Tips on Selling a Home With Solar Panels
One of the most common concerns I get from homeowners when they’re deciding if they want to go solar is whether selling a home with solar panels is easier or more difficult than selling one without them.
Unless the homeowners are living in their “forever home” (i.e. they can’t ever see themselves selling it), there is always the concern, no matter how unfounded, that selling a home with solar panels will be more difficult and may even lower the value of the property.
There used to be some truth to that.
Before solar became so mainstream, some home buyers used to be wary of it. And some, no doubt, decided not to buy homes that had solar panels installed.
Now that just about everyone know someone with solar, that is much rarer, and many trusted sources even claim that solar panels add value to a home and make it easier to sell.
So let’s look into that. Will solar panels help you get a better asking price or sell your home more quickly? Or will dozens of potential buyers refuse to even look at your home because they hate the fact that you have solar panels on the roof?
In this article, we’ll help you to understand how installed solar panels impact your home’s worth, navigate the nuances of leased versus owned systems, and explain how to effectively communicate the benefits of solar to potential buyers.
Can Solar Make Your Home More Valuable?
Ask a typical solar rep if they think solar will add to a home’s value and they’ll likely cite a 2019 article from Zillow.com which claims that solar panels can increase a home’s value by as much as 4.1%.
That’s impressive, particularly in Massachusetts, where I live, where even a modest 3-bedroom home can cost $500,000.
4.1% of $500,000 is over $20,000, which could buy you a pretty decent-sized solar system after you’ve taken advantage of the various tax credits that might be available.
So you can expect a pitch that goes something like “go solar now, even if you’re planning to sell your home. Then you’ll recoup the whole cost, and then some, from the buyer if you do decide to sell later.”
If only life were that simple.
As a piece of journalism, that Zillow piece leaves a lot to be desired. It only highlights five markets, three of which (Los Angeles, San Francisco and Riverside) are in California, the undisputed solar capital of the US. And two of the highlighted markets (San Francisco and NYC) are widely regarded as the most expensive real estate markets in the country.
So it’s hardly a representative sample.
What’s more, there are other variables that come into play, and other factors that you need to consider before you can determine whether selling a home with solar panels is easier or more difficult than selling one without them.
Leased vs. Owned Solar Systems
Broadly speaking, there are three ways you can go solar. You can either lease the system (often referred to as a Power Purchase Agreement or PPA) or you can purchase the system outright, either paying cash or by taking out a solar loan.
Each of these three methods will have distinct implications for potential buyers. So let’s look at them one by one.
You Own the System, Having Paid Cash
This is usually the most attractive option for potential home buyers and, therefore, theoretically should add the most value to your property when it comes time to sell.
How much value?
One study by researchers Ruth Johnson and David Kaserman, and cited by the Appraisal Journal, states that a home’s value can be expected to increase by $20 for every dollar saved in annual home energy costs.
So a home that has had its $200/mo electricity bill eliminated by the installation of a solar system should theoretically sell for $48,000 more than one that hasn’t.
$200/mo. X 12 months x $20 = $48,000.
Whether that valuation holds up for your home, in your market at the precise time you’re trying to sell is, of course, subject to the vagaries of what are always very localized market forces.
And other question come to mind, such as:
- How old is the current system?
- How well has it been maintained?
- Who installed it?
- What percentage of the home’s electrical needs does the system cover?
- What percentage is it likely to cover for any new home owner?
Even if it’s bought and paid for, a system that was installed 20 years ago by middle-aged empty-nesters who used 300kWh of electricity a month will be wholly inadequate for the family of four who is now looking to buy the house and wondering where they’re going to plug in their electric car.
And installing an add-on system to make up for that shortfall is not always straightforward. Some companies refuse to install add-on systems unless they were the ones who installed the original one. And the company that installed the original system may no longer be around.
You Own the System, But Have a Loan
Buying a solar system through a loan might have allowed you to take advantage of available solar tax credits without having to pay a lot of money out of pocket. And all the same pros and cons of selling a home with a cash-bought solar system still apply when you finance the purchase.
Theoretically, the home could have no electric bill, or maybe it still does. The solar system may be relatively new and perfectly maintained, but maybe it’s not. The system might add tens of thousands of dollars to the value of the home, or maybe it won’t.
But one thing your home will have that makes selling it more complicated is an outstanding loan and a lien against the property.
Neither of these things is necessarily a deal-breaker. But they may scare off a would-be home buyer just because they complicate the deal.
If you used a home-equity loan to add solar panels, using the house as collateral against that loan, the loan will have to be paid off before you can sell the property.
If you bought your solar system with an unsecured loan that doesn’t use the house as collateral, you can sell, but someone will be responsible for paying off the loan. Exactly who pays it and what that looks like is, of course, subject to negotiation, which is something that the realtor will likely handle for you.
In some instances, lenders might allow you to transfer the loan to the buyer but their credit score will need to meet the lender’s criteria. You’ll need to check the loan agreement and possibly even call the lender to clarify exactly what you can or can not do regarding loan transfers.
You Signed a Lease or PPA to Go Solar
One giant misconception is that PPA or leased solar systems don’t add value to your property the way a purchased system does. They do, or at least they should if the homeowner and realtor know how to sell them.
While the home will still have a monthly electricity bill with these systems, that bill should be much lower than prevailing rates from the utility company. If you’re selling your home, it’s up to you, or your realtor, to do the homework and determine just how much lower so you can use that as a selling point.
Maybe you signed a lease or PPA agreement five years ago at a rate that saved you 25% over prevailing utility rates at the time. Your rate could easily be 40%-50% below current utility rates five years later.
But since you don’t get a bill from the utility company any more, and you probably haven’t looked at your lease or PPA agreement since the day you signed it, you likely wouldn’t know that.
