How does solar affect Austin property values?

Question

Has anyone run comps on similar houses with and without solar panels? Has anyone sold properties with them?

I'm curious about how it would affect sales price and whether it could be a value add on a flip after collecting state rebates and tax credits.

Andrew Postell · Answer

@Quin Weidner in general, you should not be adding solar panels to your home if it is a flip.  Things like windows, tankless water heaters, pools, and solar panels do not give you a $1 to $1 return to install them.  Meaning, if it costs you $50k to install a pool, you may only receive $20k in value.  So if the exchange is WORSE than $1 for $1 then we aren't going to do it as a flipper...UNLESS the neighborhood warrants us to do so.  If every house in your neighborhood has solar panels, then you need to factor that in your costs...and into your offer as well.  Meaning a lower offer.  So if all the comps do have panels, and you know it won't work out for a $1 for $1 exchange, then you will need to lower your offer to compensate for it.  Same with pools.  I have not seen enough homes in a geographical area to warrent enough comps for solar panels here.  In Florida, there are certain parts where if your home does not have a pool it ain't selling.  That's not the case here.  Arizona is a pretty popular state for solar panels. I think California has way more but they also have way more people.  Dallas-Fort Worth has more people in it than Arizona.  But as far as a percentage, Arizona is pretty high.  Texas is not so much.  I would recommend against it.

Costin I. · Answer

@Quin Weidner @Andrew Smith @Zachary Barton I looked into this matter 5 years ago - here are my findings:

Solar panels are the next granite countertops: an amenity for new homes that’s becoming a standard option for buyers in U.S. markets. - http://www.bloomberg.com/news/2013-09-10/solar-panel-is-next-granite-countertop-for-homebuilders.html

FYI, these are my findings and various methods of calculating PV value:

• Econ 101: Solar panels increase home values - An economic study has found that installing solar photovoltaic panels increased home values by about 3.5 percent, which on average covered the installation cost. http://news.cnet.com/8301-11128_3-20088646-54/econ-101-solar-panels-increase-home-values/

• For the average installation, the authors found that solar panels added a $20,194 premium to the sales price of the house based on repeat sales data (houses were in the mid-$500,000 range). Solar is really expensive to install—the average total system cost is $35,967, but the effective price to homeowners with subsidies including the federal tax credit is $20,892. Thus, homeowners appear to recover approximately 97% of their investment costs – in addition to the savings associated with reduced energy bills.  http://www.forbes.com/sites/ashleaebeling/2011/08/01/how-much-do-solar-panels-boost-home-sale-prices/

• http://www.resilientcommunities.com/how-much-does-a-solar-panel-system-increase-your-homes-value/ - Although it did not reference specific property values for homes powered with solar energy, the US Department of Energy: Energy Efficiency & Renewable Energy has stated that "A solar home will sell twice as quickly as a home without solar."
• http://www.solartree.com/index.php/the-library/articles/53-impact-of-solar-panels-upon-property-values - Every $1 in savings to an annual utility bill added $20 in home value.
• http://geostellar.com/site/geo-blog/how-much-do-solar-panels-add-your-home-value - Studies show that the installation of solar panels increases the value of a home by 3-4 percent.
• http://www.newsday.com/business/solar-power-helps-to-increase-home-value-1.6226804 - The results demonstrated that homes with PV systems in California did in fact sell for a significant premium over homes without PV systems. On average, houses with a relatively new, “average-sized” PV system sold for $17,000 more than a comparable house with no PV. The average-sized PV system was based on the sample of homes studied, and represented a PV system of 3.1 kW. 
• http://kenergysolar.com/blog/2012/11/15/do-solar-panels-add-value-to-your-house - The calculation most commonly used these days is for every dollar you save in electricity use it adds about $20 in value to the home. So, $1,000 saved annually via solar panels translates to about $20,000 in additional property value. 
• http://dc.urbanturf.com/articles/blog/solar_panels_affect_the_value_of_your_home/3368

So, based on these articles, I would say the increase in value is somewhere between 3.5 percent of home value (14K on a 400K valuation) and 97% of investment costs. Or using the 20:1 increase to energy saving ratio, that would translate to more than 20K.

There are other ways to factor this in:

The mortgage interest saved (e.g. on a 450K 30yr 4% loan an extra $80 added to the monthly payment will result in savings of over 27K , the difference between 320K  and $347K in total interest)  calculation?

Or simply the energy saving cost, the production value: my PV array produces 3600KWh on average annually, it should have at least 20 years left on nominal production, so on a straight line it would save $7,2K at a minimum, or considering the historical energy prices inflation with PSE of 10%, that would equate 21K. Over the life of a 30yr loan, that would be $59K - even assuming an annual degradation of 10% in production performance, it would still resolve into $43K saving.

Regardless, an appraiser has to be familiar with the Freddie Mac form 70 or its equivalent, Fannie Mae form 1004, and in particular the value adjustments for “Energy Efficient Items.” Or, if we talk about a lender or broker, they have to be familiar with the Sensible Accounting to Value Energy (SAVE) Act (S. 1737) which would require federal mortgage agencies to ensure that energy costs are included in the underwriting process.

