How do you value Solar in a home appraisal?

[David S]

I have a house Im planning to sell and I installed 16.8KW of solar on the house. Its bought and paid for which is a bit rare for panels now a days... My question is (preferable relatable to the Michigan market if its not universal) how do you value a paid for system? I have seen quotes online for 5-6k per KW of installed system in regards to home value, but is that the case (this is normally from solar friendly sites)? Is there some other metric that is used or standard to add that value when a comp doesnt exist?

The house is 100% electric and had a NET $0/m bill including charging a standard EV so there is definitely value there, but Im not sure how much or the logic behind it.

Like any other appraisal assignment, we can use three approaches to value it: 1. Sales comps, pull the nearby similar houses sold price to see what's the difference between with and without solar panels to extract solar value; 2. Cost approach, ask the invoice from the owner to get cost new, then apply deprecation to get the solar value; 3. Income approach, figure out how much utility bill saving, then use cash flow method to get solar value. So far I use cost approach most times. The reasons are: 1. I can get solar panel invoice from the owner or city hall. Pretty much it is a factual data and reliable. 2. Most solar system are still fairly new, probably in less 5 years here? So the depreciated value is pretty reliable too. Normally I use shorter depreciation schedule, like 10 year deprecation, although it should work around 15~20 years. So far client / lender no question yet. The final value range here is about $10K ~$20K depends on how many panels / larger or smaller and how old the panel is.
For lease solar panel, the value is ZERO.

 

[MoistMitten]

Like any other appraisal assignment, we can use three approaches to value it: 1. Sales comps, pull the nearby similar houses sold price to see what's the difference between with and without solar panels to extract solar value; 2. Cost approach, ask the invoice from the owner to get cost new, then apply deprecation to get the solar value; 3. Income approach, figure out how much utility bill saving, then use cash flow method to get solar value. So far I use cost approach most times. The reasons are: 1. I can get solar panel invoice from the owner or city hall. Pretty much it is a factual data and reliable. 2. Most solar system are still fairly new, probably in less 5 years here? So the depreciated value is pretty reliable too. Normally I use shorter depreciation schedule, like 10 year deprecation, although it should work around 15~20 years. So far client / lender no question yet. The final value range here is about $10K ~$20K depends on how many panels / larger or smaller and how old the panel is.
For lease solar panel, the value is ZERO.

So based on that it should be worth the price that I received a quote for at the time minus depreciation? FHA appraisal guidelines say you can not only use the income based approach, but it can be used as supplemental. If thats the case the value is about 55k as its about 1 year old which is within reason.

 

[David S]

So based on that it should be worth the price that I received a quote for at the time minus depreciation? FHA appraisal guidelines say you can not only use the income based approach, but it can be used as supplemental. If thats the case the value is about 55k as its about 1 year old which is within reason.

I can't do the appraisal for Michigan. Let's see how other appraisers' response. But I never saw a $60K new solar system here. Most I saw is $30K here. What's the roughly your house price looks like IF without solar? If solar value is already about 10% house value, then, probably sales comps will be better. Here only about 1%~2% house value, not so significant.

The reason I used cost approach is due to only 1% ~2% of the overall house value, it is hard to use sales comps to extract that because even 2 very similar houses, the other factor(s) could cause house value more than 2% difference already. For the income approach, due to family size and use habit difference, it is hard to set the "typical" cost saving. It may save your family $4k, but it could only save $1k for the next family.

As other people here said, solar panel could bring other negative factor(s) to the house as well.

 

[MoistMitten]

I can't do the appraisal for Michigan. Let's see how other appraisers' response. But I never saw a $60K new solar system here. Most I saw is $30K here. What's the roughly your house price looks like IF without solar? If solar value is already about 10% house value, then, probably sales comps will be better. Here only about 1%~2% house value, not so significant.

The reason I used cost approach is due to only 1% ~2% of the overall house value, it is hard to use sales comps to extract that because even 2 very similar houses, the other factor(s) could cause house value more than 2% difference already. For the income approach, due to family size and use habit difference, it is hard to set the "typical" cost saving. It may save your family $4k, but it could only save $1k for the next family.

As other people here said, solar panel could bring other negative factor(s) to the house as well.

Its about 2x the national average for size, but as you said alot of things to consider. I have an agent I know reaching out to a few recent sales in the area that had solar to get the details on them to extract the localized value.

 

[Terrel L. Shields]

Its about 2x the national average for size, but as you said alot of things to consider. I have an agent I know reaching out to a few recent sales in the area that had solar to get the details on them to extract the localized value.

