Valuation of a house that cannot be sold

[Greg Parker]

This is giving me a headache.

In Philadelphia, most of the projects have been torn down, and in one area, low income housing was built and sold way below cost to qualified familes. The homes are about no more than 3 years old, more are being built, and all are in very good condition. Frankly, except for the neighborhood, they are quite nice.

The catch is this: To buy these homes, the borrowers have to agree to live in them for 15 years.

I have my comps, as they are still building them, so I have recent enough sales, but what is bothering me is actual value vs. sales value. The sales price for these homes in this 5 block radius can range from 75k - 125k. New construction, 3 bedroom twins with no basement. If we go just one block further however, we are in northern liberties, a place that has seen the most ridiculous appreciation ever... because the projects were torn down, and the place is decent again.

I am valuing the house based on what they are selling for in this development. It cannot be sold on the open market for a bare minimum of 12 years, unless there is foreclosure, and even then, I believe it reverts back to the agency to resell.

I feel like I should be valuing it more to what the open market would demand though....

Thoughts?

 

[Mike Kennedy]

This is giving me a headache.

In Philadelphia, most of the projects have been torn down, and in one area, low income housing was built and sold way below cost to qualified familes. The homes are about no more than 3 years old, more are being built, and all are in very good condition. Frankly, except for the neighborhood, they are quite nice.

The catch is this: To buy these homes, the borrowers have to agree to live in them for 15 years.

I have my comps, as they are still building them, so I have recent enough sales, but what is bothering me is actual value vs. sales value. The sales price for these homes in this 5 block radius can range from 75k - 125k. New construction, 3 bedroom twins with no basement. If we go just one block further however, we are in northern liberties, a place that has seen the most ridiculous appreciation ever... because the projects were torn down, and the place is decent again.

I am valuing the house based on what they are selling for in this development. It cannot be sold on the open market for a bare minimum of 12 years, unless there is foreclosure, and even then, I believe it reverts back to the agency to resell.

I feel like I should be valuing it more to what the open market would demand though....

Thoughts?

Thought .......>> would not the sales prices of those already sold which have similar deeded/restricted re-sale clauses (verified of course) --- reflect the markets' reaction? with ample explanation and confirmation of data - would not Valuation be based on current refi/sale price based on those specific comps? comp 4 - similar outside sale would indicate variance in buyer perception.

 

[Big ole Boy]

You don't have a market.

You have a form of "occupancy" that is state controlled.

 

[Otis Key]

Reread the definition of "market value" on the certification and limiting conditions that you sign. That is not what you're being asked to appraise!

 

[The Warrior Monk]

I've had a few of these come up over the years, and I've always refused the assignment, simply because I don't know what to do with them. And it seems like most other appraisers don't either...I can never get a straight answer.

These properties do have value, but I doubt that it is market value, simply because it can't be sold under the conditions described in the definition of market value.

It obviously has value to the owner(s), since the owner is paying off a mortgage rather than rent, and there will be a reversion if the property is sold at some point in the future after the defined date has passed. I would imagine that there is also a discount that diminishes over time, since the property cannot be sold until a defined date. But beyond that, I'm not sure what the type of value is when appraising these properties, or how the data is processed.

 

[CANative]

Would the "market" be composed of buyers who are willing to accept those terms in return for affordable housing?

 

[CANative]

Is the land a leasehold interest held by a community trust of some kind?

 

[jay trotta]

Just a thought here;

we have been involved in properties that were "Limited" - due to a City program that allowed "specific guidelines" in order to purchase those types of properties. If you look deep enough you may find clues that you need; Builders that recieve a
(1) "guaranteed profit" for building those types of dwellings
(2) incentives from the City for Buyers
(3) Low interest loans either from State programs OR from the city inwhich the building is taking place.

All of this amounts to a "specific appraisal" - due to the limitations created, but also these limitations run for a number of years and will (should) only be apraised in the future in the same manor. The Deed will note the restrictions and if you stay within those Limits, you can justify the logic used in locating value.
One of the programs we researched offered a builder "guaranteed profit" of no less than $40,000 - he built three dwellings in one year under the city offered program; not a bad years pay and No guess work in what your profit will be. Also, he purchased the old existing run down dwellings for $1.00* directly from the city.

Now, I'm testin the olde noodle here, but isn't this process called "regentrification" ?? haven't looked that one up in over 15 years.

 

[Greg Parker]

To a certain extent this area is re-gentrification, but even so, these houses are not being sold at nearly the price of the rest of the neighborhood. Northern Liberties new construction is running above $300,000... and that is for a small place.

It's all controlled by the Philadelphia Housing Authority. Entire blocks in this formerly blighted area are being purchased for pennies. Digging around in public records turned up the last parcel they bought... 16 lots for less than $1000.

I have the costs from a similar project they have done in another low income neighborhood which has not experienced this level of re-gentrification yet. The cost to build those houses was approximately 165K, and the agency is selling them to families for 90-110k, depending on level of income.

I have aloready inspected this property, but I think I am turning it back, at no charge to the lender. Serves me right for not doing more then a cursory amount of research before going out.

 

[xm39hnu]

You're appraising real property, not real estate. IMO, this isn't any different than any other SFR sold with restrictive covenants. The restrictive covenants in this case include a curtailment of the rights to sell, lease, give away, or to refuse. But that curtailment ends 15 years after purchase.

Now, examine the market. Is the buyer under any pressure to buy? Is he well-informed or well-advised equivalent to the seller? (The disclosure paperwork would say that he is.) Is he acting prudently and in his own best interest? All those conditions could be met, I think. Cash equivalency is the problem. See The Appraisal of Real Estate, 12th Ed., p. 431-433 for some limited guidance.

(That book just pisses me off sometimes. You get maybe three pages on on this subject, and it can be a really complex problem. A few examples would really help.)