'Fractional’ home co-ownership: How Pacaso works
As some Sonoma residents continue to oppose the “fractional” home-ownership model of startup real-estate company Pacaso, confusion persists as to how the company’s shared-ownership template actually works.
The company closed escrow on its first Sonoma Valley property - 1405 Old Winery Court - on May 17 and quickly relisted the $4 million home on its website for sale to eight potential co-owners who would each invest $606,000 in the purchase.
Old Winery Court homeowners dubious about having a rotating mix of part-time neighbors coming and going on their residential road have decried the real-estate model as a “timeshare.”
Pacaso officials refute the “timeshare” label and described the fractional ownership model as a way to pool the resources of buyers seeking second homes.
“We get second homeowners out of the median price (tier) here and over to the luxury price tier, which creates more opportunity for the local workforce,” Pacaso CEO Austin Allison told the Index-Tribune in May.
Alfred Miller, a Los Angeles-based risk management executive, is the first of eight co-owners to stay at 1405 Old Winery Court and he was finishing up his allotted two weeks at the home on June 28 when he spoke to the Index-Tribune.
“I’m loving the town and starting to meet people here,” said Miller.
The ‘prospects’ of buying a Pacaso house
Pacaso’s practice of listing real estate properties for sale on its website prior to the company acquiring the parcel, has drawn fire locally.
Other Sonoma Valley homes in the company’s sights have made brief appearances on its website, but were taken down after complaints from the homeowners. Called a “prospect” listing, this practice has alarmed several local homeowners who were in the process of selling their home and found it being offered on the Pacaso website without their knowledge or permission.
“We hadn’t heard about them and a friend was talking about the company so we went to check out their website and there was our house,” said David Applebaum, about the home owned by he and his wife just off lower Broadway. “We looked at each other and said, ‘What the hell?’”
Applebaum said he “laid into the representative who had come to tour (the home) without identifying himself” and insisted they remove the home from the Pacaso website. “They took the listing down but they are still listing others that way,” he said.
The house at 1405 Old Winery Court is currently the only Sonoma Valley property listed on the company’s website.
A “prospect” is a home listing that Pacaso officials believe ”will be in demand based on its price, location, style and amenities,” according to the company’s website. If there is enough interest in the listing on its site, the company then makes an offer and creates a limited liability corporation (LLC) to purchases the property.
Prospective buyers are shown Pacaso houses by local real estate agents – or online-only in Miller’s case. Pacaso pays a 3 percent buyers agent commission, and the company describes the closing process as “similar to a standard home purchase.”
For those who don’t have the cash on hand for their fractional ownership stake, the Pacaso website describes the company as offering “integrated financing” and states that buyers may use other sources of capital such as home equity financing.
Local Redwood Credit Union mortgage loan officer Sheila O'Neill said conventional lenders will not provide a mortgage for a portion of a Pacaso second home, as mortgages do not allow for timeshares.
"Also, most lenders will not allow mortgages on a property to be titled in an LLC," she said, referring to Pacaso’s home ownership model. As for home equity loans, O’Neill said "this would be a line of credit on your primary residence. It would not be available for fractional home ownership."
Pack up and move right in
Pacaso houses are move-in ready, all furnishings are typically included in the purchase price.
“Each home is meticulously well-appointed with everything you need to cook, relax and play, so you can just show up and enjoy your time,” reads the description on the Pacaso website.
Miller was drawn to the idea that the Old Winery Court property was turnkey and would have shared ownership. Prior to buying in Sonoma, he owned a second home in Michigan and said the house sat empty “for months on end.”
“I love Sonoma but buying here on my own would have been wasteful,” he said. “I just wouldn’t have been able to get here enough.”
Owning a Pacaso home
The company stresses in all of its materials that Pacaso owners are just like regular home owners, except buyers purchase a share in a property-specific LLC.
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