California will be the first state in the U.S. to require solar panels on all new homes starting 2020, but the legislation’s passage did not end the debate over a key question: Does the cost of installing solar pay off for homeowners?

Some developers are not even waiting for 2020 and are pressing ahead with solar-powered homes for what they say is the best reason: it is simply what best serves the homebuyer market matching energy demands to efficiency and cost. The state estimates the new solar power rule will help homeowners save about $19,000 in a 30-year period. Others say the mandate will push up housing costs too much for many homebuyers.

 

There’s another way to look at the question: Does adding solar power increase a home’s value at the time of sale? According to real estate information company Zillow, in some states, the answer already is yes. Zillow’s research indicates that in the same way homeowners are willing to pay thousands of dollars for renovations like a new kitchen or finished basement, they need to evaluate the return on investment from investing in solar energy.

Installing solar panels in a home not only helps to reduce current monthly utility bills; it can potentially increase the home’s value by up to 4.1% more than comparable homes with no solar panels, according to recent solar research done by Zillow — or an additional $9,274 for the median-valued home in the U.S.

Greenhouses

Recent natural disasters like the California wildfires, heat waves throughout Europe and extreme melt events have inspired many to seek more eco-friendly lives, including home buyers.

“There is an increased demand for green living. More than 80% of buyers now say energy-efficient features are important in selecting their home,” said Sarah Mikhitarian, Zillow senior economist. “We are increasingly finding that these attributes are important to prospective homebuyers. This is part of the reason that there is a premium associated with it. The other piece is that there is the true value provided by solar panels — namely, future energy savings.”

The energy savings depends in part on how a specific home consumes energy. For example, a home that features heated floors might see a greater premium from the addition of solar (though this was not a correlation Zillow specifically researched).

 

“For homeowners who know they consume a lot of power, those future savings are worth spending a bit more money upfront,” Mkhitaryan said.

To identify the solar premium in each state, Zillow compared the sale prices of homes with and without solar-energy systems listed for sale and sold within the research period — March 2018 and February 2019. The company examined all transactions that occurred and identified which homes featured solar panels in their listing descriptions, controlling for observable attributes including size, age, location, and market value at the time it was listed for sale. Zillow also controlled for local market dynamics and the time of the year that the home sold.

In New Jersey, homes with solar panels can sell for 9.9% more than homes without solar energy systems. That is a profit of $32,281 for the median-valued home in that state.

Here are the top 10 states with the highest solar premiums, according to Zillow’s findings:

  1. New Jersey: 9.9% or $32,281 for the median-valued home.
  2. Pennsylvania: 4.9% or $8,589 for the median-valued home.
  3. North Carolina: 4.8% or $8,996 for the median-valued home.
  4. Louisiana: 4.9% or $7,037 for the median-valued home.
  5. Washington: 4.1% or $15,916 for the median-valued home.
  6. Florida: 4% $9,454 for the median-valued home.
  7. Hawaii: 4% or $24,526 for the median-valued home.
  8. Maryland: 3.8% or $10,976 for the median-valued home.
  9. New York: 3.6% or $10,981 for the median-valued home.
  10. South Carolina: 3.5% or $5,866 for the median-valued home.

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