Appraising below market affordable housing units

[V. Nightshade]

When developers have to allocate a certain number of units to affordable housing, I assume there are some conditions on resale of those units. How does that affect the appraisal of the property? Are there special things I need to do? How do I even know if a unit was purchased under affordable housing? This occurred to me because the unit has what looks like an unusually low purchase price -- and the owner told me that it was appraised at almost 3 times that much last year.

 

[Mike Boyd]

The city or county usually has a housing agency that participates in subsidized housing projects. Around here, builders usually work through those agencies to manage their sales. Some have re-sale restrictions. You should contact that agency for information. In Sonoma County, we have a housing department and they contract through Burbank Housing Group, a quasi public agency.

 

[V. Nightshade]

Thank you Mike,
So I guess it's part of my job to find out if there are resale restrictions. This is in S.F. The builder is still in control of the project it appears. Anyway, if there are resale restrictions, how would that affect my appraisal? Or is that related to what the subsidized housing folks would tell me?

 

[PropertyEconomics]

Nightshade .. take a look at the deeds. Most of the time in projects like this, the deeds specifiy which units or what percentage of units are to be held for lower incomes as well as spelling out what those lower income guidlines are.

 

[timd354]

When developers have to allocate a certain number of units to affordable housing, I assume there are some conditions on resale of those units. How does that affect the appraisal of the property? Are there special things I need to do? How do I even know if a unit was purchased under affordable housing? This occurred to me because the unit has what looks like an unusually low purchase price -- and the owner told me that it was appraised at almost 3 times that much last year.

I have appraised such units in Montgomery County, MD, the City of Rockville, MD and Fairfax County, VA. In the programs here, such units have very restrictive resale restrictions for time periods that last from 10-30 years and using comparable properties which do not have similar resale restrictions would be a huge mistake that would likely result in a huge over-valuation of the subject property. Some areas that have similar progams have lists of properties which are in the program that are available. In other areas, you may have to pull deeds. If you suspect a property you are appraising is in such a program, tread very carefully and due your due diligence. Also, you may consider finding another appraiser to team up with who has experience with such properties

 

[CigarDad]

Generally affordable units have resale and income restrictions. The authority that controls the housing be it the city or county sets the maximum resale price. Some authorities calculate the value at sale (or refinance), others once a year.

There can be different levels of affordables in the same development. In my market area the county has one very large development that has both low income and moderate income units. The same floor plan is worth $100,000 less or more depending on if it is a low income or moderate income unit.

Since there is often a waiting list for such units, they never appear in the MLS. You will need to have a conversation with the local authority that controls the housing. They will have all of the affordable sales, they will have the income and resale restrictions. They will also be able to tell you the maximum resale price of your unit.

I work two counties, one county when you pull up the tax records it says "Resale Restricted". The other county does not.

Your appraised value will be based on what the maximum resale value set by the controlling authority is in most cases as this value is much below market value.

I have a unique situation in my immediate market where affordable homes are selling for less than the maximum allowed because the values of the surrounding fee simple homes have fallen at or near the maximum of the affordable homes. Why by an affordable home that has restrictions for 30± years when you can by a similar home that has no restrictions?

 

[Em Tee]

Ditto what CigarDad said. I've done some around here like that too. Had to get all the documents from the housing department and read through them to see what it said about resale & income restrictions.

 

[PropertyEconomics]

Generally affordable units have resale and income restrictions. The authority that controls the housing be it the city or county sets the maximum resale price. Some authorities calculate the value at sale (or refinance), others once a year.

There can be different levels of affordables in the same development. In my market area the county has one very large development that has both low income and moderate income units. The same floor plan is worth $100,000 less or more depending on if it is a low income or moderate income unit.

Since there is often a waiting list for such units, they never appear in the MLS. You will need to have a conversation with the local authority that controls the housing. They will have all of the affordable sales, they will have the income and resale restrictions. They will also be able to tell you the maximum resale price of your unit.

I work two counties, one county when you pull up the tax records it says "Resale Restricted". The other county does not.

Your appraised value will be based on what the maximum resale value set by the controlling authority is in most cases as this value is much below market value.

I have a unique situation in my immediate market where affordable homes are selling for less than the maximum allowed because the values of the surrounding fee simple homes have fallen at or near the maximum of the affordable homes. Why by an affordable home that has restrictions for 30± years when you can by a similar home that has no restrictions?

I mean this with due respect, and I believe wht you have written to be true, which leads me to ask why would an appraisal ever be needed if the value is predetermined? And wouldnt this conflict with USPAP?

 

[CigarDad]

I mean this with due respect, and I believe what you have written to be true, which leads me to ask why would an appraisal ever be needed if the value is predetermined?

For the same reason an appraisal is needed for a $100,000 loan on a $500,000 tract house.

They need an appraisal for what ever reason and I am happy that they do.

 

[timd354]

I mean this with due respect, and I believe wht you have written to be true, which leads me to ask why would an appraisal ever be needed if the value is predetermined? And wouldnt this conflict with USPAP?

The reason that they need an appraisal, I suppose, is that sometimes the affordable housing units (called ADU's or MPDU's in my area, depending on the jurisdiction....stands for Affordable Dwelling Unit or Moderately Priced Dwelling Unit), is sometimes they are not worth the capped value. I had one this month where the contract price was $195,000, and the appraised value was about $170,000. I have to say that is the first time that I have ever brought in a MPDU under the contract price, but it was the housing authority's own fault, as this was in an area that is still being built and the unit I appraised was a 2 bedroom condo and the housing authority unveiled a whole new set of MPDU's in the same area that were very similar to this one at a $170,000 2 days after this one went under contract.

Don't even get me started on this program and how it traps people into essentially being renters as opposed to becoming real homeowners with a chance to eventually build significant equity and how one unit got priced more than $25,000 above similar units in the area...or how the housing authority actually had to list the unit that they were trying to sell for $195,000 on the MLS and waive the income restrictions for this proeprty just for this purchase (but not for future resales), since no one who is on the waiting list for these units could get a mortgage, since people who met the income restrictions could not qualify for a loan to buy a $195,000 condo unit once the condo fees were added into the monthly housing payment.....the real classic part about this story is that the housing authority, which has the right of first refusal on all resales of these units here, purchased this unit from the original owner in December, 2008 for $163,000 and were trying to flip this property for a quick little profit on the backs of the people they were supposed to be trying to help. When I asked someone at the housing authority about this, they claim that they spent $30,000 to renovate the unit and were only trying to get their money back....it is a 1,000 sf condominium unit built in 2006, and it appears that all that was done was new carpeting was installed, a new stove was installed and the place was painted, and the housing authority claims they spent $30,000....puhleeze......even if they used union labor and got competely ripped off by their suppliers, this cost no more than $5,000.

Let's just say that it is another feel-good liberal program that has gone horribly wrong.

I really don't see how the program here significantly helps people when they can only resell the property for the next 10-20 years at price which is fixed at the original price plus inflation. It seems to me that these people end up with the burdens and cost of homeowhership but cannot gain any real equity unless they wait 10-20 years. At that point, they can sell the property at "market value" but must split 1/2 of the profit over the original sales price plus inflation with the county (whoopdy do!!!) It is simply amazing that the county gets 1/2 of the profit when they incurred zero risk and expense to build or pay for the property....you just gotta love socialism as the government always get its share.