The Complete Guide To Buying A House With Solar Panels

Americans more and more are incorporating energy-efficient, eco-friendly products into their homes. Interestingly, the product they most want to add is a solar panel system, which is also the most complex and expensive. A recent survey by Rocket Homes^SM found that solar panels are the most desired eco-friendly home upgrade in 2023.

But what should be considered if you are buying a house with solar panels already installed? In this case, the seller has already borne the expense of installing the system. They will want to recoup their investment when they sell the house. In many cases, however, the owner has financed the solar system through a third-party lender. They may even be leasing the system. Each of these arrangements will give you, the buyer, things to consider before buying the house.

Is The Solar Panel System Grid Tied Or Off The Grid?

A grid-tied solar panel system can supply power directly to the home but also store power on the electricity grid, the same system that supplies power to other homes. An off-grid solar system stores extra power on a battery that can be used when the panels are not supplying enough power, such as at night or on a cloudy day.

What To Know About Grid-Tied Homes

Grid-tied solar homes are connected to the power grid, and the local utility company manages their power. Grid-tied solar systems allow the home to receive grid power when the solar panels don’t receive sunlight.

• Grid-tied homes produce their own power when the panels are receiving sunlight; when the panels are not producing power, the home receives all the power it needs directly from the power grid.
• A grid-tied solar system employs a grid-tie inverter to communicate with the grid; the inverter manages power by first sending power to the home and then sending any excess power to the grid.
• Through a billing system called net metering, a grid-tied solar home receives credit for surplus power it returns to the grid, offsetting the same amount of electricity it requires from the grid when it is not producing its own power. The result is a markedly reduced energy bill.
• All U.S. homeowners receive a federal tax credit for installing a grid-tied solar system. Depending on the state and city, there are often state and local tax credits, along with incentives from the electric utility company that further reduce the cost of the system as well as monthly electric bills.

Off-Grid Homes At A Glance

Off-grid homes are not connected to any external power grid. They are completely dependent on their home solar system for electric power.

• An off-grid solar system can be ideal when the house is located in a rural area that is far from any access to a power grid, such as a mountain cabin. When building a house in such a locale, the owner must pay a stiff fee to have the power company run supply lines to the house.
• Since it cannot depend on grid power when solar panels are not producing enough to power the home (such as at night, or cloudy winter days), an off-grid solar system usually requires more solar panels, and is thus more expensive, than a grid-tied system.
• Adding further expense to an off-grid system is the cost of a battery, which stores extra power for nighttime or cloudy days. Battery technology continues to advance, but the cost of a solar battery is currently about $8,500 – $10,000.
• All U.S. homeowners receive a federal tax credit for installing an off-grid solar system. Depending on the state and city, there are often state and local tax credits, along with incentives from the electric utility company, that further reduce the cost of the system as well as monthly electric bills.

Are The Solar Panels Leased Or Owned?

When considering the purchase of a home with an installed solar panel system, buyers should not assume that the seller owns the system outright. While they may have paid cash for it, or paid off a loan that financed it, the system may very well not be paid for. Here are some scenarios to prepare for.

Overview Of Owned Solar Panels

A home for sale that includes a solar panel system should prompt serious consideration before an offer to buy is made. Certainly, a solar system can add value to a house – after all, it can (potentially) deliver significantly lower monthly electric bills. But if the system is not entirely paid off, buyers should fully understand the situation so they can have an accurate idea of what the house is really worth.

Owned Outright

Sometimes a house for sale comes with a solar panel system that has been outright purchased with cash. Here are some things to consider:

• The cost of the system has likely been baked into the sale price. People who buy expensive solar panels expect to get that money back when the house sells. After all, the system will provide the new owner with vastly reduced energy bills for years.
• A study by the National Renewable Energy Laboratory estimates that a home with solar power increases in value by $20 for every $1 it saves on energy bills – so, a solar system that saves $700 a year gains in value an estimated $14,000.
• Another study by the U.S. Department of Energy found that home buyers are willing to pay $15,000 more for a house with solar panels.
• Since having solar can increase a home’s property value, it can potentially drive up property taxes; however, many U.S. states exempt this extra value from property tax assessment.
• Since the buyer of a house with solar power effectively owns the solar system outright, it should not affect the buyer’s ability to get a mortgage.

