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Solar panels are becoming an increasingly popular source of energy for homes on the market today. For some, the benefits of going green might seem like a surefire way to increase the value of your home; however, the question of whether or not they add to resale value is complicated.

While it’s true that anytime you take on a home improvement project with the goal of increasing the value of your home, you are taking a calculated risk. You are betting that most prospective buyers will see the increased value in the improvements you have made. If not many of them do, you might end up waiting longer to find the right buyer or be forced to reduce your asking price to sell faster.

Before adding solar power to your home, it’s essential to research the cost, understand the incentives, and ultimately find out how the system affects your home's value.

Why Are Solar Panels Becoming More Popular?

The solar industry is booming. As of mid-2014, more than a half-million homes had solar systems and, in 2017, solar accounted for 30% of all new capacity installed and now generates 1.9% of all electricity nationally. Several reasons are contributing to this rise in solar panel investments, some of which include:

  1. Reducing the cost of electricity bills
  2. Earning a return on investment
  3. Increasing property value
  4. Decreased reliability on fossil fuels
  5. Economic growth through solar-related jobs

How Much Does Solar Panel Installation Cost?

The cost of installing solar panels varies based on the size of your home and the type of solar panels you choose. Solar panel systems are measured by the amount of power they give in kilowatts. A five-kilowatt system is the national average and outputs 5000 watts of power to the home. This output is enough to power the refrigerator and freezer, as well as some small kitchen appliances.

National averages show that installing solar panels costs at least $15,000, with systems for larger homes reaching up to $45,000. It takes about seven years for the system to “pay for itself” by saving you the equivalent of the installation cost on your power bills. If you have financed the cost of the system, it can take longer due to the amount you pay in interest and fees over the life of the loan.

Another factor to consider is the tax credit available for property owners who install solar panels. The investment tax credit (ITC) lets home and business owners deduct up to thirty percent of the cost of installing the system. There is no cap on the total deduction amount, but you do have to own the system to get the ITC. If you enter a lease agreement, you may not be eligible for the deduction.

Do Solar Panels Add Value to Your Home?

The question of whether solar panels add value to a home remains hotly debated. According to a 2015 research study sponsored by the Department of Energy, researchers found that buyers paid a premium of $15,000 on average for homes with solar panels installed. In other earlier studies, the findings suggested that solar-prevalent states like California experienced an increase in 4% or more for homes equipped with solar panels.

Recent figures show that in most states, each watt of solar power adds $3 of value to the home’s price. Therefore, a five-kilowatt system that produces 5000 watts of solar power should add $15,000 to the asking price of a home.

Are Solar Panels Worth the Investment?

While the developments are promising, the answer will vary based on a number of different factors, including where you live, installation costs, and how the panels are financed. In most cases, if you can afford to pay for the solar panel installation outright, adding solar will increase your home’s resale value. However, if you enter into a lease agreement or payment plan and there are still outstanding payments when you put the house on the market, prospective buyers will have to consider this expense and deduct it from the amount they are willing to offer.

If you place the home for sale with payments remaining on the financing for solar panels, the system can hurt your asking price. Buyers will have to assume the payments, and they will factor this into their budget before making an offer. If the buyers who are interested in your property don’t want to assume payments, they may ask you to pay off the remaining amount or have the system removed before closing on the home. This situation decreases the amount of profit you make on the sale of the house and creates a new headache for you to deal with before moving on.

Best Markets for Solar Panels in 2018

Over 50% of all the states in the U.S. saw growth in the residential solar panels. The value of solar-equipped homes varies by region. States that are taking leadership roles for energy and climate change tend to associate solar panels with a more valuable home. It comes as no surprise to some that California leads the way, followed by Arizona, North Carolina, New Jersey, and Massachusetts.

 To make sure that your solar panels add to the value of your home or business, make sure you do some research before you have them installed. Purchasing the system outright is the best way to reap the potential benefits.


Luke Babich

Luke Babich is the co-founder and Chief Strategy Officer of Clever Real Estate, the free online service that connects you with top agents to save money on commission. He's an active real estate investor and licensed agent in St. Louis, with 22 units currently. Luke graduated from Stanford University and subsequently ran a historic data-driven campaign for University City City Council. Luke's writing has been featured in Homeland Security Today, Mashvisor, Payments Journal, and Bigger Pockets.

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