Anticipate a functional discount beyond mere physical deterioration. It could be substantial or not so much. Keep good records of the monthly electrical usage and billing (I am assuming you still have to at least pay the base charge to the electric company.) Some states are getting so much solar, it is hurting the utilities bottom line, and the state is limiting the amount or reducing the "wholesale" price of electricity paid to a fraction of that normally charged by the utility. If you can get full pay, that's a real plus.

Inverters are rarely a problem. We used them in the oil patch to run gas detectors and chromatographs. Even inverting 110v direct to 110v alternating current and they last a long time even in the face of variable voltage from the diesel powerplants.

Personally, I do think they are a fire hazard or lightning hazard. I prefer a geothermal heat pump, but they have the same issues. No matter how much they save, the buyers often are leery of them, and don't want to pay extra regardless the savings.

 

[MoistMitten]

Anticipate a functional discount beyond mere physical deterioration. It could be substantial or not so much. Keep good records of the monthly electrical usage and billing (I am assuming you still have to at least pay the base charge to the electric company.) Some states are getting so much solar, it is hurting the utilities bottom line, and the state is limiting the amount or reducing the "wholesale" price of electricity paid to a fraction of that normally charged by the utility. If you can get full pay, that's a real plus.

Inverters are rarely a problem. We used them in the oil patch to run gas detectors and chromatographs. Even inverting 110v direct to 110v alternating current and they last a long time even in the face of variable voltage from the diesel powerplants.

Personally, I do think they are a fire hazard or lightning hazard. I prefer a geothermal heat pump, but they have the same issues. No matter how much they save, the buyers often are leery of them, and don't want to pay extra regardless the savings.

Yeah they are grounded and bonded to avoid any electric fire. There is also an emergency shut off just off the deck so its likely not a huge concern.

Yeah they make me pay 0.25/KW on peak but only pay out 0.09/KW for excess. Thankfully it is NET and they only pay out at the end of the year.

 

[Terrel L. Shields]

hey make me pay 0.25/KW on peak

Ouch. We pay about .10/KW from the utility.

 

[Meandering]

You guys are funny.

"Value" has many different definitions. "Market" value considers what the buyers think, calculate and respond to. Value in use, seems to be the "value" definition that is the topic of this thread. But just stop for a minute and look at what the buyer's are calculating on pre-paying the electric bill for 30 years with interest in a mortgage loan:

Minnesota Electricity Rates & Average Electricity Bills - FindEnergy​

6 days ago The average electricity bill in Minnesota in 2024 is $111 while the countrywide average is $138. How many electric companies offer service in Minnesota? Minnesota has 167 electricity suppliers operating in the area.

 

[Mark K]

Just list it for $328k if that is what you think it is worth. Maybe someone pays extra because of the solar panels or maybe someone will pay extra because they like the shrubs in your yard.

That pretty much sums it up. Someone that spent a lot of money on landscaping would probably think that it significantly increases the value of the home. Ditto for the owner that just installed a $100K in-ground pool, a pole barn, a detached garage, etc.

Absent any good market data IN YOUR AREA there's really no good way to gauge a market reaction. You or anyone else can use a variety of methods to attempt to anticipate a market reaction but in reality, the market is the one that makes the call and eventually, when there's sufficient market data, a reasonable number can be rendered.

Until then, the 4% you noted in the article from the state is probably as good as any. I'm not certain where the $328K number mentioned earlier comes from but if that's your home's ballpark value, 4% seems reasonable. In any case, a $60K system on a house in the $300K range is a serious over-improvement. I know that you didn't spend that much but that may also be the reason that you don't see many such systems.

I remember back to the Peanut Farmer's presidency (he now looks like a genius compared to today's) and all of these solar systems were popping up (not PV but solar rooms, hot water panels and reflectors, "solar windows", etc) and were installed mainly for their tax credits. They were sold by snake oil salesmen and added virtually nothing to the homes' values and nearly all were removed in a few years, which seems to be the fate of PV panels when they get old.

Beauty (and value) is in the eye of the beholder. There may be one buyer out there that wants to appear green and is willing to pay a premium for that luxury. In that case, list the property for what you think its worth and you may find this one special buyer. Keep in mind that appraisers don't value property based on 'one special buyer'.

Bottom line, if you're looking for a high-confidence number for the contributory value, you're likely out of luck.

Good luck.

 

[Meandering]

Market value means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

It is not "knowledgeable" or "prudent" to take a 30 year loan for something that has a 12-15 year life span. Even if a buyer is found that has been stimulated by a political agenda.

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