How Do Solar Panels Affect Home Value in Arizona? An Appraiser’s Perspective
Solar panels are a common sight on homes throughout Arizona. With abundant sunshine, high summer temperatures, and substantial air-conditioning use, it is easy to understand why homeowners may consider solar an attractive investment.
But when it comes time to sell, refinance, or appraise a home, one question frequently comes up:
Do solar panels actually increase a home's value?
The answer is not as simple as assigning a dollar amount to every panel on the roof.
From an appraisal perspective, the effect of solar on property value depends on several factors, including whether the system is owned, financed, leased, or subject to a power purchase agreement (PPA). The age and size of the system, its energy production, the local utility environment, and—most importantly—how buyers in that particular market react to solar can also influence its effect on value.
In Arizona, where solar installations are relatively common, understanding these distinctions is important for homeowners, buyers, sellers, Realtors, and real estate investors.
Cost Does Not Equal Value
One of the most important concepts to understand about solar panels—or virtually any home improvement—is the difference between cost and value.
A homeowner may spend $20,000, $30,000, or more installing a solar energy system. That does not automatically mean the market value of the property increases by the same amount.
In real estate appraisal, we often refer to contributory value. Contributory value is the amount a particular feature contributes to the value of the property as a whole.
Consider a swimming pool as an example. A homeowner might spend $60,000 installing a pool, but buyers in that neighborhood may only be willing to pay $25,000 more for a home with a pool compared with an otherwise similar home without one. In that scenario, the pool's contributory value is based on the market's reaction—not its original construction cost.
Solar panels work in much the same way.
The relevant question for an appraiser is not simply:
"How much did the solar system cost?"
Instead, the question is:
"How much more, if anything, are typical buyers in this market willing to pay for a property because it has this solar system?"
That distinction is critical.
A solar system may provide significant financial benefits to its current owner through reduced electricity costs, but those savings do not necessarily translate dollar-for-dollar into real property value. Conversely, in a market where buyers place a strong premium on energy efficiency and lower utility expenses, an owned solar system may have measurable contributory value.
The appraiser's role is to analyze the market and determine what buyers are actually recognizing.
Owned Solar Panels vs. Leased Solar Panels
The ownership structure of a solar system can significantly affect how it is treated in an appraisal and how buyers may perceive it.
For valuation purposes, there is an important difference between a solar system that is owned as part of the real estate and a system that is owned by a third-party solar company.
Owned Solar Systems
When a homeowner owns the solar system outright and the panels are permanently attached to the property, the system may be considered part of the real property.
This creates the potential for the solar system to contribute to the home's market value.
The key word, however, is potential.
An appraiser cannot automatically add the original cost of the system to the value of the home. Instead, the appraiser must determine whether there is evidence that buyers in the subject property's market recognize and pay for the feature.
For example, imagine two similar homes in the same market area:
Home A has an owned solar system.
Home B does not have solar.
If multiple market transactions indicate that homes similar to Home A consistently sell for more than otherwise comparable homes without solar—and other significant differences can be accounted for—that may provide evidence of positive market reaction to owned solar.
This type of analysis can help an appraiser develop an opinion of the solar system's contributory value.
However, real estate markets are rarely that simple. One home may have a pool while another does not. One may have been remodeled. Another may have a larger lot, superior view, different garage configuration, or different overall condition.
Because of these variables, isolating the value of solar can be challenging.
This is one reason an appraiser may analyze multiple sales rather than relying on a single transaction.
Financed but Owner-Owned Solar
A solar system can also be owned by the homeowner while still having an outstanding loan associated with its purchase.
This situation is different from a lease.
The details matter.
From an appraisal and lending perspective, questions may arise regarding who legally owns the equipment, whether a lien or financing statement is associated with the system, and whether the financing obligation affects the transfer of the property.
For homeowners and Realtors preparing to sell a property with financed solar, it is important to obtain documentation early in the process. The purchase agreement, financing documents, current payoff information, and details regarding any liens can help clarify the situation.
From a valuation standpoint, the existence of a solar loan does not necessarily determine the contributory value of the physical system. Market value is an opinion of the property itself under a defined set of market conditions. However, financing obligations associated with solar can affect marketability if buyers are required to assume an obligation or if the financing complicates the transfer.
This creates an important distinction between value and marketability.
A feature may have physical or economic benefits while still creating additional complexity during a transaction.
