Solar PV systems are showing up on more homes than ever, and the question of how to determine the appraisal value of solar panels comes up frequently. Whether you’re working in a market where solar is common or you’ve only seen it a handful of times, these FAQs break down what you need to know to handle these assignments competently and confidently.
Dive deeper into this topic with our CE course, Valuation of Residential Solar—part of McKissock’s Certified Green Home Appraiser Program.
How Common Are Solar Panels in Residential Appraisals?
Solar panels are increasingly common. Declining system costs, government tax incentives, and utility rebates have made solar PV ownership more accessible than ever. If you haven’t encountered an owned solar system on a subject property yet, there’s a good chance you will soon—particularly as more states push toward renewable energy goals.
The practical takeaway: developing a working knowledge of solar valuation now puts you ahead of the curve.
Owned vs Leased Solar Panels—and Why It Matters for Appraisers
This is the first thing to nail down on any solar appraisal assignment. Owned systems can be included in the appraised value. Leased systems and Power Purchase Agreements (PPAs) cannot—at least not for mortgage lending purposes.
Here’s how the major agencies break it down:
- Fannie Mae & Freddie Mac: Leased panels and PPA systems must be treated as personal property and excluded from appraised value. If panels are financed with a personal property loan (UCC personal property filing), they are excluded. However, if they are financed as a fixture to the real estate (UCC fixture filing) and cannot be repossessed for default, they may be considered in the value of the property.
- FHA (HUD Handbook 4000.1): Same rule—leased and PPA systems may not be included in market value. However, appraisers are required to identify solar systems in the report regardless of ownership status.
- VA: Leased systems and PPA systems cannot be included. Appraisers must identify leased items and note any potential detrimental effect on value if those items were removed.
One important note: It is the lender’s responsibility, not the appraiser’s, to determine ownership structure and flag any UCC liens or financing arrangements on the panels. The appraiser works from the information the lender provides.
How Do You Determine the Appraisal Value of Solar Panels?
All three traditional valuation approaches can apply. The best method depends on what data is available in your market.
Sales Comparison Approach
This is the preferred method under Fannie Mae and FHA guidelines. If you can find comparable sales with confirmed owned solar systems, paired sales analysis can help you extract a market-based adjustment. The challenge, as many appraisers know, is actually finding those comps.
Cost Approach
Solar PV systems are typically priced on a cost-per-watt or cost-per-kilowatt basis. Appraisers applying the cost approach should account for depreciation and stay current on pricing trends, since system costs have been declining.
One common mistake: assigning zero contributory value simply because no solar comps exist. That’s not defensible. It’s likely the system has some value, even if it’s less than its original cost.
Think of it the way you’d think about a pool or an outbuilding: a $40,000 improvement doesn’t always contribute $40,000 in value, but that doesn’t mean it contributes nothing.
Income Approach
This method estimates value based on the energy savings the system produces. The primary and recommended technique for this is Discounted Cash Flow (DCF), where you project the annual energy savings over the useful life of the system and discount to present value. While the Gross Rent Multiplier (GRM) can sometimes be adapted as a proxy method, DCF is the industry standard for solar valuation.
A practical tool for the income and cost approaches is PV Value®, a free online tool developed specifically for appraising solar PV systems. It models system value using both approaches and generates a PDF output that can be included in the appraisal report.
When using a non-standard input (like a local electricity rate that differs from the program default), that variation needs to be explained in the report.
Whichever approach(es) you use, USPAP requires that the selected method(s) produce credible assignment results.
What Do You Do When There Are No Comparable Sales with Solar Panels?
This is the question appraisers ask most often, and it’s a real challenge in many markets. Here’s a practical framework:
- Search your MLS carefully. Use available search methods to filter for solar features, and follow up directly with agents to confirm whether systems are owned or leased. That confirmation matters.
- Attempt paired sales analysis. You don’t need a direct solar comp. You need sales with solar paired against similar sales without it. If you can find even one or two, that’s a starting point.
- Fall back to cost and/or income approaches. When market data is thin, the PV Value® tool can help you develop a supportable income- or cost-based indication to use as supplemental evidence.
- Don’t default to zero. If a solar PV system exists and is owned, it likely has some contributory value. Ignoring it isn’t a defensible position—it’s a credibility risk.
Note: Fannie Mae’s guidelines specifically state that the cost and income approaches may support an adjustment, but they cannot be the sole basis for the adjustment. Market reaction analysis is still required.
What Are the Key Components of a Solar PV System that Appraisers Should Be Able to Identify?
You don’t need to be a solar engineer, but being able to describe the system accurately is part of your job. Key components include:
- Panels: Monocrystalline (more efficient, more expensive) vs. polycrystalline (less efficient, less expensive)
- Inverter: Microinverter (more efficient, more expensive) vs. string inverter (less efficient, less expensive)—typically found on the side of the home
- Mounting type: Roof-mounted, ground-mounted, or dual-axis (tracks the sun’s path)
- System size: Measured in kilowatts (kW); relevant to both cost and income analysis
Identifying these components accurately, noting whether the system is owned or leased, and addressing the market’s reaction to them are all part of a complete, credible appraisal.
How Can Appraisers Build Competency in Solar Valuation?
Solar PV systems are one piece of a broader green home appraisal niche that’s growing fast. Appraisers who develop expertise here aren’t just checking a competency box—they’re building a marketable specialty.
McKissock’s Certified Green Home Appraiser (CGHA) program covers the full landscape, with the following appraisal CE courses included:
- Green Building Concepts for Appraisers
- Valuation of Residential Green Buildings
- Valuation of Residential Solar
Enroll in McKissock’s Certified Green Home Appraiser (CGHA) program—included with your Unlimited CE Membership.
