How can I appraise a home that is part of an affordable housing program?

[Tom4value]

Home is in a program that has a limited number of homes available based on income and also several other things, such as local resident, volunteer fireman, veteran, elderly etc.
The home in question is not sold on the open market, the town sets the maximum allowed sale price, the home is selling for $220,000 in a PUD where typical homes sell for between $500 and $700,000. The home would be returned to the program if resold and the resale price would be set by the town.
There are no recent sales of other "affordable" units from the program. People tend to keep them lol.

Bad news is, it will be time consuming. Good news is, ole Tommy here has done many of them and can help you out.

Affordable housing programs are state-run. Here in MA it is called, “Chapter 40B”. 100% of the assignments I have had occurred in new (or newer) developments. You didn’t say but I am betting that that might be the same for your subject. Contact the developer for any insight on sales. I have actually seen these sales in the MLS. Look for sales that seem out of whack and then check the deeds. As you know, the deeds will state the affordable housing terms.

Can’t find any recent sales in the development? Go outside, out of town if you have to. Again, state-wide program. You can find them same way.

They want at least “one affordable” comp, preferably 2. So how do you adjust? Easy. If you have one comp in the development and another “market” comp in the development, the difference in price (after other adjustments) is the adjustment. If the “affordable” comp is outside your market area, compare that comp to a “market” comp for a percentage to apply to your other “market” comps.

Are your adjustments going to be over 15%? Hell, yeah! It is ok, the lenders and readers of the appraisal are expecting that and your opinion of value is going to be the maximum price they can get per the terms.

As to why they even need an appraisal, who cares? As long as you get a check!

 

[shrubberyvaluation]

Affordable housing programs are state-run. Here in MA it is called, “Chapter 40B”. 100% of the assignments I have had occurred in new (or newer) developments. You didn’t say but I am betting that that might be the same for your subject. Contact the developer for any insight on sales. I have actually seen these sales in the MLS. Look for sales that seem out of whack and then check the deeds. As you know, the deeds will state the affordable housing terms.

Can’t find any recent sales in the development? Go outside, out of town if you have to. Again, state-wide program. You can find them same way.

They want at least “one affordable” comp, preferably 2. So how do you adjust? Easy. If you have one comp in the development and another “market” comp in the development, the difference in price (after other adjustments) is the adjustment. If the “affordable” comp is outside your market area, compare that comp to a “market” comp for a percentage to apply to your other “market” comps.

Are your adjustments going to be over 15%? Hell, yeah! It is ok, the lenders and readers of the appraisal are expecting that and your opinion of value is going to be the maximum price they can get per the terms.

As to why they even need an appraisal, who cares? As long as you get a check!

So what about deed restrictions. Even those with deed restrictions are probably not selling at market value.

 

[Elliott]

AI and USPAP to the rescue (well, maybe not):

"Appraisers handle deed restrictions—such as those limiting resale price or buyer income in low-income housing programs—by reporting the unrestricted market value as the primary opinion, while disclosing the restriction’s impact separately.
Standard Reporting Process
For Fannie Mae/Freddie Mac appraisals (Form 1004), value the property under the hypothetical condition that it is free of the restriction, using comparable unrestricted sales adjusted for features like size, condition, and location.
• Disclose the restriction in the addendum (e.g., Certification #15 or Exhibit), noting it as a “limiting condition” or “extraordinary assumption.”
• Restrictions often do not survive foreclosure for conforming loans, allowing lenders to recover full market value, so the reported value ignores the cap.
Adjustment Methods for Impact Analysis
If required (e.g., for restricted resale or secondary “as-restricted” value), quantify the discount via:

The market value of a single-family home with a deed restriction from a low-income program—limiting resale price and buyer income—is its unrestricted fair market value as determined by standard appraisal methods.
Key Appraisal Principles
Appraisers follow USPAP and lender guidelines (e.g., Fannie Mae Form 1004) to report the property’s as-is market value, defined as the price in a competitive open market between willing buyer/seller, unaffected by special financing, concessions, or restrictions like deed limits.
The deed restriction must be disclosed (e.g., in Certification 15 or addendum), but it does not reduce the reported value—it’s treated as an extraordinary assumption or limiting condition.
Valuation Approach
Use the sales comparison approach with comparable unrestricted single-family homes, adjusting for features like size, condition, and location.
• If restricted comps exist (rare for sales), analyze them separately to note the restriction’s impact (often 20-50%+ discount).
• Restricted value (for program resale) is formula-based, e.g., original price + AMI inflation share, but this is not the market value."

.................

Got it?

 

[AppraisingLA123]

I turned one down one, not too long ago. I turn down assignments i have no experience or look for a partner. Another I turned down recently was for a co-op.

 

[George Hatch]

"Appraisers handle deed restrictions—such as those limiting resale price or buyer income in low-income housing programs—by reporting the unrestricted market value as the primary opinion, while disclosing the restriction’s impact separately.

As I understand it....
The unrestricted MV would amount to a hypothetical - it doesn't exist and you can't sell it. The w/restrictions amounts to the "as is".

 

[Zoe]

Who is sponsoring the affordable housing? Is it the City? Is it HUD? Is it a State based affording housing project? Who manages it? Can any houses be rented? It is one you will have to dig in to. The more people you talk to, the easier it will get. Several good points made so far imho.

 

[Zoe]

If you can't get competent, then don't do it. You don't have to be competent to accept an assignment, but you have to get competent before you complete it. If you find out at any time you are not competent, just back out and tell the client and don't send them a bill. Just say I thought I was competent, but I found out I am not. I'm sorry.

The problem is you are competent and you will get more competent as you complete this assignment. Don't quote a 2 day turn time.

If it takes you 2 weeks, just explain the difficulties to your client. Keep your client up to date on the progress.

 

[Zoe]

Whoever manages that development probably knows appraisers that have worked there and many other things that can help you. Locally, I don't mind calling other appraisers for information they know. I don't ask for confidential information, but I don't mind calling them about a house they appraised. I tell them I am an appraiser and am working on house in that development, I wanted to see how you handled this. I was trying to use the one you appraised as a comparable. Nothing wrong with that.

 

[John Hassler]

The key to this assignment will be reading the terms of the contract in place between the housing authority managing the program and the owner (occupant may be a better word). All of these contracts are “one offs” but a common theme is should the “occupant” want to sell, the housing authority generally retains a first right of refusal to offer the property to another needy buyer at a SP based upon a preset formula in the contract. Typically, this formula is based on purchase price plus an inflation index of some type.

This assignment will not be about finding sales of other restricted sale units but calculating the value based on the contract formula. You will also need to calculate the value without the restriction as the housing authority will only exercise their first right of refusal up to this amount.

Great assignment! Plan on doing a narrative even if portions are pieces of the form. Enjoy!

 

[Zoe]

The key to this assignment will be reading the terms of the contract in place between the housing authority managing the program and the owner (occupant may be a better word). All of these contracts are “one offs” but a common theme is that should the “occupant” want to sell, the housing authority generally retains a first right of refusal to offer the property to another needy buyer at a SP based upon a preset formula in the contract. Typically, this formula is based on purchase price plus an inflation index of some type.

This assignment will not be about finding sales of other restricted sale units but calculating the value based on the contract formula. You will also need to calculate the value without the restriction as the housing authority will only exercise their first right of refusal up to this amount.

Great assignment! Plan on doing a narrative. Enjoy!

Yeah, 1004 won't work.