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Fall in Love with Your Resale Formula –
Or Find a New One!
Julie Brunner & Rick Jacobus, May 12, 2016
We work nationally, connecting local experts with
the networks, knowledge and support they need.
We promote housing soluti...
4
1. Welcome & Introductions
2. Overview of Resale Formula Types
3. Social Impact Report – How are we performing?
4. Evalu...
5
Resale Formula Types
6
Resale Formula Types
Appraisal Based
Formulas
Fixed Rate Formulas
Index Based Formulas
7
Appraisal Based Formula
Calculation
Original Affordable Price
% Increase of Appraised Value
= Formula Price
+
8
Appraisal Based Formula
TIP: Percentages commonly
range from 15-25%
Calculation
Original Affordable Price
25% x (Increas...
9
Appraisal Based Formula
In Down Markets
Formulas may address
market downturns:
25% of the increase
25% of the change
10
Appraisal Based Formula
Advantages
Fully protects program in falling markets
Ties formula price to condition of the hom...
11
Appraisal Based Formula
Disadvantages
Requires a 3rd party appraisal which means time and
expense
Appraisals can be inc...
12
Fixed Rate Formula
Calculation
TIP: Compound annually or calculate as simple
interest. Multiplier between 1% and 2%.
Or...
13
Fixed Rate Formula
Choosing a Multiplier
Consider historic
information on wages
and housing prices.
Simple or Compound
...
14
Fixed Rate Formula
Formula Price is a Cap
Not a guarantee
Market Strength
Deferred Maintenance
15
Fixed Rate Formula
Advantages
Calculate the price at any time
Easy to understand and administer
Slow and steady increase
16
Fixed Rate Formula
Disadvantages
Not associated with the condition of the home
TIP: Capital Improvement Credits
No ince...
17
Index Based Formula
Calculation
TIP: Choose an index that is: Steady,
Easy to Find, Updated Regularly
Original Affordab...
18
Index Based Formula
Choosing an Index
Area Median Income: Home and incomes increase at the
same rate.
Consumer Price In...
19
Index Based Formula
Advantages
Calculate the price at any time
Easy to understand and administer
Slow and steady increa...
20
Index Based Formula
Disadvantages
Not associated with condition of the home
No incentive for longer term tenure
Disasso...
21
How to choose?
Which formula is best?
There is no one right
answer
Local priorities
Local economic trends
One community...
22
Why choose or change your formula?
Considerations…
Based on performance (projected or actual – SIR)
Administrative ease...
23
What are your concerns?
24
Quick Poll – Please Respond!
25
What does the data tell us?
26
Social Impact Report
27
Preserving Affordability
28
Community Investment
29
Resale Performance
30
Appraisal-based
31
Indexed
32
Q&A – and final Poll
33
Thinking of changing formulas?
34
Need to change your formula?
Case Studies
OneRoof
Community Home Trust
Proud Ground
OPAL
35
OneRoof
The issue…
Original formula = 25% of the increase in appraised value
of the improvement only
Appraisals consist...
36
OneRoof
Social Impact Report Excerpt
37
Community Home Trust
The issue….
Original formula = 25% of the increase in appraised value
Appraisals wildly inconsiste...
38
Proud Ground
39
OPAL Community Land Trust
The issue….
Original formula = Index based – AMI formula
Affluent, retired population meant i...
40
Appraisal vs. Fixed Rate
The issue….
Seattle v. Portland
1.5% Compounded Annually v. 25% Appraisal Based
Very similar w...
41
Resources
Click the links below; they will also be sent out by email.
Join the Resale Formula Evaluation Working Group ...
Thank You For Your Time
Thank You for Attending
Fall in Love with Your Resale Formula –
Or Find a New One!
Please fill out...
2016.05.12 Fall in Love with Your Resale Formula - Or Find a New One!
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2016.05.12 Fall in Love with Your Resale Formula - Or Find a New One!

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How is your resale formula performing – and how do you even know how to approach this question?

Join us for a webinar where we’ll discuss a variety of measures for resale formula performance, including a data-driven approach to considering wealth building and affordability preservation. You’ll hear about what the HomeKeeper Hub’s industry-wide Social Impact Report says about our performance as a whole, as well as practitioners dialing in on how their own resale formula has performed over the years. Julie Brunner will facilitate our discussion, featuring plenty of time for Q&A.

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2016.05.12 Fall in Love with Your Resale Formula - Or Find a New One!

