In the summer in the Coachella Valley, we expect a pricey electric bill, but $800+ took our breath away! After chatting with a couple of our neighbors, we found out we weren’t alone. We felt a little better knowing that our bill was on par with those who don’t routinely charge 2 electric cars like we do. But, still, $800/month for electricity is a hefty bill that stings, and inevitably leads to discussions of installing solar panels – just as it did when we were comparing SCE bills with our neighbors. And, on that topic, people always wonder whether it is better to lease or buy solar panels, and if they buy, how will it impact the value of their home. We’ll get to that shortly, but first, a little more background info.

Several months ago – fully aware of how quickly electricity rates were rising (and convinced they will likely continue to rise) – we started the process for purchasing and installing solar panels on our home. We are currently scheduled to have the system installed this fall. Because we care deeply about the environment and the impact from our carbon footprints, we’d considered installing solar panels for some time, but we had previously shied away because the only viable option is to locate the panels on the sloped, terra cotta tile roof facing the front of our home, and we worried about the aesthetic impacts.
 
However, given current electricity rates, their almost certain trajectory, and climate change trends, we adjusted our thinking about having panels on the front of our house. And, we chose an installer who seems to have a good track record with the aesthetics of their installations. Additionally (in case we needed more reasons), we understand there is another school of thought, one which suggests that “showcasing” solar panels, or at least making them visible, encourages others to “go solar”. At any rate, our course appears to be set, so please wish us luck in our solar adventure!  And, in case you  are considering a similar course, here’s a few things to consider:
 

LEASE VS. PURCHASE

PURCHASE:
From a real estate perspective, purchasing a system may present fewer complications down the road. You own the system outright, and should you sell your home, there’s no transfer or approval process. The system conveys with the real property. Also, a purchased system will typically increase the value of your home, while a leased system typically will not. More on this later. 

Perhaps one of the biggest perks to purchasing the system is the 30% federal income tax credit, which was recently increased from 26% with the passage of the Inflation Reduction Act, 2022. For leased systems, the tax credit does not go to the homeowner, but to the owner of the system who leases it to you. For system purchasers, that is a substantial tax savings. For example, if you bought a $50,000 system, that would net a  $15,000 tax credit (at 30%).

With a purchased system, you pay the entire cost of the system (components and installation), whether with cash in hand, or cash obtained via some type of loan. The payments to the solar provider/installer are usually made incrementally as the work progresses, with final payment often being made at the time permission to operate the system is obtained from SCE. As a result, you have no monthly payments for the solar system (unless you took out a loan), and depending on the production capacity of your system, and whether you install storage batteries, you may end up with only a very small bill from SCE to pay (usually after a year-end reconciliation of usage vs. production), which reduces the payback period or amortization of the cost of your system. When we met with our solar supplier/installer, Hot Purple Energy (“HPE”), to figure out the best system for us, our personal goal was to have the smallest SCE bill reasonably possible, which meant beefing up the number of panels and installing two storage batteries. Our payback period is estimated to be approximately 8 yrs. Afterwards, depending on what happens with SCE rates and terms, we hope to have essentially “free” energy for many years to power our home and vehicles.

LEASE:
For a leased system, the solar company owns the system, and should you sell your home during the lease period, the solar company will require the buyer to obtain approval to “takeover payments”. The buyer is essentially taking over the terms of the lease. We’ve never seen a buyer not obtain approval to assume a lease (and takeover payments), but theoretically there’s a chance it could happen. 
 A leased system allows you to advance little-to-no money out of pocket. But, you will have to make monthly lease payments. The question then becomes are you further ahead making regular lease payments as opposed to the SCE payments that would otherwise apply? An additional consideration is that, at the end of the lease term, the solar company will remove the panels unless you’ve agreed to purchase them, or renew the lease. If you do neither, depending on the type of roofing, and modifications made for the installation of the leased panels & system, the homeowner may need to undertake new roofing and other work to accommodate the system removal. Some such work may also be required if the homeowner opts for a new and different solar system.

WILL ADDING SOLAR PANELS INCREASE THE VALUE OF MY HOME?
Some studies say that the answer is “NO” if you lease a system (because it is considered to be more akin to personal property), and “YES” if you purchase the system. However, there does not appear to be a consensus in how to quantify the bump in value for purchased systems. 
 
Info from studies on this topic can be found in an article by “Solar Reviews”, which was shared by our installer, Hot Purple Energy. One example provided suggests that a homeowner could expect to add approximately $48K to the value of their home with the purchase of a 9.6 kW system. This is based on a Lawrence Berkeley National Laboratory study which yields a formula of $5,000 resale value increase for every kW of solar installed (for systems purchased/owned by the homeowner). However, the article cites to other studies which arrive at different formulas which result in different valuations, often lower. In reality, we would caution you that many factors may apply and could influence an anticipated bump in your home value if you purchase and install a new solar system. As you might expect, one should not merely extrapolate based on any one study or formula. A whole host of factors need to be considered. And you should be cognizant of the purpose of each study and its sponsors, as you evaluate its content. By comparison, a local appraiser suggested a different approach for determining the property value increase (for purchased solar systems). Namely that, in most cases, it would be based on comparable sales costs (i.e. if you had 2 closed sales for identical (or similar) units, one with owned solar, and one without, you could then calculate the increased value due to the solar installation). A cost basis approach could also be used (i.e. how much did the solar system cost and how old is it), but that approach may not be acceptable to commercial lenders.
 
In short, the general consensus is that installing a leased solar system (i.e. one you do not own), does not increase your property value, while installing a purchased system does. But, quantifying that bump in home value is not an easy task, and should only be done with the help of professionals with specific, relevant knowledge.
 
Whether you purchase or lease a solar system, your decision to add solar is a good one for the environment, and can also be good for your pocketbook. And, here’s another very positive aspect: having a solar system already installed on your home is a major selling point for buyers, and they may pay more for the home than they would have otherwise, regardless of an appraiser's valuation. However, the decisions about whether to purchase or lease, and how to arrive at a system that meets your specific needs and goals (in terms of production and storage capacity, useful life, warranties, payback period, future marketability, property value, return on investment, and the many other factors that come into play), should always be given careful study. 
 
If you already have solar and plan to sell your home, or are taking the important leap to install, but still plan on selling your home, it’s important to work with a listing agent who understands the true value of solar and how to communicate the benefits to potential buyers and their agents. With our personal experience with solar and other “clean” energy, and Russell’s Green designation with the National Association of Realtors’, we’re well-suited to help you sell your solar-powered home, or help you purchase a home with a solar system. Give us a shout if you’d like to start a conversation.

Poolside Realty

John Bevan / 208.232.1198 / john@poolsiderealty.com / DRE 02089387

Russell Hill / 760.898.8399 / russell@poolsiderealty.com / DRE 01427657