Leased Solar Panels
Leased solar is fundamentally different from an owned solar system.
Under a typical solar lease, the homeowner does not own the solar equipment. A third-party company owns the system, while the homeowner pays according to the terms of the lease.
Because the equipment is owned by a third party, the solar panels generally cannot simply be treated the same way as an owner-owned improvement to the real property.
This distinction can be especially important during an appraisal for mortgage lending.
For certain mortgage transactions, lender and secondary-market guidelines determine how leased or third-party-owned solar systems must be treated. For example, Fannie Mae guidance distinguishes between borrower-owned systems and systems subject to leases or power purchase agreements when determining whether the solar equipment may be included in the appraised value. The specific requirements applicable to a transaction depend on the financing program and current lender guidelines.
From a broader market perspective, leased solar can also create a more complicated reaction among buyers.
Some buyers may appreciate the potential for lower electricity costs. Others may be hesitant to purchase a property if doing so requires assuming a solar lease with specific payment terms.
The market reaction may depend on factors such as:
The remaining term of the lease.
The monthly payment.
Whether payments increase over time.
The process required to transfer the lease.
The buyer's ability to qualify for the lease assumption.
The cost of purchasing or terminating the lease.
The actual electricity savings compared with the lease payment.
These factors can affect the property's marketability, even when they do not result in a direct appraisal adjustment.
For example, suppose a buyer is considering two otherwise similar homes. One has an owned solar system with no remaining debt, while the other has a solar lease requiring a substantial monthly payment for another 15 years.
Even if both systems produce similar amounts of electricity, a typical buyer may not view the two properties as equivalent.
The owned system represents an asset that transfers with the property, subject to the specifics of the transaction. The leased system represents equipment owned by someone else and may carry a contractual obligation that must be addressed during the sale.
That difference can influence buyer behavior.
What About Power Purchase Agreements?
A power purchase agreement, commonly called a PPA, is another solar arrangement that differs from outright ownership.
Under a PPA, a third party generally owns the solar equipment installed on the property, and the homeowner agrees to purchase the electricity generated by the system according to the terms of the agreement.
From a valuation perspective, a PPA raises many of the same considerations as leased solar.
Because the homeowner does not typically own the equipment, the appraiser must consider the ownership structure and applicable assignment requirements rather than automatically treating the system as an owned real property improvement.
From a buyer's perspective, the attractiveness of a PPA may depend heavily on the contract.
A buyer may want to know:
What is the electricity rate under the agreement?
Does that rate increase over time?
How many years remain on the contract?
How does the contracted rate compare with current and anticipated utility rates?
Can the agreement easily be transferred to a new owner?
These questions matter because buyers are purchasing more than a house—they may also be stepping into an existing contractual arrangement.
As a result, Realtors representing properties with leased solar or PPAs should understand the agreement before listing the home. Surprises late in escrow can create unnecessary complications.
How Appraisers Determine Whether Solar Adds Value
Appraisers generally seek to reflect the actions of buyers and sellers in the marketplace.
This concept is central to understanding how solar is valued.
An appraiser is not deciding what solar panels should be worth. The appraiser is analyzing available market evidence to determine how buyers appear to react to them.
Several methods of analysis may be relevant.
1. Comparable Sales Analysis
One of the most direct approaches is to analyze sales of homes with and without solar.
Ideally, an appraiser would find comparable properties that are similar in:
Location.
Age.
Design.
Gross living area.
Quality.
Condition.
Lot size.
Garage capacity.
Amenities.
Overall market appeal.
The primary meaningful difference would be the presence or absence of solar.
In practice, perfectly matched properties are rare.
The appraiser may therefore analyze several sales and look for consistent patterns.
For example, if multiple homes with owned solar appear to command higher prices than similar homes without solar, that could indicate positive market reaction. The appraiser would still need to consider whether other characteristics explain some or all of the price difference.
This process is sometimes associated with paired sales analysis, although true paired sales—two properties that are virtually identical except for one characteristic—are uncommon in residential real estate.
The objective is to isolate the market's reaction to the feature as reliably as the available data allows.
2. Market Extraction
An appraiser may also attempt to extract the contributory value of solar from broader market data.
This involves analyzing groups of sales and considering whether properties with owned solar demonstrate a measurable pricing difference after accounting for other property characteristics.
The reliability of this approach depends heavily on the quality and quantity of available data.
In a subdivision with hundreds of similar homes and numerous recent transactions, there may be enough data to identify a meaningful pattern.
