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Solar electricity and your home

Solar electricity and your home

In simple terms, it really comes down to how you pay for your solar system. Did you:

1. Buy your system outright with cash?

2. Lease your system?

3. Use a Power Purchase Agreement?

4. Get a Home Equity Line of Credit?

5. Refinance and get cash out to pay for the solar?

6. Use the PACE or HERO (or similar) program to get solar?

Unless you actually paid for the system cash, used a home equity line of credit or refinanced your home to get cash to purchase the system, the answer is most likely no, your value did not likely increase because there is now solar on your home.

When solar first came out the common thoughts of all homeowners were primarily two-fold. First, I’m going to decrease my electric bill and second, the value of my home goes up. Yes, owning solar will definitely reduce your electric bill. However, as it relates to an increase in the value of your home, it has taken a long time for appraisers, lenders and the housing industry as a whole to come to a conclusion on this. But the reality is that unless you OWN your system it’s probably going to have little, if any, effect on your home value. Let’s consider a common sales pitch offered from solar companies. The first question they will likely ask you could be “how much is your monthly electric bill?” in an effort to show you how much you are going to save by installing solar on your home. Let’s look at this scenario and see if the value of your home has increased because you have solar in this situation.

Let’s say, for this example, your average monthly bill is $500 per month (over a 12 month period). That’s $6000 per year. They solar company offers to you, at NO COST, to put solar on your house, to maintain the system, to monitor the solar and do all the work necessary for the system when it’s necessary. In return, they are going to exchange the average monthly bill of $500 per month and offer you a FIXED payment of $250 per month (est.).

That sounds absolutely awesome doesn’t it? You have now put solar on your home and you didn’t have to spend a dime to get it. You don’t have to maintain the system and you have a fixed monthly payment of ½ of what you paid before.

Although this is a great financial move because you have been able to reduce your monthly expenses for electricity by 50% and you didn’t have to pay any upfront money to get that, did that really increase the value of your home? Here’s how most appraisers and lenders respond to that question.

What value was given to the home by simply reducing the annual bill for electricity by $3000 per year? The homeowner doesn’t own the system and the system can be repossessed by the solar company. In the lenders and appraisers eyes….you gained no home value at all.

It may sound strange but that’s how most lenders and appraisers value solar on a home that is leased, on a PPA (power purchase agreement) or financed through programs like HERO or PACE.

Compare that to a system that you OWN and the rules change. When you own the system and its part of the house (like your dishwasher or window coverings). Does that have value? ABSOLUTELY. It’s your system… you own it…you maintain it… and instead of paying $6000 per year you might pay $1000 per year and appraisers and lenders alike will definitely give you a value when appraising your home. Not to mention that when you purchase the solar YOU get to keep all the financial incentives given by the Federal, State or local governments or any other entity giving out these incentives.

Keep in mind that any value given for an “owned” solar system will more than likely be not be dollar for dollar, but only what the market recognizes for the solar feature. Similar to a built-in pool or other major improvements.

Leased solar may also hinder the marketability, as buyers may need to qualify for lease terms. Some buyers will not want to get caught up in a lease agreement. A leased system may reduce the number of qualified buyers. 

Basically, owned solar is typically given value based on market reaction and leased solar is not given value, as it is not considered real estate as it is owned by a 3rd party.


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