As you can see, there are many ways to look at the PV value, and depending on the calculation method employed, the valuation can be on quite a range.

Zachary Barton · Answer

@Andrew Smith From that link, "Fannie Mae will purchase or securitize a mortgage loan on a property with solar panels. If the property owner is the owner of the solar panels, standard eligibility requirements apply (for example, appraisal, insurance, and title)."

That language says they will lend on a home with solar panels, as long as the solar panels are owned out right. Otherwise there are additional criteria for loan qualification.

However, that does not mean that the solar panels will increase the market value of the home. In fact, as per the recent Realty Line article mentioned above, "Most appraisers are not going to incorporate the initial cost of the system, depreciation and potential energy savings over the remaining expected useful life of the system to come up with value added to the property by having solar panels". So yes, the bank will appraise and lend on a home with solar panels, BUT the market alone will dictate the "value" of those panels.

Right now, the Central Texas market places no additional value on homes with solar panels. Considering Cali's mandate, I think your absolutely right, overtime homes in your market with solar panels will be considered more valuable then those without.

-Zak

Andrew Smith · Answer

I think this will let me link here. This shows the panels are appraised normally unless leased or PPA:

https://www.fanniemae.com/content/guide/selling/b2/3/04.html

Roland Widmann · Answer

I have seen some home sales run into trouble because the homeowner installed solar panels on a lease contract... then the buyer did not want to keep paying for lease. The company (I believe it was Elon Musk's Solar City) then wanted tens of thousands of dollars to come and remove the panels....  so regardless of what you do, do NOT put them up on a lease contract.

Zachary Barton · Answer

This months Realty Line issue (for Austin Realtors - can be found by googling Realty Line Issuu - page 22) published an article that says, "Most appraisers are not going to incorporate the initial cost of the system, depreciation and potential energy savings over the remaining expected useful life of the system to come up with value added to the property by having solar panels". Appraisers will consider comps of properties that have solar panels. Just don't expect for those comps to be much higher that similar properties that have sold without panels.

So as an ethical, money saving venture, you may want to consider if for your personal property but its not profitable. At least not yet...

Michael Jones · Answer

I generally agree with Andrew above.

I just put solar panels on my primary residence and I'm very happy with the outcome. I think IF you want to pursue this approach, and you'd better be careful, is to look at it from a cashflow/NOI perspective that future owners will get some sort of annual return for the remaining life of the system. That sort of calculation should help you come to a value for the system, but even then, the cost of you putting in the system will take some time to break even. I'd recommend staying away.

Costin I. · Answer

If I was to give you $100 to apply to your mortgage every month for 15-20 years, would that have value? Would you be able to calculate how it will save you in principal and interest from your mortgage?

I would say yes and the same thinking can be applied to solar panels. If they save you an average monthly of $100, and you apply that to a buyer mortgage, you can calculate the value added. And that can be your add-on to regular ARV.

Sam Shueh · Answer

In Northern CA, the leased panel does not add any value into the property. It takes about 3-4 years to break even the cost, but there is a smaller tax rebate first year. If it is a very new you are lucky to get $5K out a $15-20K system owner occupied send back to the grid.

Bottom line people do not mind having a solar system that reduce utility bill but does not want to pay the amenities.  It is very hard to include solar payback value as quartz countertop, SS high end appliances, marble floor, exterior fireplace, out door kitchen or LED lights that carry more popularity.  For a $1M home $15K improvement is just 1.5%. But it would be 3% w/o depreciation installed today new with full warranty on a $500K home.

Zachary Barton · Answer

@Costin I. @Quin Weidner @Andrew Smith

Costin, I do see your evidence to support the value of installing solar panels. I agree that they have an intrinsic value to the home owner in the form of energy savings and the homes desirability/marketability. And of course, there is the environment to consider!

Your evidence makes a good sales pitch to someone considering investing in panels but more so in regard to the amount of money saved on the energy bill and adjusted cost of installation when you factor in the savings, tax benefits, and slight 3% bump to the home’s value (potentially).

Quin's question was about ARV of homes with vs. without solar panels. Costin you have some evidence that suggest that there is around a 3% gain to the homes values when solar panels are installed. But the evidence also suggest that that is a wash when you factor in installation cost. Looking at your math there does appear to be a net gain in the long run, BUT I think it’s still debatable as to whether or not its profitable on a home you intend to sell. I would bet not. Not yet at least. This is very market dependent, in California where there are additional and significant economic benefits to having a small carbon footprint, the appraised values to seem significantly higher when you have panels. But on a local level (here in central Texas) I wouldn't even count on a 3% increase in value.

Two final notes for now. 1. I hope that I’m wrong or will have to change my opinion in the future. I think the path towards a greener future is best for all of us. 2. I’m going to call some local appraisers this week and get their take. Ill update then!

Thanks for the stimulating conversation!

How does solar affect Austin property values?

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