Episode 13 | July 24, 2018
Have you ever wondered how much green home features really increase your home’s value? (In Texas, solar panels add $15,000 on average.) To determine whether the cost of solar panels are worth it, we typically look at solar panel cost and electricity bill offset. However, the increased resale value of a home solar system can be a significant factor in determining whether the investment in solar panels is worthwhile, especially if you are not planning to stay in your home long-term. Marc Richmond and Kyle Frazier help us how to understand and maximize the value of solar panels on your home.
Marc Richmond is a Licensed Realtor® at Texas Green Realty. He has unique expertise in real estate, construction, and consulting. Marc previously ran the internationally recognized Green Building Program at Austin Energy.
Kyle Frazier is the Chief Revenue Officer at Freedom Solar Power. Kyle has almost a decade of sales experience in the solar industry, including four years of driving the Freedom Solar growth strategy, as well as a background in commercial real estate.
Education in the Building Value Chain
Marc says that “the economics of solar have changed radically, especially in the last five years.” Solar panel costs have dropped significantly and homeowners are becoming increasingly interested in solar panel installation for financial and environmental reasons. However, the market as a whole is still undervaluing home solar panels because they haven’t yet been mainstreamed across the entire building value chain:
Marc points out that the green building field was historically focused on architects and builders, and only recently are courses being introduced for realtors and appraisers. For proper valuation to become common, education is required for the financial industry and real estate industry as well as the building industry. Why? If an appraiser or a realtor does not understand how to value something, the default position is to value it at $0.
How Much Are Home Solar Panels Worth?
For any home improvement, you will invest a certain amount of money and expect to get some but not all of that back when you sell the home. For example, a $20,000 kitchen remodel will add $8,000 to $12,000 to the resale value, depending on the buyer’s market and your appraiser.
A solar power system works the same way, except that it also pays you a consistent monthly dividend over a period of years in the form of a lower electricity bill. Kyle explains that his own solar panels are like having a money tree in his back yard that consistently produces about $100 per month. “Every month I can go pick $100 off the tree. And when I go to sell the house, somebody is going to value a money tree in their backyard” as long as the buyer knows how long the tree is going to live and how to take care of it. “There’s tremendous value in that.”
So we know that the value solar is somewhere between $0 and 100% of the system cost, factoring in that there is a tangible income value to a future buyer. But how do we get to an exact number?
Home Solar Panel Valuation Methods
There are three different ways to value solar on a home:
1. Buyer Demand: How much is a buyer is willing to pay for solar panels based on tangible or intangible factors? That demand is in part a function of buyer and realtor education, and below we will provide examples of tools for the seller's realtor to maximize the value of solar.
2. Comparative Market approach: This method also requires the realtor to be familiar with solar, and even then it can be problematic because we do not have robust data. Each day 4 homes in Austin Energy and 8 homes in San Antonio install solar panels, and Marc's recent analysis suggests that only 20% or so of the homes with solar note that feature anywhere in the MLS listing.
3. Income approach: This method is currently used more often in commercial real estate, but it may be a better solution for solar valuation on homes if appraisers understand how to implement it . The calculation is simple: how much income does the asset make over what period of time, and does that income rise or fall over time? Based on that, you can calculate the net present value of the future income produced by your system.
How to Sell A Home With Solar
A realtor who is experienced in selling homes with solar has many ways to demonstrate that value to potential buyers and other realtors:
Are we following each other yet?