This is the most common method which anyone who has bought or sold a home should be familiar with.  In this method, properties with similar characteristics which have recently been sold are compared to the subject property. It’s a logical way to value a property assuming similar properties in the area can be found since it uses market value. In other words, if someone else recently paid $X for a similar property, someone would likely pay the same for the subject property.  

The second method that realtors use is a cost model, though this is more likely used for improvements that are unique to a property and when comparables aren’t available. This method uses the cost of the improvement to the property as the value for it.  

This method is, by definition, reserved for improvements that produce some economic return, like energy efficiency improvements or a home solar system. For example, adding attic insulation will save the homeowner $300 per year in heating and cooling costs. The value of that upgrade will be some multiple of that “income” that the improvement will generate. That multiple can be based on the number of years that a homeowner would realize those savings or the number of years the equipment is expected to operate.

Ownership

The most important factor in the value of a home solar system is whether the system homeowner owns the system or it’s owned by a third-party. When a solar system is owned by a third-party and a homeowner has signed a 15-20 year contract to purchase energy from that third-party, the contract either needs to be transferred to the new buyer or bought out by the existing owner. Transferring the contract complicates a home sale as the prospective buyer must agree to take over the contract under its current terms and then must qualify to do so. The simplest thing to do is for the current homeowner to buy out the remaining lifetime of the contract.  This way they own the system free and clear and can freely transfer that ownership to any prospective buyer. However, buying out the contract will require the homeowner to come up with a potentially significant lump sum payment. 

Solar loans are similar in that the homeowner must either pay off the remaining principal of the loan or transfer the loan to the new buyer.

System size & energy production

Assuming that the current homeowner owns the home solar system, how much energy and savings the system will produce over its expected remaining lifetime is the next most important factor in an income-based method for valuing a home solar system. System size in watts determines how much capacity a home solar system has to generate power. The location of the solar panels and design of the system determines how much energy (power over time) it will actually produce. Solar panels in sunny, unshaded areas facing south will generate the most energy.  

If there are incentives that are tied to energy production (SRECs in states like New Jersey, for example), the estimated amount of those future payments should be included in the value of the home solar system.

Expected expenses

Home solar equipment (solar panels and inverters primarily) have become very reliable but no product is bulletproof. While solar panels, microinverters and DC optimizers come with a standard 25 year warranty, some inverters still only have a 10-12 year warranty. Any anticipated costs related to maintenance, repair, or replacement of system components should be subtracted from a home solar system’s income-generating value.  

Warranties from the equipment manufacturers as well as the quality reputation and financial strength of the manufacturers themselves are factors in determining a reasonable expense allocation for the remaining lifetime of a home solar system. Warranties from reputable manufacturers who are likely to be in business for the remaining expected lifetime of the system reduce expectations for expenses related to repairing or replacing failed equipment. It’s important to note that most manufacturers’ warranties only cover repairing or replacing the product itself, and so if a manufacturer or installer provides a warranty that also covers labor costs to repair or replace equipment, you can reduce expected expenses.

If the contractor who installed the system provides a warranty on their workmanship, that will also reduce expected expense (if they’re still in business).  Even better is a workmanship warranty from a manufacturer who will warrant the workmanship of contractors in their dealer program.   

How the home solar system affects curb appeal

The type and aesthetics of a home solar system get into a subjective, gray area in terms of how they affect value. Solar panels installed on the front of a home or in a highly visible location will affect the aesthetics of the house and could turn off prospective buyers. In addition the placement of the solar panels can impact aesthetics. Systems designed which mix portrait and landscape orientations or have solar panels scattered on different parts of the roof won’t look as good as a simple rectangular solar array centered on your roof.

All-black solar panels are very common for home solar systems nowadays, though it wasn’t too long ago that solar panels with blue cells, white backsheets between the cells, and silver frames were being installed on homes. In addition, while all mounting hardware is available in a black finish, some contractors will use silver components which are cheaper. Finally, the placement of wiring and conduit from the solar array to the inverter can influence aesthetics. Conduit running across your roof won’t look as good as conduit which runs through your attic inside your home. All of these aesthetic factors can be a turnoff to prospective buyer.  

Solar roofing, with a lower profile and better aesthetics may appeal more to a prospective buyer and fetch a higher premium than a traditional solar panel system.