"Affordable Housing" hypothetical condition

[PhysicalDepreciation]

I'm doing a purchase on a house that is deemed "affordable housing". The buyer has to be under a certain income level AND the house can only sell as high as a certain number. There are zero other similar sales with these type of restrictions. The lender has advised to value it as of there were no restrictions on it. If I do it this way I'll have to value it using a hypothetical condition that these restrictions don't exist. The market value without these restrictions is going to be like a couple hundred thousand higher than the contract price (property max allowed price). Does this make sense to do it this way? There isn't really a "market value" for this since the sales price is already set. How would you guys attack this
Thanks

 

[glenn walker]

Your appraising what the property is worth not the "affordable housing" part and I would just lay out what lenders engagement is asking for and that is "AS IS" using regular sales.

 

[PhysicalDepreciation]

Thanks Glenn. That actually makes a lot of sense. I'm simply appraising the market value, as is. Then I will just explain in the addendum why the market value is so much higher than the sales price.

 

[shrubberyvaluation]

I'm doing a purchase on a house that is deemed "affordable housing". The buyer has to be under a certain income level AND the house can only sell as high as a certain number. There are zero other similar sales with these type of restrictions. The lender has advised to value it as of there were no restrictions on it. If I do it this way I'll have to value it using a hypothetical condition that these restrictions don't exist. The market value without these restrictions is going to be like a couple hundred thousand higher than the contract price (property max allowed price). Does this make sense to do it this way? There isn't really a "market value" for this since the sales price is already set. How would you guys attack this
Thanks

It makes sense if the restrictions come off in foreclosure.

 

[John Hassler]

No HC needed. The client has made it easy on you by asking for the fee simple value. The buyer is apparently purchasing something less than fee simple based on what you have described. Document the lender's request in your workfile, and document in your contract analysis that the buyer is purchasing something less than fee (if that's the case).

 

[shrubberyvaluation]

Your appraising what the property is worth not the "affordable housing" part and I would just lay out what lenders engagement is asking for and that is "AS IS" using regular sales.

I disagree because you have deed restrictions. You would need the hypothetical that the deed restrictions do not exist. If a house would sell for $550,000 but it can't because of deed restrictions requiring it to sell for less than its value is not $550,000 AS-IS.

 

[J Grant]

is it a land lease or does the buyer own the land
The community redevelopment agency or whoever is in charge of the program would have a record of sales, (typically) which are not usually on MLS

 

[shrubberyvaluation]

I would research if the deed restrictions come off i foreclosure. It would make a lot of sense if this were the case for the lender to want to know the value of the property if they were to take it over. I think appraisals in these cases are ones that should be first to be waived if that is going to happen. Most of the time these properties sell much lower than comparable properties without the deed restrictions and have people lining up for them.

 

[Amy Perkins]

I'm doing a purchase on a house that is deemed "affordable housing". The buyer has to be under a certain income level AND the house can only sell as high as a certain number. There are zero other similar sales with these type of restrictions. The lender has advised to value it as of there were no restrictions on it. If I do it this way I'll have to value it using a hypothetical condition that these restrictions don't exist. The market value without these restrictions is going to be like a couple hundred thousand higher than the contract price (property max allowed price). Does this make sense to do it this way? There isn't really a "market value" for this since the sales price is already set. How would you guys attack this
Thanks

No way! Call the county and city affordable housing, use old comps, but don't overvalue.

 

[George Hatch]

It's a cliche for a reason. We do not appraise properties; we appraise property rights. The property rights you're appraising are more limited than a standard Fee Simple bundle that we normally appraise. Your most similar comps will consist of sales of others with similar encumbrances like your subject. If you can find any. One source of comps might be the agency that's running this program - see if they've done any others recently. If not then you'll just have to work with what you've got.

If the program in question is arbitrarily stipulating the sale price via a predetermined formula that operates off of their income or off the income levels that HUD defines for low income or very low income then that pricing will represent the maximum such properties can sell for in the market. Some of those programs might actually refer a re-seller back to the agency that set them up in the first place so they can pick a buyer from their waiting list, in which case your subject might have sold without ever being listed or otherwise exposed to the market. The only people who can buy are those who are income-qualified.

If for some reason your SC was returning sales with lower prices THOSE would indicate to the MV of your subject's property rights even though there's a formula that allows for your subject to sell at a higher price. As a practical matter that outcome is highly unlikely. What's more likely is that your contract price will be lower than the unencumbered fee simple interests and indeed will represent the MV of your subject's property rights.

There are variations of these programs and your valuation will depend on bringing yourself up to speed on the specifics of this program. I just had a conversation about this with another appraiser a few days ago where the program they were working under involved a silent 2nd that was put up by the County, a grant from the state and a rebate from the feds. I had previously appraised a couple projects under that same program while they were under construction so I was already familiar with the details. However, the program you're working with may very well be different.