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Financing That New Air Conditioning System With a PACE Loan? Better think twice.

2016-07-09T09:17:00.000-07:00

Here’s how it works… Your air conditioner is old, inefficient, or maybe one day when the mercury hits 110 degrees it just quits. So you start calling around getting estimates to have it repaired. Two or three companies come out and take a look at your system and they advise you to replace it with a new, more efficient system. Makes sense right? Wow! Look at your energy savings over time. Why, at only $10,000 total cost installed, this system will pay for itself in ten years!

But maybe you don’t have $10,000 to buy a new system. Or maybe you think you might move in a few years and you just don’t see the benefit of paying $10,000 for a system that you will only use for two or three more years.

Just then the representative of the heating and air company tells you about this amazing new program called PACE. P.A.C.E. stands for Property-Assessed Clean Energy. It’s GREAT they tell you. You can spread out the cost of the system over 20 years. Best of all, a PACE assessment is a debt of property, meaning the debt is tied to the property as opposed to the property owner, so the repayment obligation transfers with property ownership. “How awesome is that” you think to yourself. I can have all the benefits of a new system for as long as I live here. Then, when I sell the property, the remaining balance of the debt for the system just transfers to the new owner. Seems like a no brainer right?... Better think again.

Many if not all of the most popular heating and air and mechanical companies are using this PACE program to sell systems to unsuspecting homeowners all over our area. This goes double for the solar companies. In fairness to some of these companies, the sales people may not even be aware that the “benefits” of PACE financing that they are touting are essentially pure fantasy. Let’s take a look at these “benefits” shall we?

Benefit Number One – probably the biggest perceived value to the system buyer is the claim that the unpaid balance of the system that is being billed with the property tax payment will just transfer to the new homeowner when the property is sold. Except in rare cases such as all-cash purchases by a buyer who is willing to take the property with the unpaid balance still owing on the tax bill, this will simply not be possible. The problem is that almost no lender will subordinate their loan to a PACE bond. For them this would mean that, in the event of foreclosure, their first mortgage loan would be subordinated to any unpaid assessment amount from the PACE loan. That means the PACE amount would be paid off first in a trustee sale. They are just not going to accept that. So, the buyer cannot get the loan with the PACE assessment in place. This means that the seller would have to pay off the PACE bond from their proceeds at close of escrow. As for that all-cash buyer I mentioned above, I actually believe that this buyer probably would never exist except in theory. Think about it. What kind of all-cash buyer would essentially over-pay for a property by buying it at market value when it still has an unpaid PACE balance? If the comps say your property is worth $250,000, that number would include a working HVAC system would it not? The buyer is not going to give you an extra $10,000 for that house by buying it with the unpaid PACE balance just because it has what it should have had all along.

Remember, no matter what the sales person tells you, when you sell your property there’s a 99.999% chance that you are going to have to pay off that PACE bond. So here’s where you might want to read the fine print.

In addition to a 2% to 3% origination fee, many PACE loans have a hefty prepayment penalty. On one of our listings the prepayment penalty was $500 on a $12,300 bond. Oh… and just to get the transfer paperwork started there is a $100 fee.

Benefit Number Two – You get to spread the cost of the system out over 20 years. No exactly. Let’s take the example of a $10,000 HVAC system. What you are really doing is tacking on about $2,300 in financing fees to the system. So right there you are at $12,300. Then you get to pay for the money over 20 years billed every 6 months with your tax bill. By the time you have it paid off you are at about $27,000 give or take. So you are not “spreading the cost of the system over 20 years. You are spreading more than twice the cost of the system over 20 years.

I don’t know… it could just be ignorance that explains the zeal with which the energy industry salespeople are pushing the PACE nonsense. But somebody somewhere knows what is really going on.

What really pisses me off about this is that the most vulnerable homeowners tend to be either lower income homeowners or the elderly on a fixed income. Homeowners with higher incomes tend to just buy a new system when they need one. But lower and fixed income homeowners often jump on these misleading promises only to find themselves stuck later on.

Is the PACE program wrong for everyone? No. 1) If you NEED a new HVAC system or some other PACE qualified system ( hello… converting to solar is not something you need) and 2) if you do not have any other options to pay for that system and 3) if you plan to stay in your home for the entire term of the repayment schedule and 4) you understand that you will most likely have to pay off the PACE loan at close of escrow if you sell your home prior to retiring the principal balance on that loan… maybe it could make sense for you.

Somehow I doubt that is what homeowners are being told by the salespeople pushing PACE financing.

2015-11-19T11:13:00.000-08:00

Market Trends Sacramento County Last 6 Months Through October 2015

Here are the numbers (click for a link to the charts) for Sacramento County over the last 6 months through October 31st.

We are up to nearly 2 months of inventory from a low of 1.6 months. Still a seller's market but it's moving toward balance. 

The average listing stays on the market 38 days. Not a significant move off the low of 30. But it does establish a trend. 

