Boost Your Home’s Resale Price, Install Solar Panels

solarThere exists a handful of factors that drive the price of a home up and down. The price swing is based on the influential role each factor plays. The Lawrence Berkeley National Laboratory conducted a study based on the effects of photovoltaic (PV) energy systems on home sales prices in California. Their research brought to their attention that there exists a mutual understanding between buyers and sellers on the real estate market over the value of each factor and how it affects the home sales price. As a result of the study, a pricing model was developed to account for all factors taken into account during a real estate purchase and the resulting price of the listing. It goes like this…

Sales price = f (home and site, neighborhood, and market characteristics)

“Home and site characteristics” might include, but are not limited to, the number of square feet of living area, the size of the parcel of land, and the presence of a PV system. “Neighborhood” characteristics might include such variables as the crime rate, the quality of the local school district, and the distance to the central business district. Finally, “market characteristics” might include, but are not limited to, temporal effects such as housing market inflation/deflation.[1]

Within the ‘home and site’ category lies solar photovoltaic (PV) energy installations. This factor has become increasingly influential over the past decade, and has the power to swing real estate prices up and down by the thousands. The average home gains $17,000 on its sales price after installing a 3,100-watt PV system (the industry average). This influx in sales price covers the initial cost of the installation, while the homeowner is reaping electrical bill benefits from the day-to-day function of the system. All in all, the homeowner has made a positive return on the initial investment. Informed homeowners are taking note of this, resulting in a steady rise of solar PV system installations over the last four years. Screen Shot 2014-07-24 at 2.56.45 PMFor the first time, the number of residential PV system installations surpassed the number of commercial, or non-residential, PV system installations in 2014. Skeptical analysis has lead many to believe that this is simply a result of a harsh winter, however, and that non-residential installations will once again lead the way after the next quarter or two. Regardless, the impressive fact remains true: In just one year, from 2013 to 2014, solar photovoltaic output increased by 79%.[2] Premiums paid for houses with PV installations have been known to vary, specifically, from $3.9 to $6.4 per watt. These fluctuations depend on a number of factors, like the ones previously discussed, but more specifically, on the age of the home. Selling prices for new homes with PV systems installed experience a dollar per watt increase of about $2.3 – $2.6/watt, on average. Meanwhile, the selling price of an existing home with an PV system installed experiences a dollar per watt increase of about $6.4 – $7.7/watt, on average. The reason behind this strange difference in value rests with the fact that new homes tend to list an installed PV system as a standard feature, while existing homes more often list it as a premium option. For some reason best understood by psychologists and supported by economists, perspective home owners and shoppers alike tend to hold a higher perceived value in products that come with features labeled as a “premium.”[3] For example, a car salesman cannot bump up the price of an existing model that is regularly manufactured with a v12 engine because that feature comes standard. However, if the salesman were to make an offer to install a v12 engine in a different model that normally comes standard with a v8, the price will likely take on a premium. As the pricing model developed by Lawrence Berkeley National Laboratory suggests, the size of the home also plays an important role in the premium within its sales price. The same size PV system can add larger or smaller premiums to a property’s value depending on the size of the home. The reasoning behind this stems from a game of ratios; a 3,000-watt PV system on the roof of a one-acre home will add significant value to its sales price. However, the same 3,000-watt PV system on the roof of a three-acre home will not add three times the amount of value to that home’s sales price. Why not? Consider what happens when you increase the size of a home: its electricity consumption rises. Therefore, that same 3,000 watt PV system will now benefit a smaller portion of the home, and so the premium it applies to its resale value drops alongside the weakened electricity production/property size ratio. And so the question remains, should you install a solar photovoltaic system on your home’s property? Considering the overall return of the average installation, your property would receive a boost in value of $17,000 and you would see a significant reduction in your electricity bill, and quite possibly even make extra profits by selling excess energy. Screen Shot 2014-07-24 at 3.02.08 PMIn this case, it would be a no-brainer to make the investment. On the other hand, the price of these PV installations is reducing year by year, quarter by quarter. The value in your system, if you were to invest in one today, would save you money on your utility bills, but overall, would drop over the coming years. However, if you were to wait another few years, you could invest in a system that costs much less than they do today, and you could potentially be saving a fortune. Every major breakthrough that occurs in the solar energy industry leads to another drop in price. There is an additional factor that might justify the decision to delay the investment. The amount of electricity generated by a solar panel declines by about 1% each year, and paradoxically, the premiums paid on these homes drops about 9% each year, for reasons not quite understood, but that an economist would likely explain in a long winded answer attesting to people’s “perceived value.”[4] Regardless of your decision on when to invest, the facts tell us that the action should be made eventually. It may be hard to pinpoint exactly how much of a premium is gained on a home that acquires a PV system installation or for how long that premium lasts, but we do know with quite certainty that it could only be of benefit.   [1] http://www.seia.org/research-resources/solar-market-insight-report-2014-q1 [2] http://www.seia.org/research-resources/solar-market-insight-report-2014-q1 [3] http://emp.lbl.gov/sites/all/files/lbnl-4476e.pdf [4] http://www.sfgate.com/default/article/Solar-panels-seen-as-boost-to-homes-resale-value-5063262.php