Let’s talk about the bottom line when it comes to pricing a PV home, whether it comes to appraising, buying, or selling such a home.
In spite of the appeal to lower costs in building a PV home, the proposition remains pricey. What does such a home investment mean in terms of its real market value?
A new and timely study published by Lawrence Berkeley National Laboratory addresses important issues such as these.
Titled Selling Into the Sun: Price Premium Analysis of a Multi-State Dataset of Solar Homes, this comprehensive report, sponsored by the US Department of Energy (DOE) – part of its SunShot initiative – is worth reviewing. That’s as long as you comprehend the meticulous methodology algorithm used here — referred to as a hedonic pricing model:
“The basic theory behind the hedonic pricing model starts with the concept that a house can be thought of as a bundle of characteristics. When a price is agreed upon between a buyer and seller, there is an implicit understanding that those characteristics have value.”
Selling Into the Sun: Price Premium Analysis of a Multi-State Dataset of Solar Homes
The first section of this study abstract sets the stage for this fiscal analysis:
“Capturing the value that solar PV systems may add to home sales transactions is increasingly important. Our study enhances the PV-home-valuation literature by more than doubling the number of PV home sales analyzed (22,822 homes in total, 3,951 of which are PV) and examining transactions in eight states that span the years 2002–2013. We find that home buyers are consistently willing to pay PV home premiums across various states, housing and PV markets, and home types; average premiums across the full sample equate to approximately $4/W or $15,000 for an average-sized 3.6-kW PV system.”
Buyers, sellers, appraisers, and lenders should take note of this study, if for no other reason than its basic conclusion: “We find that home buyers are consistently willing to pay PV home premiums across various states, housing and PV markets, and home types; average premiums across the full sample equate to approximately $4/W or $15,000 for an average-sized 3.6-kW PV system.”
For good measure, we should add most of the real estate industry to our ‘must-read’ list, not forgetting the many municipal taxing districts that will no doubt stand to benefit on the collections end of the scale.
As I thought some time ago, a mansion or a two-bedroom ranch featuring a gas-powered HVAC plant will value considerably lower than a comparable domicile with PV extras. Plus, said homes add to the growing list of souls taking on climate change.
The study authors were Ben Hoen, Sandra Adamatis, Thomas Jackson, Joshua Graff-Zivin, Mark Thayer, Geoffrey T. Kline, and Ryan H. Wiser. Each deserves high praise for this research tome analyzing the financial side of renewable electricity.
Response to this study has been generally positive. The June issue of TecHome Contractor stated that the average price jump on a PV home came to about $15,000 — no small change at all, particularly when adding in anticipated savings in utility expenses.
Editor in Chief Steve Withrow wrote, “The new study fills important gaps in this literature, [study author] Hoen says, and illuminates various factors that might influence U.S. PV home premiums. It more than doubles the number of PV home sales previously analyzed, examines home sale transactions in eight different states and spans the years 2002 to 2013, encompassing the recent housing boom, bust and recovery.”
I expect the Berkeley Lab study will spur further research in this financial arena, especially with solar PV systems becoming an increasingly common feature in many homes, not just in the US, but worldwide.
Placing value on such energy improvements is a significant step forward from that time when investing in solar was generally regarded as little more than an expensive addition that might hopefully pay for itself in the long run by reducing the electric bill.
Basic Study Conclusions
- The US DOE estimates that achieving its SunShot PV system price-reduction targets could achieve 108 GW of residential rooftop PV installed by 2050—equivalent to 30 million American homes with PV.
- Appraisers, sales agents, and others tasked with property valuation have made strides toward valuing PV homes, especially in California.
- Study more than doubles the number of PV home sales previously analyzed and counts transactions in eight different states from 2002–2013.
- Study includes recent housing booms, busts, and recoveries.
- Home buyers have been willing to pay more for a property with PV across a variety of states, housing and PV markets, and home types.
- PV adds value to non-California homes.
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