When Does a $870,000 home cost less than a $800,000 home?

Would you believe that it can cost less to purchase and maintain a home that costs $70,000 more than a less expensive property? It is true. When could this possible occur? When the more expensive home is equipped with full electric solar, owned by the property owner.

I know that it is hard to believe, but the monthly out of pocket expenses for that $870,000 property is less than an identical $800,000 home that does not have solar. Take a look at the following comparison:

Without Solar 1
Cost of Home                 800,000.00
20% Down Payment       160,000.00
Loan Amount                  640,000.00
Monthly Pmts (4.25%)         3148.42
Monthly Property Taxes         800.00
Average Electric Bill               450.00
Final Monthly Payment        4,398.42

Cost of Home                  840,000.00
20% Down Payment        168,000.00
Loan Amount                   672,000.00
Monthly Pmts (4.25%)         3,305.84
Monthly Property Taxes          840.00
Average Electric Bill                450.00
Final Monthly Payment         4,595.84

Cost of Home                  870,000.00
20% Down Payment        174,000.00
Loan Amount                   696,000.00
Monthly Pmts (4.25%)         3,423.90
Monthly Property Taxes          870.00
Average Electric Bill                  55.00
Final Monthly Payment         4,348.90

The charts above shows the monthly payments that will be made by a home purchaser when a house has solar, as compared to two properties that do not have solar. The assumptions are that they are substantially the same house in the same neighbor hood, the buyer is making a 20% down payment and the interest rate is 4.25%.

The monthly payment on the loan for the $800,000 house is about $275 less than the more expensive home, and the property taxes are about $70.00 less, for a total difference of $345 less than the more expensive property. However, the home with solar has electric bills, on average, of at least $395 less per month. The owner of the $870,000 home actually pays a total of $50 less per month.

Since the increase bank loan interest and the property taxes of the more expensive home is about $3,255 higher per year, that owner has a higher tax deduction. Depending on the income of the home owner, that could be $1,000 to $1,500 less is tax payments per year, actually increasing the monthly savings.

Unfortunately, this type of analysis is not given to potential buyers by their real estate agents, often times because they simply do not understand the actual savings. They will sometimes direct their client to a home priced a little lower, not realizing that they are costing their clients thousands of dollars per year.

An example would be two homes in South Livermore, one with solar and one without, but the same floor plans just a couple of blocks apart. The one with solar is on the market for $869,500 while the one without solar is on the market at $829,000. The less expensive home will cost almost $200.00 more monthly than the more expensive home. That number could increase, as electric rates continue to climb. The buyer of the less expensive home will actually lose $2,400 per year plus the additional tax deductions.

If you are in the market for a home and you come across one that has full solar installed, don't just compare the prices between two properties. Take the time to do an analysis of the overall savings that you might have with a solar equipped property. Ask the seller for a year if electric bills in order to see what they are actually paying. Don't confuse price with cost.  You might be putting thousands of dollars into your own pocket simply by paying a little more.

Ken Koenen is a real estate and taxation attorney in Pleasanton. He is also a licensed real estate broker. He can be contacted at 925-924-0100 or by email at ken@lawken.com