Value of an Affordable Housing Unit

[Nancy Heiss]

I'm about to start working on an appraisal that is one of 4 units that are affordable housing units in a new construction development. There are a total of 8 attached units (only 4 are affordable housing) and about 30 detached SFR's in this development. Only 1 unit has closed, and it's not an AH unit. The sales office indicated that the unit can't be appraised at a higher value, or the city will cancel the sale. Of course, this is not my problem, however I wondered if anyone has run into this situation? I have done appraisals in developments that were considered affordable housing, so all the comps had similar sales prices. The comps I would typically use are all significantly higher priced.

 

[shrubberyvaluation]

I'm about to start working on an appraisal that is one of 4 units that are affordable housing units in a new construction development. There are a total of 8 attached units (only 4 are affordable housing) and about 30 detached SFR's in this development. Only 1 unit has closed, and it's not an AH unit. The sales office indicated that the unit can't be appraised at a higher value, or the city will cancel the sale. Of course, this is not my problem, however I wondered if anyone has run into this situation? I have done appraisals in developments that were considered affordable housing, so all the comps had similar sales prices. The comps I would typically use are all significantly higher priced.

So are there deed restrictions? How do they effect market value?

 

[J Grant]

I'm about to start working on an appraisal that is one of 4 units that are affordable housing units in a new construction development. There are a total of 8 attached units (only 4 are affordable housing) and about 30 detached SFR's in this development. Only 1 unit has closed, and it's not an AH unit. The sales office indicated that the unit can't be appraised at a higher value, or the city will cancel the sale. Of course, this is not my problem, however I wondered if anyone has run into this situation? I have done appraisals in developments that were considered affordable housing, so all the comps had similar sales prices. The comps I would typically use are all significantly higher priced.

The sales office sounds wrong about that ( the unit can't be appraised at a higher value, or the city will cancel the sale )- how can they impose a limit on the appraisal value?


You do, however, need to check with your client as to what kind of value THEY need - market value as if the restriction is not there, ? Or the value with the deed restriction /affordable housing restrictions imposed (or both values - a report can have two values ) you also need to contact the city or the builder and get the verbiage of what the affordable housing restraints are for the subject - sometimes the buyer has to sell it back to the city, or can only sell it for X $ , or the limits are lifted after 10 years in residence (for example ) - it could be anything.

This is a complex assignment that will take time and research.

 

[Hondo]

The sales office sounds wrong about that ( the unit can't be appraised at a higher value, or the city will cancel the sale )- how can they impose a limit on the appraisal value?


You do, however, need to check with your client as to what kind of value THEY need - market value as if the restriction is not there, ? Or the value with the deed restriction /affordable housing restrictions imposed (or both values - a report can have two values ) you also need to contact the city or the builder and get the verbiage of what the affordable housing restraints are for the subject - sometimes the buyer has to sell it back to the city, or can only sell it for X $ , or the limits are lifted after 10 years in residence (for example ) - it could be anything.

This is a complex assignment that will take time and research.

JGrant's post is good advice, also see this from Fannie's selling guide:

B5-5.3-03: Loans with Resale Restrictions: Underwriting and Collateral Considerations

B5-5.3-03, Shared Equity Transactions: Eligibility, Underwriting and Collateral Requirements (06/05/2024)

This topic contains information on shared equity transactions, including:

selling-guide.fanniemae.com

Appraisal Requirements​

For properties in a community land trust, the appraisal requirements can be found in B4-1.4-06, Community Land Trust Appraisal Requirements.

For properties with income and resale price restrictions, the following requirements apply:

• In cases where the resale restrictions terminate automatically upon foreclosure (or the expiration of any applicable redemption period), or upon recordation of a deed-in-lieu of foreclosure, the appraisal should reflect the market value of the property without resale restrictions. The lender must ensure that the borrower and appraiser are aware of the resale restrictions and should advise the appraiser that they must include the following statement in the appraisal report:

"This appraisal is made on the basis of a hypothetical condition that the property rights being appraised are without resale and other restrictions that are terminated automatically upon the latter of foreclosure or the expiration of any applicable redemption period, or upon recordation of a deed-in-lieu of foreclosure."

• In cases where the resale restrictions survive foreclosure or deed-in-lieu of foreclosure, the appraisal must reflect the impact the restrictions have on value and be supported by comparable sales with similar restrictions. The appraisal report must note the existence of the resale restrictions and comment on any impact the resale restrictions have on the property's value and marketability.

 

[Tom D]

Yous got a problem when there are no affordable comps to use for that $250;000 cost to build selling for $175,000. Never remenber hearing about a higher value killing the deal, and i did plenty.

My business model was never to do the impossible appraisal for how much money and aggrevation forth coming.

 

[Nancy Heiss]

So are there deed restrictions? How do they effect market value?

Thank you for the input and links. It's been very helpful

 

[sputnam]

I'm about to start working on an appraisal that is one of 4 units that are affordable housing units in a new construction development. There are a total of 8 attached units (only 4 are affordable housing) and about 30 detached SFR's in this development. Only 1 unit has closed, and it's not an AH unit. The sales office indicated that the unit can't be appraised at a higher value, or the city will cancel the sale. Of course, this is not my problem, however I wondered if anyone has run into this situation? I have done appraisals in developments that were considered affordable housing, so all the comps had similar sales prices. The comps I would typically use are all significantly higher priced.

My concern with the situation would be the certification that you are going to sign that says something like... you did not accept the assignment based on a particular value or direction of value. If they don't want market value... you can do a different value. Make sure your definition of value is appropriate and don't use the 1004 to report your appraisal.

 

[Tom D]

Go further to find affordable comps, if they exist. Maybe a little older. You only need a couple to show how you picked the lower value, or made that crazy adjustment. I suppose the difference in price is a concession & fed gift by the non profit group doing it, if i was looking for a place to put it. It's a concession because you are a privileged poor person who just won a house lottery. find those affordable comps and maybe add non affordable as #4,5,6. The future deed time restriction, but may not be on the deed, is that you can sell it anytime, but you ain't keeping the profit that we gave you for free until xx.

 

[Hondo]

Call the local Affordable Housing Authority and ask if they have any recent sales of similar properties, I have found them to be very helpful. Also ask for a copy of the ADU program, it will answer lots of questions for you.

 

[J Grant]

Go further to find affordable comps, if they exist. Maybe a little older. You only need a couple to show how you picked the lower value, or made that crazy adjustment. I suppose the difference in price is a concession & fed gift by the non profit group doing it, if i was looking for a place to put it. It's a concession because you are a privileged poor person who just won a house lottery. find those affordable comps and maybe add non affordable as #4,5,6. The future deed time restriction, but may not be on the deed, is that you can sell it anytime, but you ain't keeping the profit that we gave you for free until xx.

The problem with the above solution is the low sale prices houses are probably older /in a run-down condition. The subject is a new construction house.

It is common to develop the market value of X $ and apply a discount for the deed restoring and the as-is value due to the restriction of Y $. If the appraiser can find other similar sales with a similar deed restriction, those would be the comps for the second value. The MV comps would be newer built homes without a restriction.

The scenario is a game builders play to get a zoning variance. Such as, the land is zoned ag, or zoned for 5000 sf lots, but the builder gets permission for higher density by promising to make 20% of the houses affordable housing. It is not always about income to qualify, sometimes the set aside housing is for essential workers, such as police and teachers, who otherwise might not affoc the units. .