Appraising below market affordable housing units

[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?

PE,

The value is not predetermined, although the potential sales price is capped. As we all know, the value may be less than the potential capped sales price.

 

[jay trotta]

PE - have to agree with t354, we have similarities here in regards to "Deed Restrictions" on value created Low Income housing. It is Not "predetermined" Deed Restricted by Statute.
My understanding was they created it here due to different municipal regulations for; Police/Fire and Rescue requirements - to live within the Town in which they serve. The cap that was created, offers the ability of "newbies" to have the same opportunity. The time frames here were not as long (5-10) year, which allowed the opportunity for the current resident to move up, based on affordibility.

Am sure in different States, the application can vary - depending on a need basis.

 

[Larry Foster]

I have experience with these units in NJ and can say with complete confidence that the affordable housing units should be appraised at current market value with the hypothetical condition that no deed restrictions regarding resale are in place. If you were to value the property based on anything but a competitive and open market you would need to change your Definition of Market Value. Make sure you disclose, disclose, disclose. The original affordable housing laws in NJ released the property from the program upon foreclosure, and I believe that was to encourage mortgage lending on these units. I know valuation of these units can be challenging in that affordable housing units are often inferior to unrestricted market units and there may not be a model match that sold at arms length, but an opinion of market value can still be made. I believe you can search out other threads on this topic.

 

[timd354]

I have experience with these units in NJ and can say with complete confidence that the affordable housing units should be appraised at current market value with the hypothetical condition that no deed restrictions regarding resale are in place. If you were to value the property based on anything but a competitive and open market you would need to change your Definition of Market Value. Make sure you disclose, disclose, disclose. The original affordable housing laws in NJ released the property from the program upon foreclosure, and I believe that was to encourage mortgage lending on these units. I know valuation of these units can be challenging in that affordable housing units are often inferior to unrestricted market units and there may not be a model match that sold at arms length, but an opinion of market value can still be made. I believe you can search out other threads on this topic.

Why would I use a hypothetical condition as the client wants an appraisal of the property as is? I underderstand where you are coming from, but
your method would run afoul of a statement made on the subject by the Maryland Association of Appraisers and since many of the people in high positions with the Maryland ***'n of Appraisers overlap with state board members, I think that I will do it the way that they say it should be done. Believe it or not, usually it is not that hard to find comps with similar deed restrictions as the county in which I have appraised most of these properties has about 10,000 units in the program (It is a very densely populated county with about 1 million resdents).

Of course, the program here may be different from the program in NJ....here foreclosure does not cause the property to be released from the program.

 

[Larry Foster]

Tim,

How would the high and mighty board members explain the conflict with the Definition of Market Value? Please refer to USPAP AO-14.

Excert form FNMA Selling Guide;
XI, 309: Affordable Housing Program Properties (03/20/95)

[highlight]Our standard appraisal policies and property underwriting guidelines apply to all mortgages we purchase, including those originated under affordable housing programs.[/highlight] Our standards specifically prohibit redlining and other unacceptable appraisal practices, and support the valuation of residential properties in all markets. The valuation of single-family properties that secure mortgages sold to us under affordable housing programs may present unique issues because of some of the features offered—such as below-market-rate financing, subsidized second mortgages, grants, and tax abatements.

[highlight]The appraiser’s role does not change when appraising a property that is sold under an affordable housing program.[/highlight] The appraiser is responsible for providing the lender with an accurate and adequately supported opinion of market value for the real property [highlight](based on our standard definition of market value)[/highlight] and a complete, accurate description of the property. The appraiser’s opinion of the market value for the property must reflect the normal consideration for the property as of the effective date of the appraisal. Furthermore, the appraiser must adjust the comparable sales to reflect the effect of special or creative financing or sales concessions that were granted by any party associated with the sale of the property.


Some prior threads on this subject. There are more. Search Affordable Housing or Mt. Laurel.

http://appraisersforum.com/showthread.php?t=138465&highlight=affordable+housing

http://appraisersforum.com/showthread.php?t=132518&highlight=affordable+housing

http://appraisersforum.com/showthread.php?t=120981&highlight=affordable+housing

 

[Summer]

It helps people in high end areas. For example, those units would be $195,000 in CT, but if they weren't low end they would be selling for $600K. This is so firemen, teachers, police and other low paying professions can live in the areas they serve.

I think it is a great thing. How you appraise is fair market value with full disclosure of deed. They are called MBR units and we appraise often in CT.

 

[timd354]

Tim,

How would the high and mighty board members explain the conflict with the Definition of Market Value? Please refer to USPAP AO-14.

