June 3, 2020

Will Solar Panels Increase My Home’s Resale Value?

Will Solar Panels Increase My Home’s Resale Value?
Image by Maria Godfrida from Pixabay
You’ve probably heard that Denver averages 300 sunny days a year. So it’s easy to understand why many homeowners think about installing solar panels in their homes. One of the biggest questions they have about it is if the panels increase their home’s resale value. Let’s take a look at what the numbers and my 15+ years of experience as a Real Estate Agent have to say about it. (Oh and that thing about 300 days of sunshine? It’s not true – it’s somewhere between 250-260 days.)

Understanding the Costs and Financial Benefits of Solar Panels

If you are thinking about installing solar panels in your home, it’s important to understand their costs and benefits. You can find some incredibly detailed online calculators that generate return on investment (ROI) figures for solar panel projects. But you don’t have to dive that deep. As long as you can put numbers to the following elements, you’ll have a reliable overall picture.

Costs of Solar Panels

  • Total price for the system and installation – This should be specific to your home, with your chosen system and equipment.

Financial Benefits of Solar Panels

  • The total value of front-loaded offsets: This is where you factor in tax credits, rebates, and other financial incentives.
    • Federal tax credits: Currently, the federal government allows you to claim a 26% tax credit on the cost of a solar system installed through December 31, 2020. That amount will drop to 22% for systems installed in 2021 and is set to expire on December 31, 2021, unless Congress renews it before then.
    • Rebates: According to the Colorado Energy Office, a non-regulatory department within the Governor’s office, “There are no incentives for installing solar available from the State of Colorado, but depending on your location, incentives may be available through your electric utility or your city or county.” You can find information on local rebates on the website of the Database of State Incentives for Renewables and Energy (DSIRE). Follow this link, click on the column titled Policy/Incentive Type, and scroll until you see Rebate Program.
    • Additional financial incentives: These include solar renewable energy certificates (SRECs), which are programs from your electric utility that give you a per kilowatt-hour credit for the electricity your system generates.

Current Average Monthly Electricity Bill and Estimated Solar Electricity Generation

These figures are critical for determining your solar payback period in other words, how long it will be until your system pays for itself.

Calculating Your Solar Payback Period

Once you have these figures, it’s easy to calculate your solar payback period. That’s how long it will be before your system has paid for itself and stops being a net cost to you.

The calculation is simple. Determine your combined costs by subtracting the front-loaded offsets from the total price for the system and installation. Determine your annual benefits – savings from reduced electricity bills from your utility, plus any other incentives. Then, divide your combined costs by your annual benefits. For example, if your combined costs are $20,000 and your annual benefits are $2,000, your solar payback period is 10 years.

A Word About Leasing vs. Purchasing Solar Panels

When you lease your solar panel system, you do not get to claim the federal tax credit the solar company does. You are also shut out of SRECs. Both of these benefits accrue only to the system owner and if you lease, that’s not you. So, even though your initial investment is smaller, your front-loaded and annual benefits will also be smaller. Taken together, this means your solar payback period will be much longer. Additionally, when you sell your home, the buyer either has to agree to take over the lease payments or you have to buy out the remainder of the lease yourself. If you have to buy out the lease, your net proceeds from the sale of your home will be lower by that amount.

Where Does Colorado Rank in Terms of Solar Panels and Resale Value?

I wasn’t able to find any information about where Colorado ranks other than that we’re not in the top 10 states. According to this article from CNBC.com in October 2019, solar panels added an average of 4.1% to the resale value of homes in the following states:

New Jersey 9.9%
Pennsylvania 4.9%
Louisiana 4.9%
North Carolina 4.8%
Washington 4.1%
Florida 4.0%
Hawaii 4.0%
Maryland 3.8%
New York 3.6%
South Carolina 3.5%
(According to research conducted by Zillow using data on homes listed for sale and sold between March 2018 and February 2019.)

My Advice on Solar Panels and Resale Value

I recommend you only install solar panels if you want them and feel you’ll be able to benefit from them for at least 10 years. I say this for two reasons:

  • You’re never going to get anywhere close to a 100% return on investment. As noted above, even in the 10 states with the highest ROIs on solar, the best return was still less than 10%. (I know the solar companies will try to tell you differently, but.). 
  • Buyers in the Denver metro area haven’t been willing to pay more for a home with solar. If we can find at least 3 comparable sales of homes that also had solar panels, showing that buyers were willing to pay more, we can use that data to substantiate an increase in sales price. But I simply haven’t seen that to be the case. It’s possible that having solar panels could increase resale value in other areas of the state such as Boulder and mountain communities that take pride in being “off the grid.”

Got Questions About Buying or Selling? Ask Me!

I love answering questions and helping buyers and sellers understand everything related to their real estate transactions. Reach out to me at (303) 204-6494 or send me an email at [email protected].

Read More Articles

View all posts

Work With Us

We pride ourselves in providing personalized solutions that bring our clients closer to their dream properties and enhance their long-term wealth.

Follow Us