, which allow you to get a one-to-one credit on your electric bill for the excess energy your solar system produces and sends back to the grid. The credits can also be used to offset when customers need to pull power from the power grid, such as at night when a solar system isn’t producing. Terms and credit rates vary by state and utility company.
Our Conclusion
Solar panels are a big investment, but they can significantly increase your home value in addition to providing long-term energy savings. How much value solar panels add to your home varies by your location, system health, system energy efficiency and state and local policies. But whether you want to make your home more valuable for yourself or potential buyers, a solar panel system upgrade could be worth it.
If you’re looking to install a new solar system in your home, use the tool below to begin your search for a top-rated solar installer in your area.
FAQ About Solar Panels
What are the benefits of a house with solar panels?
A house with solar panels has numerous environmental benefits. Solar energy is a clean power source, helping to make homeowners less dependent on costly fossil fuels and reduce their carbon footprint. Solar energy is also much more affordable than traditional electricity, lowering your monthly energy bills and potentially saving you thousands over time.
What is the cheapest way to buy solar panels for your home?
The cheapest way to buy solar panels is to pay for your system outright. Though this requires a large initial sum of money, you avoid paying interest on a solar loan, which would increase your cost in the long run. Unlike leasing, buying your system up-front also qualifies you for the federal tax credit and state solar incentives and rebates that can cut down on costs.
Will selling a home with a leased solar panel system affect my home value?
Selling a home with a leased solar panel system likely won’t affect your home value. Though home buyers may see the solar panels as a plus, selling a home with leased panels is more complicated than selling one with an owned system.
Does adding solar panels affect your home insurance?
Adding solar panels will not directly increase your home insurance premiums. However, you may want to increase your coverage amount or add a separate policy to ensure that your solar panels are fully covered. Check your insurance company to find out whether your policy will cover solar panels.
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