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Hero Pace Tax Assessment Help

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kphan1999

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Jul 16, 2010
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General Public
State
California
Subject has HERO for new energy efficient forced air unit and ducting in the amount of $20,000. It was installed this month. Comps used were recently remodeled in the last 2-3 years and 2 of them have newer forced air units. Went back 3 years with no parameters in the same city and did not find one comp with HERO. Went to a neighboring city and found HERO tax assessment in the amount is $3500 for windows. Talked to the agent of the sale in a neighboring city with PACE and he said the property will not sell unless the sellers pay for the $3500 tax assessment before closing or give a credit in that amount. Based on this information, would straight line depreciation seem to make sense? Or how would one approach this situation for adjustments of the assessment? thank you in advance.
 

glenn walker

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Oct 11, 2006
Professional Status
Certified Residential Appraiser
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I don't make any adjustment because ** The underwriter on the new loan takes this into consideration on the borrowers DTI ( debt to income ratio ) and may require the borrower to pay it off in the refinance or sale. The improvements also increase the value. But to make a long story shorter any adjustment would be nothing more than a poor guess because the comparables that had pace loans most likely had their pace loan paid off from the sellers proceeds at close of escrow and that was factored into the final closing price anyway.

As far as straight line deprecation the assumption is the property is going to be held for the full term of the loan. ** No matter what the pace loan will be factored in either at time of sale, in a refinance, or if the loan is paid off by the owner over the full term of the loan.

Don't over-think this because it's not an income property and all that will happen is you lead yourself down that rabbit hole to hell .
 
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kphan1999

Freshman Member
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General Public
State
California
I talked to OREA and FHA and they both said there is an adjustment because $20,000 in the taxes over time is still something to consider. FHA gave the scenario of 2 buyers for model matches, a buyer would not pay the same purchase price for a property that has $233 extra for taxes a month. When I talked to them last week, I was not able to find a PACE comp for comparison. FHA appraiser did say that he has seen in the past, assessments for condos for roof/driveways vs condos that don't have the short term assessment, sell for less in the amount of the assessment. OREA said it's possible to think in terms of present value and use that value. FHA said I have to make an adjustment so no adjustment is not an option but both OREA and FHA could not give me the steps to achieve this. FHA told me to ask what other appraisers would do and OREA gave me the possibility of Present Value.
 

kphan1999

Freshman Member
Joined
Jul 16, 2010
Professional Status
General Public
State
California
$233 x local grm (sales price range for this property is $725k-$755k and rent is from $2800-$3100 so I will use 243 grm) = $56,619. Did I do it correctly? It seems very high.
 

glenn walker

Elite Member
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Oct 11, 2006
Professional Status
Certified Residential Appraiser
State
California
$56,000 adjustment ** "YIKES" * The $20,000 new system has no value ? and lowers current value and future marketability ?

FHA/HUD wants appraisers to give value for energy efficient systems not lower the value. Frankly the person answering the call at Santa-Ana HOC was probably confusing special assessments or repairs "V" new energy efficient improvements. If this goes south nobody at HUD is going to fall on the sword for you . The question from HUD will be how did you derive the adjustment and that's when things get messy.

I used a cap rate ? or a GRM ?
Does the property generate rental income and if so why did you appraise it as an owner occupied single family home and why did you not include the income approach ? Do you have a spread sheet showing Cost "V"benefit of the new energy efficient system over a 12-36 month time period well "No" it's a new system ** Once again how did you derive a negative adjustment ?

 

kphan1999

Freshman Member
Joined
Jul 16, 2010
Professional Status
General Public
State
California
This is single family owner occupied and not a rental income. It's new so no way to see the energy efficient benefit over a time period.
I see your point of view Glenn. The new unit does have value but is it already factored in because now it is comparable to the market with the same amenities?

Derive based on 2 real estate agents interview which is including one that knows first hand that a buyer will not pay for PACE based on his sale with the $3500 assessment. That's the best I got so far since there is nothing else I can find.
 
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glenn walker

Elite Member
Joined
Oct 11, 2006
Professional Status
Certified Residential Appraiser
State
California
You answered "your own question " there is no way to extract either a positive or negative adjustment so just state that in your report and be done.
 
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bart nathan

Member
Joined
Jun 9, 2005
Professional Status
Certified Residential Appraiser
State
California
-20,000 assuming that's the as of today payoff amount. You already have support from one agent regarding a PACE program. Because the program is a lien you could possibly search "lien" in your MLS for further support. Every sale I have ever seen in MLS with a lien says "lien paid off at closing by seller" or will say " this property has a $,$$$$ lien which must be paid off at closing".

I would put "Hero Program" at the bottom of the grid and adjust -20,000 across the board. Your adjusting for the Hero/lien program not the ch&a unit unless your comp without a newer unit requires a positive adjustment therefore your giving the subjects unit ch&a value or present value but your still adjusting for the HERO/Lien.

Because its a hero lien/loan over time that $20,000 cost might end up costing $25,000 or more depending on length of loan and interest rate.

http://www.riverside4homes.com/blog/homeowners-beware-heropace-program/
 
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