  1. 1. Fall in Love with Your Resale Formula – Or Find a New One! Julie Brunner & Rick Jacobus, May 12, 2016
  2. 2. We work nationally, connecting local experts with the networks, knowledge and support they need. We promote housing solutions that will stay affordable for generations so communities can stabilize and strengthen their foundation, for good.
  3. 3. 4 1. Welcome & Introductions 2. Overview of Resale Formula Types 3. Social Impact Report – How are we performing? 4. Evaluate and change your formula? – Case studies 5. Resources
  4. 4. 5 Resale Formula Types
  5. 5. 6 Resale Formula Types Appraisal Based Formulas Fixed Rate Formulas Index Based Formulas
  6. 6. 7 Appraisal Based Formula Calculation Original Affordable Price % Increase of Appraised Value = Formula Price +
  7. 7. 8 Appraisal Based Formula TIP: Percentages commonly range from 15-25% Calculation Original Affordable Price 25% x (Increase of Appraised Value) = Formula Price +
  8. 8. 9 Appraisal Based Formula In Down Markets Formulas may address market downturns: 25% of the increase 25% of the change
  9. 9. 10 Appraisal Based Formula Advantages Fully protects program in falling markets Ties formula price to condition of the home Removes issues around capital improvements Relatively easy to calculate and administer
  10. 10. 11 Appraisal Based Formula Disadvantages Requires a 3rd party appraisal which means time and expense Appraisals can be inconsistent and random Can compromise affordability in times of rapid appreciation Does not distinguish between homeowner improvements and market forces Direct association between price and market
  11. 11. 12 Fixed Rate Formula Calculation TIP: Compound annually or calculate as simple interest. Multiplier between 1% and 2%. Original Affordable Price Set Multiplier (over time) = Formula Price x
  12. 12. 13 Fixed Rate Formula Choosing a Multiplier Consider historic information on wages and housing prices. Simple or Compound Interest Compound interest is often selected by programs wishing to reward homeowners with longer tenure.
  13. 13. 14 Fixed Rate Formula Formula Price is a Cap Not a guarantee Market Strength Deferred Maintenance
  14. 14. 15 Fixed Rate Formula Advantages Calculate the price at any time Easy to understand and administer Slow and steady increase
  15. 15. 16 Fixed Rate Formula Disadvantages Not associated with the condition of the home TIP: Capital Improvement Credits No incentive for longer term tenure TIP: Compound or Stepped Formula Disassociated from the market Risky in falling markets TIP: “Lesser of” clause
  16. 16. 17 Index Based Formula Calculation TIP: Choose an index that is: Steady, Easy to Find, Updated Regularly Original Affordable Price % Change Index (over time) = Formula Price x
  17. 17. 18 Index Based Formula Choosing an Index Area Median Income: Home and incomes increase at the same rate. Consumer Price Index: Slow and steady increase in values. TIPS: Consider historic information and programmatic goals. Consider where you are in an economic cycle. • Average AMI Increase 2005- 2014 2.2% • Average AMI Increase 1995- 2004 7.7%
  18. 18. 19 Index Based Formula Advantages Calculate the price at any time Easy to understand and administer Slow and steady increase Ties formula price directly to changes in median income
  19. 19. 20 Index Based Formula Disadvantages Not associated with condition of the home No incentive for longer term tenure Disassociated from the market Risky in falling markets Sporadic nature of indices TIP: Limit average annual increase
  20. 20. 21 How to choose? Which formula is best? There is no one right answer Local priorities Local economic trends One community’s problem = another community’s solution
  21. 21. 22 Why choose or change your formula? Considerations… Based on performance (projected or actual – SIR) Administrative ease Homeowners (and staff) understandability Ability to communicate/quickly calculate value at homeowners’ request Ability to effectively market homes Outside factors – quality of the appraisals Local economic conditions
  22. 22. 23 What are your concerns?
  23. 23. 24 Quick Poll – Please Respond!
  24. 24. 25 What does the data tell us?
  25. 25. 26 Social Impact Report
  26. 26. 27 Preserving Affordability
  27. 27. 28 Community Investment
  28. 28. 29 Resale Performance
  29. 29. 30 Appraisal-based
  30. 30. 31 Indexed
  31. 31. 32 Q&A – and final Poll
  32. 32. 33 Thinking of changing formulas?
  33. 33. 34 Need to change your formula? Case Studies OneRoof Community Home Trust Proud Ground OPAL
  34. 34. 35 OneRoof The issue… Original formula = 25% of the increase in appraised value of the improvement only Appraisals consistent but break out of land vs. improvement wildly different Changed to 20% of the increase in fee simple appraised value Social Impact Report
  35. 35. 36 OneRoof Social Impact Report Excerpt
  36. 36. 37 Community Home Trust The issue…. Original formula = 25% of the increase in appraised value Appraisals wildly inconsistent Evaluated past resales – increase approx 1.67%/year Changed to 1.5% compounded annually Crash of 2008 – prices increasing when market fell Changed to AMI Index based formula
  37. 37. 38 Proud Ground
  38. 38. 39 OPAL Community Land Trust The issue…. Original formula = Index based – AMI formula Affluent, retired population meant incomes increased when wages didn’t, also AMI was erratic Changed to CPI formula CPI then increased more rapidly than AMI Goal – slow, consistent increase in value Changed to 1.675% compounded annually
  39. 39. 40 Appraisal vs. Fixed Rate The issue…. Seattle v. Portland 1.5% Compounded Annually v. 25% Appraisal Based Very similar wealth creation outcomes!
  40. 40. 41 Resources Click the links below; they will also be sent out by email. Join the Resale Formula Evaluation Working Group – applications due by Monday, May 16th. Find out more at cltnetwork.org/resale-formula-evaluation-working-group Check out the Resale Formula Video Tutorials for on- demand learning about different resale formula types at affordableownership.org/video-learning See a compiled list of these and other resources at groundedsolutions.org/resale-formula-questions-lets- answer-together
  41. 41. Thank You For Your Time Thank You for Attending Fall in Love with Your Resale Formula – Or Find a New One! Please fill out this feedback survey!

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