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

[Tom4value]

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

That’s the point! That is how you know it is a comp for affordable housing.

 

[Tom4value]

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.

Here in MA, it is the state under the “Chapter 40B” program. With this program, they have to be owner-occupied so, no, they cannot be rented.

 

[Zoe]

I am not sure you couldn't use a 1004 but you would have to use a long addenda. I am not sure if some of the certs or limiting conditions might conflict. I don't even know if lender is selling the loan to a GSE.

 

[Yuanyin]

There are quite a bit of affordable housing units in my area. They aren't that difficult and they all have resale restrictions and are in land trusts. Under the Fannie Mae Selling Guide, if a property is subject to affordability or resale restrictions, the appraiser should use comparable sales with the same or similar restrictions whenever possible. If none exist, the appraiser may use the best available market-rate comparables, provided the report clearly explains that restricted sales were not available and why the selected comparables represent the closest competitive properties. This flexibility is permitted under when truly comparable data does not exist.
Even when market-rate comparables are used, the final value must still reflect the impact of the affordability restriction, such as income limits, resale price caps, or ground lease terms. The appraiser must analyze and explain how those restrictions affect value and ensure the reconciliation reflects the restricted market, not the unrestricted one. There is a formula for the valuation. Also the lender should be providing to you the master lease.

You'll also need to complete a ground rent capitalization adjustment if it is in fact a ground lease.
The formula is: Capitalized Ground Rent = Annual Ground Rent ÷ Capitalization Rate

The cap rate must reflect market rates for ground leases, not typical apartment cap rates.

IE: Ground rent is $1,200 annual fee ($100.00 month)

Capitalized value = 1,200/0.0425 = 28,235.29


Leasehold Value = $415,000 - $28,000 = $387,000

 

[Yuanyin]

Also, The cap rate must reflect market rates for ground leases, not typical apartment cap rates. So how do you find the cap rate? You probably won;t that easily, so instead use the 30-year treasury yield. So in this example, Capitalized value = 1,200/0.0425 = 28,235.29 (the 0.0425 or 4.25% came form the 30yr yield, but look it up for the current yield for the appraisal)

 

[RCA]

We don't appraise properties, we appraise property rights. In this case the property rights being appraised are more limited than properties without these legal encumbrances.

The maximum price established in the documentation will be the transaction price. In the unlikely event that it's the same number or a higher number than the property would sell in the market then the lower price will represent what the informed buyer would pay.

If/when it's the case:

"The maximum price established in this program is well supported by the outside sales"​

To be exact, we appraise both. Just to be exact. Can you imagine appraising "property rights" without the sales grid?

Just to be exact.

 

[TerryRohrer]

The cap rate must reflect market rates for ground leases, not typical apartment cap rates. So how do you find the cap rate? You probably won;t that easily, so instead use the 30-year treasury yield.

This is precisely where, in my view, these types of "appraisal" are completely contrived and without any merit whatsoever (and kudos to the author for being forthright about the facts). The USDA has a gigantic program for subsidizing apartments, along with a gigantic, contrived process for "valuing" the subsidy. These are formulaic, clerical missions that should be completed with two lines of computer code, not involving license appraisers. Licensed appraisers who do them should have to explain why they are completing and signing off on reports that are inherently misleading, passing them off as market-based opinions. Just my opinion!

 

[Zoe]

This is certified residential posting. They can do it. They better count on it take taking them 2 weeks to do it just figuring out by talking to anybody associated with the subject development. Everybody associated with the development will be able to help them along the way. It may take them 3 weeks. If they could hook up with an appraiser that has worked in the development, they could do a fee split with them and learn it quicker.

If they could hook up with an appraiser that has worked in the subject development, a week turn time would be reasonable quote to the client. They may have to talk to somebody in the loop before they know an appraiser that has worked in the development. Our MLS lists appraisers by code because selling agents are required to report the appraiser that worked on the sale.

The MLS keeps a list of member appraisers by code name that did the appraisal on a prior sale and it is easy for one appraiser to connect with another appraiser on a sale.

You might want to verify something with prior appraiser or whatever. It makes it easier to help sometimes.

Even if the appraiser is not a member, the seller agent still has to report the name of appraiser that worked on a previous sale.

Like in this case, if I had performed an appraisal in that development and the original poster called me. I would gladly answer the call and they could ask me many things. I would not even want a fee split. I would say this is how I did it. No problem. I may have to call you on a future assignment for something.

If they said can I pay you 10% or 20% to review it with me and sign off? I would say sure. If they called me and said fee split, 50/50%, I would say okay. I want to inspect with you.

 

[Zoe]

Memphis is home base to Crye-Leike, which is one of largest single family brokers on the planet and they always keep an appraiser on the local NAR board.

Crye-Leike: Revenue, Worth, Valuation & Competitors 2026

Crye-Leike has an estimated revenue of $917.3M, and 4300+ employees. Alternatives of Crye-Leike are Shannon Waltchack, Davidson Homes and Weichert Realtors.

compworth.com

 

[RCA]

This is precisely where, in my view, these types of "appraisal" are completely contrived and without any merit whatsoever (and kudos to the author for being forthright about the facts). The USDA has a gigantic program for subsidizing apartments, along with a gigantic, contrived process for "valuing" the subsidy. These are formulaic, clerical missions that should be completed with two lines of computer code, not involving license appraisers. Licensed appraisers who do them should have to explain why they are completing and signing off on reports that are inherently misleading, passing them off as market-based opinions. Just my opinion!

I think there may be a problem here. The definition of "Market Value" includes, I believe, the regulatory restrictions imposed by government bodies such as the USDA on "affordable housing."

So, yes, you need to abide by the definition of Market Value, - but which takes into account such regulatory restrictions.

Interesting. But I am open to conflicting arguments.