Do Solar Panels Increase Home Value?

The cost of using solar systems are going down each year, and many homeowners are considering adding solar panels to their homes in Arizona. With an average of 299 days of sunshine in Phoenix AZ, the benefits of environmentally friendly energy and cost savings on home energy bills make solar panels look enticing. The question is, do solar panels increase home value like the solar companies profusely advertise?

The Office of Energy Efficiency and Renewable Energy says that a solar energy system will likely increase your home’s value and home buyers across the country have been willing to pay a premium of about $15,000 for a home with an average-sized solar array. Solar panels are viewed as upgrades, just like a renovated kitchen or a finished basement.

However, a home appraiser will look at several factors to determine if the solar panels actually increase the home’s value.

Leased vs Owned

First, are the solar panels leased or owned? If the solar panels are leased, no, your appraised home value does not increase. If the solar panels are owned outright, then the answer depends on how much energy the system produces.

How Much Energy Does the Solar System Produce

Several factors determine how much energy a solar panel and solar energy system produce.

  • How old is the system? Solar energy systems last about 25 years. What it produces today, it won’t produce next year. There is a degradation of approximately 3/4% each year.
  • How is the system oriented? (shaded, full sun, etc) What is the slope of the system, and what direction is it facing (180degrees south has the highest production rate)?
  • What size is the system in kilowatts?

With all these factors taken into account, a property appraiser will estimate what the system is going to produce over the remaining life of the system and then use a Discounted Cash Flow (DCF) analysis, a valuation method used to estimate the value today of an investment (solar) based on it’s expected future cash flows, to determine the increased value of the home.

 

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