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Old 03-06-2006, 02:34 PM
GroundSwell GroundSwell is offline
Join Date: Apr 2003
State: California
Professional Status: Certified General Appraiser
Posts: 80
Default Affordable Housing Help

I’ve got a tough one here and I thought it would be a good idea to get some other opinions on how to best handle this appraisal. It’s a little complicated – so bear with me here.

The home is a 2 year old ‘cookie-cutter’ that is part of the cities affordable housing program. With this program the city dictates the maximum resale price for the property (obviously we’re not dealing with the traditional definition market value here). There are two types of indexes they use in order to calculate the resale price. The first is the Affordability Formula, which is matrix based off of the buyers income and the properties bedroom count. All sales of affordable new homes must use the affordability formula. The second is the Indexed Formula, which applies a percentage increase to the prior sale based on the increase of the governments Housing Price Index for our county. When refinancing or selling the owner can use the higher of the two formulas.

Per the city the maximum resale of the subject is currently $418k. The problem is that in the last year there have been only a few sales of new, affordable homes and they all sold at $346k using the mandatory Affordability Formula for new homes. Nobody in the last 2 years has resold a similar affordable home using the Indexed Formula.

This is for a good client and I didn’t want to turn the order down. I’ve done appraisals on new affordable properties, but this is the first refi like this I’ve come across.

So what do you think? Should I use sales of similar non-affordable housing properties and bump them down? Should I use the new sales and bump them up? What would be the basis for my adjustments? Since this is a city program – it’s unique for the area and there are not any other markets to go to in order to find similar comparables. Thanks for any info.

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Old 03-06-2006, 03:12 PM
George W Dodd's Avatar
George W Dodd George W Dodd is offline
Join Date: Jul 2002
Location: Mechanicsville, VA
State: Virginia
Professional Status: Certified Residential Appraiser
Posts: 1,507


"the city dictates the maximum resale price for the property"

First, you need to establish real market value. Then determine what affect if any the City control over value might be. You say the property has a max value of 418k, but what is the property's value in the market without government control?

Seems if the value is less than 418k than the Gov doesn't impact the property. If the property has a value greater than $418k than the amount over would be external obsolescence (a force outside the property that impacts value). Then the adjustment in the cost and grid would reflect this obsolescence.
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Old 03-06-2006, 03:20 PM
GroundSwell GroundSwell is offline
Join Date: Apr 2003
State: California
Professional Status: Certified General Appraiser
Posts: 80

George... there is a significant effect. I'm located in Northern California. A similar, new, 4 bedroom home would go between $750k to $850k.
Old 03-06-2006, 04:05 PM
dobie's Avatar
dobie dobie is offline
Join Date: Oct 2003
Location: Somerset County
State: New Jersey
Professional Status: Certified Residential Appraiser
Posts: 1,442

Here in NJ the affordable properties must be sold through the local affordable housing agency which maintains a waiting list of eligible buyers.

Are your affordable units sold on the open market to "qualifying individuals" or like NJ are they mostly sold in this closed type market where they are never listed on MLS or otherwise exposed to traditional market influences?

I'm not sure I understand how the affordable units come to market and what that market is?
Old 03-06-2006, 04:45 PM
GroundSwell GroundSwell is offline
Join Date: Apr 2003
State: California
Professional Status: Certified General Appraiser
Posts: 80

Scott, the affordable homes here are similar to your market in NJ. There is a waiting list of eligible buyers. I'm sure they could list the property on the open market, but as you can imagine there's a large demand for these types of homes and they ususally sell with little or no marketing.
Old 03-07-2006, 11:12 AM
Brian Green Brian Green is offline
Join Date: Jan 2006
State: Illinois
Professional Status: Certified General Appraiser
Posts: 1

Fannie Mae purchases affordable homes developed through Community Land Trusts provided that a Ground Lease Rider is attached. This rider releases Fannie Mae from resale restrictions in the event of foreclosure. In cases where the resale restrictions are deed based, Fannie Mae does not (currently) accept them for purchase and they remain in the Lenders (or their investors) private portfolio. Therefore, it is up to the Lender to determine the guidelines relative to your appraisal.

In most cases Lenders want two values. (1) Fair Market Value and (2) legal maximum resale value based upon the mandated formulas.

Under Property rights appraised check the “other” box and explain that the resale and eligibility requirements reduce the bundle of rights and that the real property is no longer fee simple but a partial interest. With the Fair Market Value determination, use regular arms-length comparables, do not use affordable homes that have subsidies or restrictions. Be sure to add a large font disclaimer that says “THE FAIR MARKET VALUE ESTIMATE IN FEE SIMPLE INTEREST ASSUMES THE HYPOTHETICAL CONDITION THAT THERE ARE NO RESALE OR ELIGIBILITY REQUIREMENTS."

In an extended addenda, go through (in length and detail) the reasoning and mathematics of determining allowable resale value. The property owner should have all the original documentation regarding resale formulas. Make sure you get it. Also discuss the need and size of the purchaser pool in your area for this type of product.

And get a big fee from the Lender, you deserve it. If you have questions contact me at

Question: I’m considering writing a seminar on the valuation of affordable housing for the Appraisal Institute. Would there be any interest in attending it? Please let me know.
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