PACE For Energy Efficiency- the Good, the Bad and the Ugly.
How is green construction and energy efficiency in the building industry like smog in LA? It hovers over and permeates every new construction project and is impossible to ignore.
Most buyers of New Construction homes not only expect clean and green energy efficient features but they demand them. Energy efficiency in resale properties is still pretty hit-or-miss… a programmable thermostat here, extra insulation there, maybe a solar panel or two. Random? Yes. But people are looking for them. These things never go unnoticed.
I really do think we all appreciate the value of energy efficient and environmentally friendly equipment in our homes, but we often must weigh the initial cost against the savings that might accumulate in the time we will be living in that particular home. I’m not at all confident that these choices will remain ours but while they still are, we as a society have not been collectively jumping on the green energy bandwagon.
Enter the PACE Program. Not to be confused with PACE for medical issues, PACE – Property-Assessed Clean Energy is a government program to help homeowners with financing through local entities, for energy efficiency and renewable energy home improvements. Helpful in theory, but is it all good? From the point of view of a Realtor, anything at all that results in a lien or encumbrance to a property (and PACE does) will inevitably have an affect on it’s saleability.
Is PACE positive or negative? You decide.
PACE For Energy Efficiency- the Good, the Bad and the Ugly
By Russell Riggs
Property Assessed Clean Energy (PACE) programs provide financing for energy-related home improvement projects such as solar panels or energy-efficient windows. PACE programs allow local governments to provide financing to property owners for these projects, and homeowners repay the amount borrowed, over a period of years, through an assessment added to their property tax bill.
PACE programs allow homeowners to make their homes more energy-efficient and save money on their utility bills. While these programs contribute to broader nationwide goals, such as energy independence and lower CO2 emissions, the National Association of REALTORS® (NAR) has identified several concerns about these programs, which could negatively affect homeowners and real estate professionals.
1. Mortgage and Credit Availability – NAR is concerned that PACE loans could have an adverse impact on credit and mortgage availability. In most cases, mortgages take priority over PACE liens. But if a home is foreclosed on, the liens are paid before the mortgage lender can recoup any money. If the PACE loan takes the first position ahead of the mortgage, it may lead to the devaluation of the mortgage. This has the effect of making mortgages riskier and more expensive.
2. Disclosure Requirements – Real estate professionals are concerned about disclosure requirements. PACE loans are included in the tax bill regardless of the property owner, so this would need to be disclosed to a potential buyer. The PACE loan or the energy improvement may be complicated or difficult to explain, and the buyer may be confused about the improvement or loan, injecting uncertainty into the transaction.
3. Completion of the Transaction – PACE loans stay with the property and not with the property owner, so the information on the tax assessment about the loan will need to be explained by the real estate agent each time the property is sold. This potential for confusion may cause delays in the completion of the transaction, or even a cancellation.
4. Fraud and Abuse – These programs raise the possibility for unscrupulous contractors to pressure unsuspecting homeowners into making improvements that do not meet energy efficiency expectations or realize cost savings.
On July 6, 2010, the Federal Housing Finance Agency (FHFA) issued a statement that notes, in part: “The Federal Housing Finance Agency has determined that certain energy retrofit lending programs present significant safety and soundness concerns…First liens established by PACE loans are unlike routine tax assessments and pose unusual and difficult risk management challenges for lenders…They present significant risk to lenders and secondary market entities, may alter valuations for mortgage-backed securities and are not essential for successful programs to spur energy conservation.”
This statement, and subsequent statements released by the FHFA expressing concerns about various aspects of PACE programs, have chilled the demand for these programs.
Recently, the Federal Housing Administration (FHA) published guidance which clarified that properties with subordinated PACE loans can be purchased and refinanced with an FHA-insured mortgage. This guidance included the conditions under which borrowers purchasing or refinancing properties with existing PACE assessments will be eligible to use FHA-insured financing.
For more information, Call or Text: 602-999-0952
eMail: golfarizona@cox.net
Bill Salvatore / Arizona Elite Properties
Residential Sales, Marketing, and Property Management
This column is brought to you by the NAR Real Estate Services group. For more information, please visit www.nar.realtor. Reprinted with permission from RISMedia. ©2016. All rights reserved.
Thinking about buying a brand new home? Our New Construction Discount is perfect for you! Don’t visit construction sites without your agent. Representation is FREE and remember, the sales person at the construction site works for the builder, not for you!