Excert form FNMA Selling Guide;
XI, 309: Affordable Housing Program Properties (03/20/95)

[highlight]Our standard appraisal policies and property underwriting guidelines apply to all mortgages we purchase, including those originated under affordable housing programs.[/highlight] Our standards specifically prohibit redlining and other unacceptable appraisal practices, and support the valuation of residential properties in all markets. The valuation of single-family properties that secure mortgages sold to us under affordable housing programs may present unique issues because of some of the features offered—such as below-market-rate financing, subsidized second mortgages, grants, and tax abatements.

[highlight]The appraiser’s role does not change when appraising a property that is sold under an affordable housing program.[/highlight] The appraiser is responsible for providing the lender with an accurate and adequately supported opinion of market value for the real property [highlight](based on our standard definition of market value)[/highlight] and a complete, accurate description of the property. The appraiser’s opinion of the market value for the property must reflect the normal consideration for the property as of the effective date of the appraisal. Furthermore, the appraiser must adjust the comparable sales to reflect the effect of special or creative financing or sales concessions that were granted by any party associated with the sale of the property.


Some prior threads on this subject. There are more. Search Affordable Housing or Mt. Laurel.

http://appraisersforum.com/showthread.php?t=138465&highlight=affordable+housing

http://appraisersforum.com/showthread.php?t=132518&highlight=affordable+housing

http://appraisersforum.com/showthread.php?t=120981&highlight=affordable+housing

Where's the conflict? I appraise properties in the MPDU (Moderately Priced Dwelling Units) program in my area by using other MPDU properties as comparable sales. MPDU properties in my area are their own distinct market and the market value of such properties is substantially different from properties which are not included in the MPDU program. I don't see how appraising MPDU properties at the market value for MPDU properties in my area in anyway conflicts with the guidelines you cite above. Just like you would not use a 4,000 sf detached home as a comparable sale when you appraise a 1,200 sf towhhome, you would not use a property with no resale restrictions as a comparable sale when appraising a property with very strict resale restrictions....and if you did use an unrestricted property as a comparable sale, you had better make a market based adjustment for the difference in value between restricted and non-restricted properties.

 

[timd354]

Tim,

How would the high and mighty board members explain the conflict with the Definition of Market Value? Please refer to USPAP AO-14.

of the property.

I don't accept your premise that this method conflicts with the definition of market value, but then again I don't really care either since I already know how my state board is likely to rule on the issue........Since they are the only ones with the power to take away my certification, I think that I will do it their way.......of course other state boards may look at this issue differently and there also may be significant differences in the way that low and moderate dwelling unit programs are set up and operate in different states, which may require different approaches.

 

[timd354]

It helps people in high end areas. For example, those units would be $195,000 in CT, but if they weren't low end they would be selling for $600K. This is so firemen, teachers, police and other low paying professions can live in the areas they serve.

I think it is a great thing. How you appraise is fair market value with full disclosure of deed. They are called MBR units and we appraise often in CT.

Yeah, its just wonderful for the state to give people in certain interest groups things that they have not earned at below market prices. I am sure it has absolutely nothing to do with persons in certain interest groups, especially unionized persons in certain interests groups who generally vote as a block for politicians of a certain party You have just got to love the socialist paradise that this country is turing into.....sone there will be no reason to actually work as long as you are a member of certain interest groups living in certain places......oops, that day has already come as there is a good 10-20% of people in this society who are non-productive cancerous leeches living of of the labor of those who are productive.

 

[Larry Foster]

timd,

The conflict is with making an as is appraisal of a property with these types of deed restrictions and the first sentence of the Definition of Market Value preprinted on the FNMA form. "The most probable price which a property should bring in a [highlight]competitive and open market[/highlight] under all conditions requisite to a fair sale,".

If the sales price is regulated and not affected by the forces of suppy and demand how could this be considered a competitive market?

If the program disqualifies the majority of the population and drastically limits the number of eligible buyers how could this be considered an open market?

In response to your question "Why would I use a hypothetical condition as the client wants an appraisal of the property as is? The client can't always have what they want.

Based on the preprinted definition of market value the appraisal cannot be made as is without utilizing a H.C.

If they would like the appraisal made as is then the preprinted definition of market value would need to be altered.

In the prior threads on this subject there are many other appraisers experienced with this type of property and in agreement on how they are handled. There was no debate on the interpretation of the preprinted definition of market value.

As for fear of the MD Board of RE Appraisers, why would they have a problem with an appraisal made with a hypothetical condition?