Home Owner Associations (HOAs) –Solar Panels and Home Values




Capturing the value that solar photovoltaic (PV) systems may add to home sales transactions is increasingly important. Our study enhances the PV-home-valuation literature by more than doubling the number of PV home sales analyzed (22,822 homes in total, 3,951 of which are PV) and examining transactions in eight states that span the years 2002–2013. We find that home buyers are consistently willing to pay PV home premiums across various states, housing and PV markets, and home types; average premiums across the full sample equate to approximately $4/W or $15,000 for an average-sized 3.6-kW PV system. Only a small and non-statistically significant difference exists between PV premiums for new and existing homes, though some evidence exists of new home PV system discounting. A PV green cachet might exist, i.e., home buyers might pay a certain amount for any size of PV system and some increment more depending on system size. The market appears to depreciate the value of PV systems in their first 10 years at a rate exceeding the rate of PV efficiency losses and the rate of straightline depreciation over the asset’s useful life. Net cost estimates—which account for government and utility PV incentives—may be the best proxy for market premiums, but income-based estimates may perform equally well if they accurately account for the complicated retail rate structures that exist in some states. Although this study focuses only on host-owned PV systems, future analysis should focus on homes with third-party-owned PV systems.

Appraising Solar Energy’s Value

Solar Panels and Home Values


Credit The New York Times

New research sponsored by the Department of Energy shows that buyers are willing to pay more for homes with rooftop solar panels — a finding that may strengthen the case for factoring the value of sustainable features into home appraisals.

The study, conducted by the Lawrence Berkeley National Laboratory in California, examined sales data for almost 23,000 homes in eight states from 2002 to 2013. About 4,000 of the homes had solar photovoltaic systems, all of them owned (as opposed to being financed through a lease with the solar company).

Researchers found that buyers were willing to pay a premium of $15,000 for a home with the average-size solar photovoltaic system (3.6 kilowatts, or 3,600 watts), compared with a similar home without one. Put another way, that translates to about four additional dollars per watt of solar power.

The study involved more solar property sales than previous research, making this sample particularly “robust,” said Sandra Adomatis, an appraiser in Punta Gorda, Fla., who is considered an expert in “green” valuation and is one of the study’s authors.

“This study is important for the buying public and the lending side,” Ms. Adomatis said, “and appraisers can say, here’s some proof there is some value to the system.”

More homeowners have been installing these systems as the cost of solar technology has dropped over the last decade. As of mid-2014, more than a half-million homes had solar systems, according to the report.

Real estate agents, appraisers and lenders are still trying to catch up with the technology, along with other energy-saving features, in terms of calculating their effect on home values — or lack thereof — in any given market.

Fannie Mae has acknowledged the growing proliferation of solar. In December, the government-sponsored institution issued a guideline specifying that if a house has an owned solar system, the appraiser should analyze the system and the market to see if it adds value.

The guideline provides “critical verbiage to give us some leverage” with lenders, said Gerard O’Connor, an appraiser in Lindenhurst, on Long Island, who has been trained in green valuation.

Long Island’s high electric costs have made it an attractive market for solar. About 40 percent of all systems installed in New York are on Long Island, according to the state’s Energy Research and Development Authority. Buyers are “certainly willing to pay more” for a house with the electric bills to prove the savings attached to its solar system, Mr. O’Connor said. But, he added, most lenders haven’t yet recognized that market shift.

Arthur Wilson, a builder developing five homes (all presold) with geothermal and solar panels in Middle Island on Long Island, has had his own issues with lenders. He said that an appraisal of $498,000 for the second house to be completed was recently “shot down” as too high by bank reviewers who he said were untrained in valuing green home features.

The lender asked Mr. O’Connor to look at the appraisal, and he said that he believed it was accurate in estimating the value of energy-saving features.

“Any new item or feature is always a nightmare in appraising,” Mr. O’Connor said.

He noted that, under the new Fannie Mae guideline, appraisers may not add value for leased solar systems, which are increasingly popular because they usually require no money upfront.

The Berkeley lab report notes that more research is needed into the effect of leased systems on home value.

According to a recent study led by Lawrence Berkeley National Laboratory, home buyers are willing to pay more for homes with host-owned rooftop solar systems.

As common-sense as these findings might seem to solar insiders, the figures provide a benchmark and some confidence for realtors and appraisers. That's the true audience for these calculations. As the number of solar homes grows, the question of the real value of a used solar system is going to come up more and more.

More than half a million U.S. homes had PV installed in the U.S. by the end of 2014. "As PV systems become more and more common on U.S. homes, it will be increasingly important to value them accurately, using a variety of methods," says co-author Sandra Adomatis, an appraiser who helped develop the Appraisal Institute's Green Addendum. She noted, "Our findings should provide greater confidence that PV adds a quantifiable premium to a wide variety of homes in California and beyond."

"Previous studies on PV home premiums have been limited in size and scope," says Ben Hoen, the lead author of the report. "We more than doubled the number of PV home sales analyzed, examined a number of states outside of California, and captured the market during the recent housing boom, bust and recovery."

The expanded study found that the "PV premium" adds about $4 per watt, or roughly $15,000 to the value of a home, based on an average-sized 3.6-kilowatt system. The premium holds across various states, housing and PV markets, and home types. The survey is based on data from the sale of 22,822 homes in total, 3,951 of which had PV in eight states from 2002-2013.

There is also "an apparent sharp depreciation rate for the PV premium in home sales transactions as those PV systems age." The study also found only a small, statistically insignificant difference between PV premiums for new and existing homes.

Note that the data looks at PV systems that are owned by the homeowner and does not take into account the more common practice of third-party ownership via companies such as SolarCity and Sunrun. SolarCity's CEO Lyndon Rive recently suggested that loans and system ownership will account for a larger portion of the company's business going forward.

Mortgage broker Fannie Mae, in its updated standards for loans it will repurchase, cites homes with solar panels and the need to “adjust” the appraised value of the home if the market demands, according to the study.

The study also finds that "market premiums are statistically similar to those estimated using the income and cost approaches, methods familiar to appraisers. This similarity to standard appraisal practices further bolsters the report's usefulness to real estate professionals and markets."

The research for this study was "multi-institutional" and led by the U.S. DOE's Lawrence Berkley Laboratory in partnership with Sandia National Laboratories, universities, and appraisers. It was supported by funding from the U.S. DOE SunShot Initiative.

A forthcoming study looking at the impact of third-party ownership and leased solar systems on home resale prices will reveal even more about the solar sentiments of homebuyers.

Eric Wesoff is the Editor-in-Chief at Greentech Media. Prior to joining GTM, Eric Wesoff founded Sage Marketing Partners in 2000 to provide sales and marketing-consulting services to venture-capital firms and their portfolio companies in the alternative energy and telecommunications sectors. Mr. Wesoff has become a well-known, respected authority and speaker in these fields.

His expertise covers solar power, fuel cells, biofuels and advanced batteries. His strengths are in market research and analysis, business development and due diligence for investors. He frequently consults for energy startups and Silicon Valley's premier venture capitalists.

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