In a rural Arizona market with custom homes on acreage, isolating solar's contribution may be considerably more difficult because the properties themselves may differ substantially.
This is one reason solar cannot reasonably be assigned the same value across every Arizona market.
3. Income or Energy Savings Considerations
The economic benefit of solar may also be relevant.
A solar system that substantially reduces a homeowner's electricity expenses provides an economic benefit. In theory, buyers may be willing to pay more for a home that has lower ongoing ownership costs.
However, an appraiser must be cautious about simply converting projected energy savings into property value.
The amount a homeowner saves depends on numerous variables, including:
Household energy consumption.
System size.
System production.
Panel orientation.
Shading.
Utility rate structures.
Rate changes.
System age and efficiency.
A family that uses significant electricity may realize a very different benefit from the same solar system than a household with minimal energy consumption.
Market value, however, is generally based on the actions of typical market participants—not the unique circumstances of one specific homeowner.
Therefore, energy savings may help explain why buyers value solar, but actual market evidence remains important when developing an opinion of contributory value.
Why Solar May Have More Appeal in Arizona
Solar has a logical appeal in Arizona because electricity consumption can be substantial, particularly during the summer months when air-conditioning systems operate heavily.
However, the fact that solar is useful does not mean every solar system adds the same amount of value.
The value contribution can vary from one market to another.
A newer owned system on a home in a neighborhood where solar is common may be viewed differently than an older system in a market where few comparable properties have solar.
Buyer expectations also matter.
In some neighborhoods, solar may be considered a desirable upgrade.
In others, it may be viewed as beneficial but not important enough for buyers to pay a significant premium.
In still others, buyers may focus heavily on the ownership structure rather than the panels themselves.
This is why a market-specific analysis is necessary.
The Age of the Solar System Matters
Solar systems do not have an unlimited economic life.
A newly installed system may provide many years of expected energy production, while an older system may be approaching a point where components require replacement or the panels are less efficient than newer technology.
From an appraisal standpoint, this can affect contributory value.
Imagine two otherwise similar homes with owned solar.
One system was installed two years ago.
The other was installed 18 years ago.
Even if both systems originally cost the same amount, a typical buyer may not view them as equally valuable.
The older system has already used a greater portion of its expected useful life. Buyers may anticipate future repair, removal, or replacement expenses.
This is similar to other property components.
A new air-conditioning system and a 20-year-old air-conditioning system may perform the same basic function, but the market may react differently because of their remaining economic life.
Solar systems can be analyzed with similar reasoning.
System Size Does Not Automatically Equal Greater Value
A larger solar system may generate more electricity, but that does not automatically mean it contributes proportionally more value.
Again, market reaction is the key.
A very large system designed around the energy consumption of a particular homeowner may produce more power than a typical buyer needs.
For example, a homeowner with multiple electric vehicles, a heated pool, and unusually high household electricity consumption may install a large solar array.
The next buyer may have substantially lower energy needs.
The system may still be beneficial, but the original owner's reason for purchasing such a large system does not necessarily mean the market will reimburse the full cost.
This demonstrates another fundamental appraisal concept:
A property's value is generally based on typical market participants rather than the specific needs or preferences of an individual owner.
Solar Panels and Roof Condition
The relationship between solar panels and the roof is another consideration that buyers and homeowners sometimes overlook.
If a roof is nearing the end of its useful life, replacing it may require the solar panels to be temporarily removed and reinstalled.
That creates an additional potential expense.
As a result, a relatively new solar system installed over an aging roof may not be viewed as favorably as the same system installed over a recently replaced roof.
This does not necessarily mean an appraiser will make a separate dollar adjustment for the combination. Instead, the condition of the roof, the condition of the solar system, and the overall property condition are considered within the broader valuation analysis.
For homeowners considering solar, evaluating the remaining life of the roof before installation may help avoid future complications.
Do Solar Panels Always Increase an Arizona Home's Appraised Value?
No.
There is no universal solar adjustment that applies to every home in Arizona.
An appraiser should not simply say:
"This home has solar, so I will add $20,000."
The appraiser must determine whether the market supports a value contribution and, if so, how much.
An owned solar system may have positive contributory value in one market and a smaller or difficult-to-measure contribution in another.
A leased system or PPA may provide energy benefits to the occupant but is generally analyzed differently because the equipment is owned by a third party.