The number of homes for sale month over month is down 4.1%. But it's up 1.8% from 6 months ago. This is due at least in part to many homes being over-priced and staying on the market much longer than average. The number of sold homes is down 9.8% month over month and it's down 6.5% from 6 months ago.

These are some trends to watch as the apparent reduction in demand (decrease in sold homes) contributes to the increase in both days on the market and months of inventory moving the market toward balance.

Of course we do not have numbers for November yet. But I can give you a preview from my perspective. We are working with several buyers and sellers and watching the market machine from the inside. From this vantage point I see these trends continuing and you will see the November numbers bear this out.

What does this mean for you if you're planning to buy, sell or both? It's different for everyone depending upon whether you're moving up, down or laterally and where your properties are. If you're selling, start with getting a REAL value on your home.  Not one of those auto-generated "estimates".  You can get one FREE without having to talk to a Realtor by going to SacramentoHomeHub.com.  Give us a call or message us today to see how this impacts your specific real estate plans.

2015-11-19T11:09:00.009-08:00

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2015-11-19T11:09:00.007-08:00

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2015-11-19T11:09:00.005-08:00

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Here are the numbers for Sacramento County over the last 6 months through October 31st. We are up to nearly 2 months of inventory from a low of 1.6 months. Still a seller's market but it's moving toward balance. The average listing stays on the market 38 days. Not a significant move off the low of 30. But it does establish a trend. The number of homes for sale month over month is down 4.1%. But it's up 1.8% from 6 months ago. This is due at least in part to many homes being over-priced and staying on the market much longer than average. The number of sold homes is down 9.8% month over month and it's down 6.5% from 6 months ago. These are some trends to watch as the apparent reduction in demand (decrease in sold homes) contributes to the increase in both days on the market and months of inventory moving the market toward balance. Of course we do not have numbers for November yet. But I can give you a preview from my perspective. We are working with several buyers and sellers and watching the market machine from the inside. From this vantage point I see these trends continuing and you will see the November numbers bear this out. What does this mean for you if you're planning to buy, sell or both? It's different for everyone depending upon whether you're moving up, down or laterally and where your properties are. Give us a call or message us today to see how this impacts your specific real estate plans.

2015-11-19T11:09:00.003-08:00

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Just listed in Carmichael!! Duplex with steady tenants and good income. Message us or call 916.595.7500 if you're interested.

2015-10-19T10:59:00.001-07:00

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This rare find in Carnelian Bay could be your chance to build your dream Tahoe Retreat. The proposed site area is nestled in lush alpine forest on 4.3 gently sloping acres within walking distance of Lake Tahoe. Offered at $1,200,000. - Watch the short video here: https://youtu.be/ZA_71uphOig Contact The Merlino Home Team for more information today.

2015-10-08T11:56:00.001-07:00

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2015-10-08T10:31:00.015-07:00

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2015-10-08T10:31:00.013-07:00

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2015-10-08T10:31:00.011-07:00

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2015-10-08T10:31:00.009-07:00

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2015-10-08T10:31:00.007-07:00

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2015-10-08T10:31:00.005-07:00

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2015-10-08T10:31:00.003-07:00

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2015-10-08T10:31:00.001-07:00

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Looks like prices have leveled off since June. And there's actually a slight dip coming up that will not show in the charts until next month. Level prices combined with today's super-low interest rates mean two things - 1) If you're thinking about selling, timing is good and there are currently less homes on the market. That means less competition and TOP DOLLAR with the right marketing. 2) If you're thinking about buying, it may not be so hectic and you can't beat the interest rates these days. Give us a call to go over your specific needs and we'll give you a road map to get you from where you are now, to where you want to be. (916) 900-SOLD (6683)

2015-09-29T07:34:00.001-07:00

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The Merlino Team's monthly sunset dinner cruise in the Sacramento River Delta

2015-09-28T14:11:00.001-07:00

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Congratulations to Angela!!! The Merlino team had a wonderful time helping her find a perfect home and now her dream is a reality! Enjoy your new home!!!

2015-09-21T12:57:00.001-07:00

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Caps for Cappers... Milo capped today at Keller Williams Realty Sacramento Sierra Oaks!

2015-08-06T13:29:00.001-07:00

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The Merlino Home Team has gone to the birds! Say hello to Milo - The Merlino Home Team mascot (soon to have his very own Sacramento real estate blog on his very own Facebook page ).

2015-06-30T16:06:00.001-07:00

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So happy for our friends (and now our clients), Mike and Amber!! Congratulations on your gorgeous new home!! It was so fun working for you both!!

2015-06-22T15:40:00.001-07:00

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Open House!! 867 La Sierra Drive in Arden Park! Come help me eat this Orange Freeze!

2015-06-14T14:44:00.001-07:00

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More happy clients!

2015-05-18T08:25:00.001-07:00

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Congratulations to another happy and fun family!!! Enjoy your fantastic new home and neighborhood!!!

2015-05-15T19:15:00.001-07:00

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