Purchased With A Solar Loan

Because home solar systems can easily cost $20,000 to install, many people take out a solar loan to pay for it. This may mean that the seller has not completely paid for the system when the house goes up for sale.

• The responsibility for the solar loan is entirely on the seller – they can choose to pay it off after the sale or continue to pay the terms of the loan after the sale. Once the sale is finalized, the buyer owns the system outright. Typically, the owner of the home will work the amount of their investment in solar into the price of the house.
• There are instances in which the buyer may assume the solar loan payments of the seller. This would need to be officially arranged with the financing institution.

Purchased With PACE (Property Assessed Clean Energy) Financing

There is another type of solar system financing that is attached to the property, and the responsibility for paying does pass on to the new owner after a sale. Property Assessed Clean Energy Financing (PACE) is a type of financing administered by state and local government agencies specifically for energy efficiency upgrades and renewable energy improvements for commercial and residential properties.

• A PACE loan is considered a tax lien and is paid annually as a property tax
• If a property sells with a PACE loan attached, the loan is automatically assumed by the next owner until it is paid off
• Some mortgage lenders will not finance a home that has a tax lien through a PACE loan

The Dirt On Leased Solar Panels

There are many solar system companies that will lease their solar panels and equipment for a monthly payment. Points to consider including:

• Lessees instantly start saving on electric bills and avoid the trouble of having to find an installer and financing
• Solar leasing company performs all maintenance
• Typical solar leasing contract runs for 20 years or more and can be difficult to get out of – a home with leased solar panels can be more difficult to sell because the buyer would have to assume the terms of the lease or buy the system outright from the leasing company
• Because they are not buying the solar system, lessees cannot qualify for generous federal or state tax incentives, which can surpass 30%
• Lease payments over the course of the contract likely far surpass one-time payout in cash or payments on a loan

Quick Facts About Solar Power Purchase Agreements (PPAs)

In a Solar Power Purchase Agreement (PPA) a solar company owns, installs and maintains a solar system on the homeowner’s property and charges the customer for electricity at an agreed-upon per-kilowatt-hour rate, usually one that is competitive with local utility rates. In many PPAs this rate escalates as the term moves forward.

• A PPA is different from a solar lease in that the customer pays only for the power they use, while in a lease the monthly payment is fixed by the terms of the contract.
• If the utility provider offers net metering, the customer can receive credit for excess power it contributes to the grid but will also be charged at regular rates if the house uses more power than the solar system provides.
• Because they are not buying the solar system, PPA customers cannot qualify for generous federal or state tax incentives.
• A solar PPA contract can run between 5 and 25 years and the cost to terminate the agreement early can be prohibitive.
• It can be difficult to sell a home with a PPA system installed because the new owners would have to assume the payments.

Does The Utility Company Offer Net Metering?

Grid-tied residential customers who use solar power to generate their own electricity can use net metering if it’s available in their area.

• Net metering allows customers to sell excess energy created by their solar system back to the grid.
• Net metering policies can vary widely from state to state and utility to utility, so solar homeowners will have to research the company that services their power.
• If a home solar system sends more electricity to the grid than it uses in a month, it can actually produce a negative electric bill – this will shorten the system’s payback period, or the time between the system’s installation and when its energy savings add up to its total cost.

Important Questions To Ask About A Home’s Solar Panel System

Having a home solar system installed is a complicated and expensive process in which many key calculations and decisions need to be made. A person buying this house inherits the system without having any say in how it is set up. Before going ahead with the sale, here are a few things the buyer should make themselves aware of.

How Much Power Usage Does The System Offset?

How much of the home’s electricity is actually generated by solar power is dependent on how powerful it is. The system may only cover a percentage of energy needed, with the rest coming from the local power company, which of course issues a bill that must be paid for.

• Hopefully the solar installer took care in determining the right solar energy system size needed to cover most if not all of the occupants’ electricity needs. Simply put, this is determined by an equation that factors in the wattage produced by the solar panels, how much sunlight the house receives and the average monthly power usage.
• Most current solar systems come with monitoring capabilities that track its power production, providing both current and historical data. The seller should be able to produce those reports.
• The seller should also be able to show examples of recent electric bills, preferably from high usage months such as winter in colder climates and summer in peak AC-usage months in southern climes.
• Even better if the seller can show electric bills from the local utility recorded before the solar system as well as after – the difference between the two should illustrate how much energy offset was achieved.