Do some homework. Dig out your agreement (it’s probably in your email inbox). If you can’t find it, call your solar company and ask them to send you a copy.
Call the utility company, or just talk to your non-solar neighbors. Find out what rate they are paying for their electricity and be ready to talk up how smart you were to lock in such low rates all those years ago.
Transferring a Solar Lease or PPA
Once you’ve helped the buyer get over any hesitation they may have about leases or PPAs, you still have to go through the steps of transferring the agreement to the new owner. Some solar companies (Sunrun) make this super simple.
Others (Telsa) make it more cumbersome than it needs to be by insisting that only the existing homeowner can do it, meaning that neither their realtor nor their attorney can help.
And still others (Sunova) have some scary language in their agreements stating that transfers can’t be done without their express written permission. And while their agreement also states that such permission won’t be unreasonably withheld, that’s still language you’d rather not see just as you’re putting your home on the market.
Bottom line, lease and PPA agreements are designed to be transferred easily from homeowner to homeowner. Otherwise, with Americans moving house on average every seven years, and a typical agreement lasting for 20-25 years, they simply wouldn’t work.
The People Who Sell Your Home with Solar Panels
It’s tempting to think that the only people who need to sign off on the idea of you selling your home with solar panels are you and the prospective buyer. That’s not true.
There are several others who need to be educated on the pros and cons of solar and how to weigh the value of various solar scenarios.
Your Realtor
Because home buyers will likely have lots of questions for real estate agents before they even view your property, it’s worth listing with an agent who has experience selling homes with solar.
Look for agents with the National Association of Realtors GREEN designation, which signals existing knowledge of solar and energy efficiency. They can help you demonstrate all the benefits your system offers.
The Appraiser
No matter how good a job you and your realtor do of demonstrating the value of solar, the appraiser has a significant role to play in determining how much your house is worth, since it’s the appraised value of the property that the lender typically uses to decide how much they’re willing to lend the buyer.
Appraisers do not always view solar solar panels as adding a lot of value to a home. If the panels are leased, appraisers are instructed to add zero to the home’s value per guidelines set out by Fannie Mae, Freddie Mac, the FHA and the VA.
Even if the panels are owned, you might only see a bump in home value of about 25% of the money you spent on them. And only then if comparable sales in the area show that solar adds value.
So does that mean that solar does not add value to a home. Not necessarily. There’s an appraised value and then there’s a market value. The buyers could still be willing to pay more for the solar house than for the non-solar house. They just need to see the value.
The Lender
Lenders typically have no problem with solar panels. They are going to want to be sure that all warranties and lease or PPA agreements are fully transferable to the borrower. They will also insist that any lien the solar company has on the property is removed before closing. Then they will place their own lien before the solar company places their lien again.
This ensures that that the mortgage company has the first lien on the home and isn’t forced to get in line behind the solar company in the event of a default.
There’s a good podcast episode from The Mortgage Brothers that more thoroughly explains the way lenders view solar panels.
Your Solar Rep
It may be a while since you last saw them, but don’t be shy about calling up the solar rep who sold you the system in the first place. If they’re still in the industry, they would probably be happy to come by and “re-pitch” you on some of the non-monetary benefits of solar.
Going solar isn’t just about sticking glass on your roof and shaving a few bucks off your electricity bill. It really is about the future of energy, and your would-be home buyers need to understand that solar opens the door to EV charging, battery storage, heat pumps and all manner of other benefits.
The best person to explain all this to them is the solar rep who sold you on those benefits back when you first went solar. Invite them over for coffee with you and your realtor so that you can both understand what’s going on in the industry that might be selling points when marketing your home.
They may even be willing to chat one on one with would-be buyers directly. After all, it’s their job to educate the public on the benefits of going solar. And there may even be a commission in it for them if the new homeowner decides they need an add-on system after they buy your home.
FAQs Regarding Selling a Home With Solar Panels
Does having solar panels affect the selling of your house?
Solar panels can increase the market value of your home (the amount a buyer is willing to pay) but likely won’t add much, if anything, to the appraised value. If you leased your solar system, signed a power purchase agreement or you still owe money on a solar loan, there will be additional steps involved in closing the sale.
What happens after you pay off solar panels?
Once you have paid off the loan on your solar panels, it’s as if you paid for them cash upfront. The lien that the financing company placed on your property is removed and you can sell your home without having to take any further steps that might complicate the close.
Do solar panels void your roof warranty?
No, the proper installation of solar arrays does not void most roof warranties. When you have your roof replaced, there are actually two warranties – one from the roofer guaranteeing his work, and the other from the company that manufactured the roofing materials, such as Owens-Corning or GAF.
The roofer’s warranty will typically be replaced by a ten year workmanship warranty from the solar company. The manufacturer’s warranty will hold up as long as the solar company follows the recommended instructions for installation, which they all do.
Final Thoughts on Selling a Home With Solar Panels
Ultimately the real estate market varies greatly between different locations and also changes over time. So determining whether selling a home with solar panels is going to be easier or harder than selling a home without them will depend on the state of the market in your area when you want to sell.
If you’re selling in a buyer’s market, you may not be able to extract much value from your solar installation. If it’s a sellers market, your solar panels could provide quite a boost to the selling price.
One other thing to consider. Although I try not to make predictions, especially about the future, it’s my firm belief that solar panels, EV Chargers, heat pumps and all other things electric are going to become highly desirable, maybe even essential features for homes in the not-too-distant future.
In fact, it’s hard for me to imagine my own children even considering buying a home that doesn’t offer any means of charging an electric car in, say, ten years time. That would be like buying a house that has no ability to provide internet access now.
Sooner than we think, the question will be less about whether solar panels will increase the value of your home and more about how much the lack of solar panels will diminish its value.
