SFR - Affordable Housing Deed Restriction

[residentialguy]

ResGuy-

And here is my issue...if MV would be found above the cap for resale.

I agree the deed restriction is not a concession...but...but...but how can a BMR property sell under the premise of "normal consideration".

Normal consideration for that property must include it's limitations. If the property is not allowed to sell beyond X, than how could you report any value beyond X when it is not possible???

And you know me well enough to know that if it doesn't fit into MV, I will make it known, lol. However, I don't think this is one of them. I would make sure that you make it clear that the house can't be sold beyond X, therefore the most probable price can't be beyond X, as a higher price wouldn't be possible, much less probable. Sometimes you have to use the BFH on that peg :laugh:

 

[J Grant]

Thx Denis...I like your approach.
In the current scenario...MV is below the current cap for resale.

Yea! (disclose cap anyway so it is clear)

So the issue is moot. If and when I run across this situation again, I'll clarify what the client wants when MV is above the cap for resale. Unfortunately, the limited data for BMR (below market rate) dwellings provided by the city is not of much use. There's a pending BMR...but it's a Short Sale and an active BMR that is also a Short Sale.

What do you mean by BMR? You need a comp from subject community, with the influence of the deed restriction (if any) is seen. Forget your bias about what these units might sell for. What is the market saying they sell for? Please stop saying BMR, it is confusing. Say DR, deed restriction for a comp that has a deed restriction like subject. I am assuming you mean the two houses city is providing are DR in short sale status? We can use short sales on a market value appraisal if they are exposed to open market.

Beyond that...there's only one relatively recent BMR comparable that is "OK" as market evidence. It took a bit longer to sell and fell at the low end of the price range in comparison to its non-BMR counter-parts.

If you mean this sale had a DR, it is a great comp. A bit longer to sell reflects the more limited buyer pool, and a lower end of price range is a reliable indicator imo.

It would be nice if I had more than one BMR sale (not also a Short Sale) that would clarify if a market discount is appropriate due to the deed restriction. But my instincts tell me that the discount is not significant with a pool of buyers on a waiting list ready to purchase these type of dwellings.

ResGuy-

And here is my issue...if MV would be found above the cap for resale.

I agree the deed restriction is not a concession...but...but...but how can a BMR property sell under the premise of "normal consideration". What else could you possibly call an affordable housing program anything other than "creative financing" that is assisted by the city? Capping the sale price certainly assists the buyer with their required financing...no? :icon_idea:

How is the financing assisted by the city in subject subdivision ? You did not explain that and it needs explaining. What does the city provide in terms of financing, and do the buyers still have to get it financed from a lender conventional or FHA, or are they financing through a city program?

If the most probable sale price is above the sale price cap...I'm not sure I can personally pound that "price capped value" square peg into the MV definition.

Don't worry about that, as you research shows the prices are below the sales cap . As Denis said, explain and disclose. I asked a couple of questions above because what you are writing is muddled and not clear. So if appraisers find it muddled, a user/client will find it muddled. Clarify what the issues are, what the financing assistance is.

If you can find a 3 year old sale in subject subdivision , you can compare it to other sales prices of similar houses without DR that sold 3 years ago. See if the older sale show a similar market reaction (slightly lower price, longer marketing time) as current sale does, to support as market reaction and an e adjustment for any non DR sale comps.

 

[J Grant]

Please clarify the below issues which seem muddled . Put aside prices or MV for now, first clarify the issues. DR stands for deed restriction.

1) From what you posted, the DR has a cap on upper price range, and restricts buyers to those in an income bracket below X$ for 36 years. Is there anything else in the DR, or are these two things it?

2) Does this DR , or the fact that a house sells in this community attach to any special financing or assistance? Do buyers obtain their own financing such as conventional , FHA, or from a city run financing program?

3) You reference affordable housing programs from City and waiting lists of buyers. Are those waiting lists for resales in your subject community, or other types of housing programs run by the city?

 

[J Grant]

It's a PITA and a lot more work , but you can research resale prices of other similar type communities . Many cities have what they call community redevelopment programs such as the community your subject is in. We have them here. We have houses set aside, or PUD communities in distressed areas set aside for either public servants who work in those communities such as teachers or police officers, or income caps such as you reference. The houses typically have DR on sale with either a % of profit going back to the city to discourage property flippers buying, and DR as to who can buy such as public servants or income brackets.

No special financing programs are attached in these communities (in my area) Luckily I never had an assignment in one . There are only a handful.

 

[J Grant]

If the assignment is for "as is" market value, no HC or EA that the Deed restriction is not in place or that it does not affect value. You have to value what is there, a property sold with a deed restriction, such as done when a house sells in an over age 55 community, only your community has a top sale cap price and typical over age 55 communities do not.

 

[J Grant]

Capping a sale price does not assist a buyer with financing. It places a maximum cap on what these properties can sell for, likely to discourage property flippers, the city built this community intending it for owner occupants, and to ensure that for 36 years at least, there will be a pocket of houses avail that will cost no more than the cap $ to buy.

 

[Doug DeMars]

J-
You should slow down a bit.

DeSaix mentions BMR in post 7...which represents "Below Market Rate"

I'm having a hard time buying the argument that capping a price doesn't assist a buyer with financing. The whole intention of capping a price is to assist buyers with limited finances.

