Case in Point : Over the past quarter, we’ve had 3 clients consider adding a solar system to their home and wanted to understand its impact on resale value.
Q: I’m seeing a lot of advertising for solar at home improvement stores, Costco, and online.I care for the environment and love the idea of renewable energy, but am curious if it’s a smart economic decision?
A: Great question! Like you, we love the idea of a sustainable energy source and look forward to seeing it become more popular in time. The challenge is that solar energy is still in the “early adopter” stage for residential usage and, as such, is still relatively expensive – meaning the cost relative to the energy it produces is fairly high.
Generally, there are three ways to acquire solar energy systems: purchase, lease, or lease with the option to purchase. A purchased system with no balance owed is the only scenario where solar systems provide resale value, which typically produces a premium equal to 5 years (60 months) of the energy savings it produces. In other words, if the solar system produces $75 of electricity value each month, the incremental value that a solar system would create upon selling the home would be $4,500 ($75 x 60 months). Not a great value, considering most solar systems cost $15K-$25K+ plus any initial setup, ongoing service fees, and interest or finance fees. Further, the cost savings of solar systems are too complicated for the marketplace to understand and the average consumer has a difficult time fully grasping the cost savings and, therefore, is unwilling to pay the premium that sellers expect on their solar system-equipped homes.
Further, solar systems can actually reduce the value of your home in some instances. If the system is leased or financed, most solar companies require that the new buyer must “qualify” through their own lending standards in order to assume the lease. Several times, we’ve seen buyers qualify for their home mortgage, but run into snags with qualifying for the solar system since it uses different standards. We’ve also seen consumers encounter additional costs when filing hail claims and replacing their roofs. The roofer will require the existing solar panels be removed so the roof can be replaced and most solar companies charge $500-$1,000+ to remove and re-install the solar panels upon completion of the roof replacement.
While we encourage the use of renewable energy and protecting the environment, from a purely economic perspective, most of the time solar systems do not make financial sense for the consumer when it comes to return on investment for energy savings and eventual resale value. Tread carefully, and let us know if you have questions concerning your specific situation.
Contact us anytime you have a real estate-related decision – refi questions, property tax concerns, renovation ideas, etc.
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