Seeking to shed more light on how the installation of solar technology can impact home values, a team of researchers from the U.S. Department of Energy’s Lawrence Berkeley National Laboratory recently released a study showing how to calculate the value of green homes.
According to the study, led by Appraisal Institute Designated Member Sandra K. Adomatis, homes with host-owned, solar photovoltaic (PV) energy systems are sold at a premium compared to homes without PV systems.
The study was funded by the Department of Energy’s SunShot Initiative, a collaborative national effort whose mission is to make solar energy more cost-competitive than traditional energy sources before the end of the decade.
What’s a photovoltaic system and how much does it cost?
PV systems absorb and convert sunlight into electricity and can range from small, rooftop-mounted or building-integrated systems with capacities from a few to several tens of kilowatts, to large utility-scale power stations of hundreds of megawatts. According to SunShot, most residential, 5-kilowatt systems in the United States cost about $3.29 per watt to install in 2014.
The study is intended to help valuation professionals and mortgage lenders value homes equipped with solar technology and better understand how it may contribute to or detract from a home’s market value.
Right now, this issue is still a bit of a mystery to the real estate industry. Although about 200,000 U.S. properties had a solar PV system installed last year, valuing properties with this relatively new technology is still a challenge because many market areas still lack comparable PV home sales, according to the study.
However, because the cost of installing PV systems has fallen dramatically in the last decade, and a wide range of government and financing incentives have become available, the systems are becoming more common.
A total of 600,000 U.S. properties had PV systems at the end of 2014, with half of them located in Arizona, California, Colorado, Hawaii, New Jersey and New York, the study states.
How did researchers evaluate sales price premiums?
The researchers used several different appraisal methods to evaluate sales price premiums for owned PV systems on single-unit, detached homes.
Independent appraisers evaluated 43 recent home sales pairs in six states: California, Oregon, Florida, Maryland, North Carolina and Pennsylvania.
Comparing the results to contributory-value estimates, which are based on income, gross cost and net cost, the researchers found strong, appraisal-based evidence of PV premiums in all of the states examined — but advised that location, age, size and efficiency must be considered in determining a PV system’s value.
The value also is impacted by local factors, such as the retail cost of electricity and any local incentives provided for those who own a PV system, they said.
California ahead of the curve
In California, which had the most mature PV systems of all the states examined, the researchers observed a price premium for homes with PV.
The average premium for homes with PV was $17,127, which is 3.37 percent of the sale price, or $4.31 per watt of the installed PV system. The per-watt premium was considerably lower than the average gross cost estimate of $5.96 per watt, but similar to the average net cost of $4 per watt and average income of $3.67 per-watt estimates.
Florida not far behind
Florida, which has a much younger PV market, still showed a price premium for PV homes, according to the study. The average premium was $12,760, which is 6.39 percent of the sale price, or $3.45 per watt of the installed PV system.
The per-watt premium was considerably lower than the average gross cost estimate of $5.13 per watt, similar to the average net cost estimate of $3.53 per watt, and considerably higher than the average income estimate of $2.14 per watt.
The researchers also noted no material difference in the amount of time a PV home or a home without the technology is listed on the market.
The study’s authors noted that their research may be impacted by fluctuating real estate values, different types of PV systems used and potential sales price implications related to the positioning of PV systems.
They also identified several steps that could improve the valuation process for PV homes, including giving multiple listing services (MLSs) searchable PV fields that include system size in kilowatts, system age, warranty term and system location; giving real estate agents education on the use and importance of completing page 3 of the Appraisal Institute’s Residential Green and Energy Efficient Addendum upon listing a house with PV; and fostering collaboration between PV sales agents and installers and real estate agents and appraisers to share accurate PV system data.