"DR" (deed restrictions) are not all created equal. Communities with the 55+ age restriction is not a very useful analogy. Other restrictions for dwellings may include a % of units that must be owner occupied w/in a development. Some restrictions may be found in CCRs which can limit all sorts of things. Zoning definitions with development standards restrict uses for most real estate.

The BMR "affordable" housing restriction is quite another animal. IMO, it clearly messes with the very concept of market value.

There are two basic scenarios a BMR property is found.
A) The resale price cap is found above MV
B) The resale price cap is found below MV

In scenario A, the price cap maybe incidental. I'd argue that a modest stigma may be attached to the deed restriction. It clearly limits the owner's potential equity upon resale if future market value exceeds the future resale cap. All things being equal...this type of deed restriction is less appealing than a substitute property w/o a sale price cap. Unless the price cap is in the stratosphere...who in the heck wants it?

In scenario B, why bother with an appraisal? You can't honestly use "traditional" MV comparables. If possible, you should only use other BMR comparables. Regardless, the MV definition is inconsistent with the very nature of the specific deed restriction placed upon the property. Once "real" MV significantly exceeds the resale cap, the other sales with a resale cap deed restriction is meaningless (at least beyond the acknowledgement that there's a market for these type of dwellings). The dwelling is going to sell at the stated price cap regardless of what MV comparables or BMR comparables have sold. IMHO.

 

[J Grant]

J-
You should slow down a bit.

DeSaix mentions BMR in post 7...which represents "Below Market Rate"

With all respect to Denis ( and I do respect him), Imo the term BMR is confusing. A property either has a deed restriction or it does not. (DR for short). The rate or price it sells for is a separate issue.

I'm having a hard time buying the argument that capping a price doesn't assist a buyer with financing. The whole intention of capping a price is to assist buyers with limited finances.

A price cap is NOT a financing concession and has nothing to do with creating favorable financing or assisting with financing. The cap of price is to keep housing prices affordable and to prevent property flippers for buying in community and re selling for as high a profit as market will bear.

"DR" (deed restrictions) are not all created equal. Communities with the 55+ age restriction is not a very useful analogy. Other restrictions for dwellings may include a % of units that must be owner occupied w/in a development. Some restrictions may be found in CCRs which can limit all sorts of things. Zoning definitions with development standards restrict uses for most real estate.

Aware of that, just used it as an example, as several other posters did.

The BMR "affordable" housing restriction is quite another animal. IMO, it clearly messes with the very concept of market value.

There are two basic scenarios a BMR property is found.
A) The resale price cap is found above MV
B) The resale price cap is found below MV

In scenario A, the price cap maybe incidental. I'd argue that a modest stigma may be attached to the deed restriction.

I agree with there may be a stigma about the deed restriction. That is an affect on appeal of community because it is known as a "low income community", thus might be appropriate to adjust there.

It clearly limits the owner's potential equity upon resale if future market value exceeds the future resale cap.

That is true and another reason the houses may sell lower. Great point!

All things being equal...this type of deed restriction is less appealing than a substitute property w/o a sale price cap. Unless the price cap is in the stratosphere...who in the heck wants it?

People who intend to live there long term and are not concerned with making a profit?

In scenario B, why bother with an appraisal? You can't honestly use "traditional" MV comparables. If possible, you should only use other BMR comparables. Regardless, the MV definition is inconsistent with the very nature of the specific deed restriction placed upon the property. Once "real" MV significantly exceeds the resale cap, the other sales with a resale cap deed restriction is meaningless (at least beyond the acknowledgement that there's a market for these type of dwellings). The dwelling is going to sell at the stated price cap regardless of what MV comparables or BMR comparables have sold. IMHO.

The last paragraph above my tired brain and I am going out soon to get some daytime in before dinner, so I'll leave that section be!You are correct that other DR properites (BMR to you lol), are your best comps, imo a non DR property if sells higher could be used but would be adjusted down for the reasons stated.

 

[hastalavista]

DeSaix mentions BMR in post 7...which represents "Below Market Rate"

With all respect to Denis ( and I do respect him), Imo the term BMR is confusing.

I appreciate your respect and, hopefully, will continue to earn it.
"BMR" is a common term used to reflect a special program to assist a targeted demographic in purchasing housing. The programs can consist of the following elements (sometimes all of them, sometimes not all of them:
1. Initial purchase price is set by a formula.
2. Resell value is limited to (a) a set formula + (b) certain capital improvements made by the owner.
3. Buyers will have to meet income or (sometimes) job qualifications. I did a condo in Marin County where the buyer pool was restricted to teachers and cops.
4. There is usually a term set on the restriction. I've seen them as low as 10-years.
5. Sometimes, they restrict the amount of the lien that can be placed against the property.


Here is an excerpt from one local city's website (I've bolded the BMR references):

The goal of the City of San Mateo is to create and retain a variety of housing opportunities in the community. The Below Market Rate (BMR) Inclusionary program requires developers of new housing to provide a certain percentage of the units within the project to be affordable to very low, low or moderate income residents.

For developments consisting of 11 or more units:

15% of ownership units will be affordable to moderate income families, or
10% of ownership units will be affordable to low income families.
15% of rental units will be affordable to low income families, or
10% of rental units will be affordable to very low income families

A fractional fee will be charged for projects consisting of 5-10 units.
For further details, click on the BMR guidelines below.

BMR Guidelines
Maximum Pricing and In Lieu Fees

In this case, these standards are for both multifamily and single-family developments.

 

[J Grant]

Thanks for the context, now using the term makes sense!