Common sense would suggest adding solar panels to a house should increase its resale value. After all, a home solar installation can potentially reduce the electricity bill or even make a house energy independent. But a new research paper by three professors at the Craig School of Business at Fresno State demonstrates solar features can either raise or lower house prices, depending on how they are marketed.

The paper, “Influencing Housing Outcomes: Analyzing the Effects of Green Marketing Strategies,” published in the International Real Estate Review, was written by Dr. Andres Jauregui and Dr. Jacquelin Curry of the Department of Finance, Real Estate and Business Law and Dr. Emil Milevoj of the Department of Management. They received research assistance from co-author Shashank Chidige, a student at the University of Michigan.

Examining a little-known marketing tool

The paper focused on a real estate marketing tool many home buyers and sellers don’t think of as being particularly important: the marketing remarks attached to home listings.

In most real estate markets, real estate agents are required to list houses for sale on a multiple listing service, or MLS, database. Information from these databases often appears on public-facing sites that homebuyers are familiar with, such as Zillow, Redfin and Realtor.com.

Realtors are required to disclose all the features of the house in the listing. However, they also have the option to include additional voluntary marketing remarks, which may highlight or downplay specific features of the property.

“Real estate professionals are not just providing information about a property,” Curry said. “They’re hired to sell the property, and so they have to put some thought process into what the remarks will mean and at the same time being honest and fully disclosing what a property has. It’s a balancing act. How much information needs to be provided? What should I say that will actually help strategically place this property?”

The Fresno State researchers became interested in marketing remarks about solar panels when they spotted a pattern of strategic nondisclosure.

“I noticed that the marketing remarks didn’t always mention the presence of solar panels when we knew they were there,” Jauregui said.

It seemed clear that real estate agents were selectively highlighting or downplaying solar installations in house listings. The question was, did this marketing have a real effect on house prices?

To answer this question, the Fresno State researchers analyzed over 14,000 housing transactions in Fresno and Clovis in 2018-19, correlating mentions of solar panels in marketing remarks with sale prices and time on market.

The researchers chose to focus on the local market because California leads the nation in solar panel adoption. Almost 28% of electricity in California is generated by solar panels, and over 11 million houses in the state are powered by solar energy. In Fresno County, solar capacity generates 930 megawatts of power a year.

Solar panels not always perceived as a plus

Realtors are careful about highlighting solar because the complex financing of home solar can be a turnoff to some buyers. Home sellers don’t always have full ownership of solar installations. The solar panels may be financed through a loan that’s still being paid off or they may be leased. Some solar installations are under a power purchase agreement (PPA), in which the panels are owned by a separate company that charges the homeowner for electricity.

Home buyers need to sort through this added complexity to figure out if a house with solar panels will benefit them, Jauregui said.

“If the system is owned, everything is yours, but it might be outdated. Who’s going to take care of the maintenance?” Jauregui said. “If it’s leased or PPA, you might be stuck with that contract for a long time. How is the contract going to deal with maintenance? You don’t know if you’re getting any benefits out of solar panels.”

The researchers also noted that low-end and high-end buyers have different perceptions of the value of solar.

“People from lower socioeconomic backgrounds often worry that having solar panels means dealing with more maintenance,” Milevoj said. “Even though solar can reduce electricity bills, it can make a home feel more expensive over time because of concerns about upkeep.” 

Solar can raise or lower house prices, depending on how it’s described

The researchers found that the way home solar installations are described in marketing remarks has a significant impact on sale prices and how long a house stays on the market. They determined the key factor was whether the marketing remarks specified if the solar panels were owned, leased or under a PPA. Listings with specific ownership information increased sale prices by about 12%. Mentioning solar panels without specifying the ownership type decreased the selling price by nearly 5%.

Home buyers see value in solar when they fully understand the trade-offs between the maintenance costs of owning their own solar panels and the recurring expense of leasing solar panels or paying for electricity. Different ownership models appeal to different types of buyers, but buyers want to be certain of what they’re getting into.

“I’ve had clients on both ends,” Curry said. “Some absolutely don’t want to pay anyone else for electricity. They feel like a lease is just throwing somebody else in the spot PG&E was in. And then I have other people who would rather pay anyone else but PG&E. These people will be fine with a PPA.”

What home buyers should do

One practical implication from the paper is home buyers should be aware that every part of a house listing is designed to sell the house at the highest possible price. Paying attention to the marketing remarks can tell buyers important information about the property. At the same time, buyers should be aware that the marketing remarks may not tell the whole story.

“Buyers need to make themselves as aware as they can, very early in the process of the transaction,” Curry said. “If you have a good buyer’s agent, they are reviewing those remarks and asking questions of the listing agent. Having a buyer’s agent is important, because they can do that legwork and get in direct contact with the solar companies.”

Curry added that this research has direct practical applications in the classroom.

“Being able to share with future real estate professionals what research shows adds a why to the what,” Curry said. “I teach a class in appraisal, where students have to do a report on a property. Students may assume a property with solar panels automatically will get a premium price, but I’m able to tell them that, based on our research, you need to figure out what type of solar it is. It changes the dynamics of how they do their reporting and helps them have a better understanding of the practicalities of being a real estate professional.”