Is Solar an Asset or a Liability?

Sometimes solar systems are compared to swimming pools by appraisers and real estate professionals. Do you value them the same way and are they the same kind of add on to a home's value? Let's break that down. First we will look at value. Do pools and solar systems have a fixed value or a variable value? Then we will see which column they fall into: are they assets or liabilities? 

Fixed and Variable Values

A variable value of a home is when the value of a fixture, appliance or part of a home is dependent on who buys the home. A fixed value of a fixture, appliance or part of the home is a part of the home that any homebuyer will need or want to have when they live there. This could be an air conditioner in a Las Vegas home. It has a fixed value because any buyer needs/wants and will use it. Without the air conditioner, selling this home will be near-impossible unless the value is reduced to the point where the buyer could afford to add it themselves.

Let’s say that the same home featured a wine cellar (a must for most people, I know). Realistically, this feature of the home may or may not have value for a buyer. This upgrade would be considered a variable value because a buyer may love and use it, or they might tear it out and put in something more suited to their tastes.

Asset or Liability?

An asset is something that compliments or adds value to which that asset is attached. A liability is something that detracts or reduces the value to which that liability is attached. The trouble is that assets can sometimes be dressed up like liabilities and vica versa. 

For example, an asset to a home's value may be high-efficiency windows. Over the life of the home, these windows will add much value to the home. These windows keep out unwanted things, like bugs and thieves, but they still let in the amount of light that a less valuable asset, like a single-pane window, would. Of course, they are more expensive than single-pane windows so it may be confused as a liability at first. But, over their lifespan, they provide a greater value to the home as an asset because they will not only keep out the pests but they keep out unwanted heat and cold. In turn, this can help to reduce the home's energy demand and therefore deliver value by helping a homeowner retain their resources. So, they are an asset. 

A liability in a home might be a second fridge or freezer in the garage. While this appliance may, on the surface, look like an asset as it delivers value to the homeowner, it actually falls into the liability column. It is a lifestyle item that is not required for a home and will ultimately reduce the homeowner’s resources on an ongoing basis as it pulls electricity to keep the meat and drinks in the garage cold. 

Pool

Does a swimming pool have a fixed or variable value for homeowners?

A pool is a great addition to a home if you're going to actually use it. If a buyer is the kind of person who will jump in that pool all summer long and bathe in the hot tub all winter long, then that pool has tremendous value. In this case, it greatly enriches the homeowner’s lifestyle. That pool will absolutely have an impact on the value of that home for that particular buyer. On the other hand, if a buyer loves the home but not the pool, that pool will sit empty and require maintenance and upkeep without providing value to that particular homeowner. For this reason, a pool has a variable value rather than a fixed value. It's hard for homebuyers and real estate appraisers to put a hard number on the value of a swimming pool because it depends who buys the home. So, does a pool fall into the asset or liability column? 

Although a pool is a nice decoration and can deliver tremendous value to the right homeowner, it will cost anywhere from $100-$300 a month to maintain the pool with chemicals, electric cost, heat costs and labor to clean it. Or, even worse, it can be an unkempt eyesore that diminishes from the homeowners, costing them fines for not spending the time and money to maintain it. For these reasons, a pool will fall into the liability column.

Solar

Now let's look at a solar system to see if it has a fixed or variable value, and whether it’s an asset or a liability to the home and homeowner. A solar system is different from most upgrades to a home. As stated before, it's closer in technology to a window than a computer but it is closer to a water well than an air conditioner in terms of its functionality. Solar is a permanent part of the home that will generate electricity as long as the sun is shining. For the life of a homeowner – which is, on average, 10 to 13 years – and beyond it will generate electricity at a fixed amount year after year.

Since solar generates electricity and nearly all homebuyers use electricity, this is not variable; all can and will enjoy the benefits of having solar on a home because of what the solar produces: electricity. For this reason, it has a fixed value. Any homebuyer that comes into a home will and can take full advantage of the resource that it produces.

But does solar fall into the asset or liability column? 

Since solar is producing a required resource for the home and it does so without requiring ongoing input of other resources other than light, it is not a liability. Electricity, the required resource it produces, does have an ongoing cost to the homeowner. Since the solar is replacing this costly resource with one that doesn’t cost the homeowner anything to produce, it is an asset.  

It is an asset because it performs this vital function to the homeowner at a cost that is lower than the alternative. Of homes that are purchased, 90% include the cost of the system into the home and don't pass on solar loans with ongoing payments to the buyer. Most owned solar systems that are purchased in a home sale aren't only providing the needed electricity at a lower cost but at no ongoing cost. For this reason, solar falls into the asset column; it delivers a needed resource to a homeowner at a lower or no ongoing cost than what they would get from the alternative source, the utility company. 

In summary, solar produces a required resource that is universally consumed and required to maintain a modern lifestyle and does it at little to no cost. A swimming pool varies in value from buyer to buyer and requires ongoing costs to maintain. A swimming pool is a variable value liability and a homeowner-owned solar system is a fixed value asset. They are not the same and should not be assessed the same when valuing a home. Make sure to use a certified solar realtor when buying a solar home to ensure you're getting the correct asset value for the solar system on that home.