The specific property, solar ownership structure, market area, available comparable sales, and buyer behavior all matter.
Solar Can Affect Marketability Without Creating a Simple Dollar Adjustment
One of the most overlooked concepts surrounding solar is the difference between market value and marketability.
Marketability relates to how readily a property appeals to buyers and can be sold under typical market conditions.
A solar system may affect marketability even when the appraiser cannot support a specific dollar adjustment.
For example, an owned solar system may make a property more appealing to buyers concerned about electricity expenses.
A complicated solar lease, on the other hand, may cause some buyers to hesitate.
This could potentially affect:
The size of the buyer pool.
Buyer negotiations.
Marketing time.
Contract terms.
The likelihood that a buyer will proceed with the transaction.
These effects may not always be measurable as a simple "$10,000 adjustment" in an appraisal report.
Real estate markets are influenced by more than individual feature adjustments. Appraisers must consider the property as a whole and how typical buyers respond to its combination of characteristics.
What Arizona Homeowners Should Know Before Installing Solar
Homeowners considering solar should think beyond their current electricity bill.
Before entering into a solar agreement, it is worth understanding exactly what is being purchased and how the arrangement could affect a future sale.
Questions to consider include:
Will I own the solar system?
Is the system being financed?
Will there be a lien or other security interest associated with the financing?
If I sell, what happens to the remaining balance?
If I am leasing the system, can the lease be transferred?
Does the lease payment increase over time?
If I have a PPA, what rate will I pay for electricity in future years?
How old is my roof?
How long do I realistically expect to own the property?
A solar arrangement that makes financial sense for someone planning to remain in a home for 20 years may have different implications for someone who expects to sell in three years.
What Realtors Should Know When Listing a Home With Solar
Realtors should determine the solar ownership structure as early as possible.
Simply writing "solar panels" in a listing does not provide enough information.
Before marketing the property, it is helpful to determine whether the system is:
Owned outright.
Financed but owned by the homeowner.
Leased.
Subject to a power purchase agreement.
Documentation can be extremely valuable.
For an owned system, information regarding the installation date, system size, ownership status, warranties, and historical production may help buyers better understand the feature.
For leased systems and PPAs, obtaining the agreement and transfer requirements early can help prevent delays later in the transaction.
From a marketing perspective, Realtors should also be cautious about making unsupported claims regarding how much value solar "adds."
A statement such as "the seller spent $35,000 on solar, so the home is worth $35,000 more" does not reflect how real estate valuation works.
The market determines contributory value.
What Real Estate Investors Should Consider
Investors should evaluate solar as part of the property's overall financial and market position.
For an owned solar system, reduced operating costs may improve the property's appeal, particularly if tenants are responsible for electricity or if lower utility expenses provide a competitive advantage.
However, investors should avoid assuming that the original installation cost will be fully recovered through appreciation.
For leased systems or PPAs, investors should carefully review the contractual obligations.
A low monthly solar payment that produces significant electricity savings may be financially beneficial.
A long-term agreement with escalating payments may be less attractive.
Investors should analyze the actual numbers rather than assuming that "solar is good" or "solar is bad."
The relevant question is whether the specific system and ownership structure improve the economics and marketability of the specific property.
The Bottom Line: Solar Value Is Property-Specific and Market-Driven
Solar panels can influence the value and marketability of an Arizona home, but there is no universal formula for determining how much they are worth.
The most important distinction is often ownership.
An owned solar system may be considered as part of the real property and may have contributory value when supported by market evidence.
A leased system or power purchase agreement is different because the homeowner typically does not own the equipment. These arrangements may still provide financial benefits, but they can also create contractual obligations that affect how buyers and lenders view the property.
Even when solar is owned, the amount it contributes to value depends on the market.
Appraisers consider factors such as the system's age, size, condition, ownership structure, available market data, comparable sales, and—above all—the actions of typical buyers.
For homeowners, Realtors, and investors, the key is to avoid confusing installation cost, energy savings, and market value. They are related concepts, but they are not interchangeable.
A professionally prepared appraisal can provide an independent, market-supported opinion of value when a property has solar or other features that make valuation more complex.
Madison Block Appraisals, LLC provides residential appraisal services throughout Pinal and Maricopa Counties, including properties with solar systems and other unique or complex characteristics. Whether you are evaluating an investment property, preparing to list a home, or need an independent opinion of market value, a professional appraisal can provide valuable insight into how the local market responds to the property's individual features.
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