Who Installed The Solar Panels?

The seller should also provide the name and contact information of the company that installed the system. Points to consider include:

• The reputation of the installer and their time in business. The company should be able to provide customer testimonials.
• The company should be able to produce documents of certification for solar installation, as well as contact information for the certifying organization.
• The company should also be able to prove that its installation technicians have all necessary certifications.
• Further questions can be directed to the North American Board of Certified Energy Practitioners (NABCEP).

What Brand Are The Solar Panels?

Not all solar panels are created equally. The seller should provide documentation that provides the manufacturer name and the product model number, the date it was built and all relevant warranty information. Information on the panels’ wattage, construction and quality should be easy to research.

Most solar panels come with warranties covering both performance and longevity. A typical warranty will guarantee a certain amount of production from install date (say, 90% production at 10 years and 80% at 20 years, etc.). The age of the panels is relevant both in terms of advances in technology (which would favor a newer panel) and warranty coverage. Equipment warranties for solar panels typically guarantee 10 to 12 years without failing.

What Type Of Inverter Does The System Use?

The type of inverter on the system is also relevant. The solar panel converts sunlight into DC power, but the inverter turns DC power into AC power, which is what everything in the home runs on. The inverter should be from a reputable manufacturer and should be matched to the size and type of solar panel array constructed on the home.

What Are The Warranty Terms?

The seller should be able to provide warranties covering all the major components of the solar system. It’s easy to get deep into the weeds on warranties for solar equipment, but all of these considerations should be made: 

• Some components will have two warranties, one covering performance metrics that it must meet over time, and the other protecting against product failure up to a certain number of years.
• The seller will have warranty information only if they own the system – if the system is under lease then the solar company will have that documentation.
• Most solar components will not be covered under warranty for damages. For instance, if there is a fire or if some panels are damaged by a falling tree limb, the warranty would not cover that, but those would likely apply to a homeowners insurance policy.

FAQs About Buying A Home With Solar Panels

Is it worth buying a house with solar panels?

Lower electric bills and a smaller environmental footprint are two good reasons that motivate people to buy a house with solar panels. If the seller owns the system outright and is able to show that it is in good working order with all major components under warranty, even better. If the seller is under financing to pay for the system, or if they are merely leasing it from a solar company, negotiating a fair price for the home can be more difficult.

Is it harder to sell a house with solar panels?

The U.S. Department of Energy estimates that a house with solar panels shows an increased market value of $15,000. The seller should consider that when setting a sale price. However, the chances of realizing this extra value increases if the solar system is shown to be in good working order, with all warrantees applicable.

How long does it take for solar panels to pay off for a house?

The payback period on a solar system is defined as the amount of time it takes for savings on electricity to add up to the investment in the system. This answer is different for every house and in every state. Varying factors include cost of the system, state and local tax incentives, how much sunlight reaches the panels, cost of electricity in that locale, and more. Most estimates place the payback period between 8 and 12 years.

Why do mortgage companies ask if I have solar panels?

The presence of an expensive, complex solar panel system on a house is of interest to any lender because it effects the value of the property. Just as a buyer of such a house should want to know everything about the system, it’s warrantee situation and how it has been financed, so will a mortgage company. If the system is under a lease contract, this can complicate the mortgage approval because it introduces a third-party solar leasing company into the situation.

The Bottom Line On Buying A House With Solar Panels

Buying a home with solar panels can be an excellent investment. The reduction in electricity bills can save the homeowner more than a hundred dollars a month in some cases. But it asks the buyer to do thorough research into how the solar panel system was constructed and paid for. The seller will likely have baked the cost of their investment into the sale price. If the solar panels are owned by a third-party leasing company, the buyer must understand that contract and be comfortable with continuing the lease. There is also the option of asking the company to remove the panels and return the house to 100% electric grid power.

Ready to find a home that saves money on utility bills and reduces emissions? Connect with a Rocket Homes^SM Verified Partner Agent who can help you find the right home.