Examples of Initial Sales Price Calculation and Subsequent Maximum Sales Price Calculation.

 

 1. Initial Sale (CLT to first homebuyer)

 

$200,000 Estimated Market Value of Property (Land and Improvement)
($40,000) Less HOME Development Subsidy
($30,000) Less Estimated Market Value of Land
$130,000 Sales Price of Improvement To First Qualified Homebuyer

 

 

 2. Subsequent Sales (homebuyer to qualified homebuyer)

 

$310,000 Estimated Market Value of Property[1] (Improvement & Land)
($49,200) Less EMV of Land
($40,000) Less HOME Development Subsidy
*$220,800 Estimated Market Value of Improvement
(*this is NOT the maximum sales price.
See below- Maximum Subsequent Sales Price)
Then deduct the following from EMV of Improvement
-$94,355 Payoff of Primary Mortgage and any other liens
-$10,000 Seller’s Closing Costs at time of sale
$104,355 Total Due from Home Owner at Closing
$116,445 Net Proceeds (based on EMV of Improvement ($220,800 – $104,355)

 

Fair Return On Investment (FROI)- Calculation   
$19,500 CPI equal to 1.5% (x) the number of years the Home Owner owned the Improvement (x) the Home Owner’s purchase price (1.5% (x) 10 years (x) $130,000 purchase price) = $19,500
$35,645 Home Owner’s Equity (mortgage paid down after 10 years)
$10,000 50% of Capital Improvements completed within 5 years of resale when the improvement item is greater than $3,000= $20,000 (x) 50%= $10,000
$10,000 Home Owner’s Closing Costs at time of sale
$75,145 Fair Return on Investment – This amount is only available from Net Proceeds

(If Net Proceeds are less than the FROI calculation, then the Home Owner is entitled only to Net Proceeds; If Net Proceeds are greater than FROI, the Home Owner is entitled only to a FROI).

 

Maximum Subsequent Sales Price to Next Qualified Homebuyer
$179,500 Cannot be greater than $104,355 + $75,145, see above.

In this example, the Home Owner decided to sell their Improvement to a Qualified Person at a time when the Estimated Market Value of the Improvement was high, $220,800. This value is NOT and DOES NOT determine the sales price to the next homebuyer. The EMV of Improvement is used only to determine if current market conditions are high enough to allow the homeowner to receive a fair return on their investment. In this case, the housing market was strong enough to allow the Home Owner to repay all liens, closing costs, and receive a full return on their investment; however in a declining or depressed housing market this may not be the case. If market is very depressed the value of the Improvement might be so low there would be little or no return on investment. In this case, the Home Owner’s return on investment is whatever amount is available from Net Proceeds of the sale.

The CLT resale model sets a maximum sales price limit to the following: (1) Home Owner’s closing costs, (2) Fair Return on Investment amount or the Net Proceeds amount, whichever amount is less. This is the trade-off for not having to purchase the land under the Improvement and receiving the benefit a reduced sales price equal to the HOME development subsidy. 1 Assumes a 5%, fixed-rate, 30-year mortgage CPI calculated based on annualized averages and a flat rate for this example.  https://www.calculator.net/inflation-calculator.html

 

[1] The Estimated Market Value (EMV) of the Improvement is used ONLY to calculate the Home Owner’s potential return on investment if they sell the Improvement at a point in time; their actual return on investment will be determined from the sales proceeds; however, EMV is never USED to determine the listing price or sales price.  In this example, the EMV of the Improvement was high enough it allows the Home Owner to potentially recoup 100% of their investment. However, there will be times when the EMV of the Improvement is low enough there will not be adequate funds available for the Home Owner to recoup all, any, or some of their investment.