What Is Affordable Market Value (AMV)?
The term affordable market value (AMV) refers to the sale price of a multifamily residential housing unit sold through the Federal Deposit Insurance Corporation's (FDIC) Affordable Housing Program (AHP).
The AHP encourages housing developers to purchase multifamily real estate held by the FDIC. Owners are responsible for providing units with affordable rents for households in need in exchange for AHP properties with purchase prices that fall below fair market value.
- An affordable market value is a valuation model used to determine the sale price of a multifamily residential property sold under the FDIC's Affordable Housing Program.
- The program incentivizes investors to purchase these properties at prices that are at the affordable market value or below fair market value.
- The AMV of eligible properties is lower than their appraised values.
- Property owners must make units available to low-income households through affordable rents and engage in various improvement projects.
- Affordability provisions remain even if the original owner sells the property to someone else.
Understanding Affordable Market Value (AMV)
A property's market value is the amount a buyer is willing to pay, and not necessarily the value placed on the property by the seller. As values increase, so too do the associated mortgages or home loans. Larger loans mean higher mortgage payments for prospective buyers of a property, which means owners may need to charge higher rents to compensate. When values increase over time, renters with lower incomes get priced out of the market, meaning they can't afford rent increases.
The FDIC established the Affordable Housing Program to help sell single- and multifamily properties for the benefit of low-income families. Under the program, the AHP encourages housing developers to purchase multifamily properties held by the FDIC. The purchase price of the property is typically below fair market value (FMV), meaning the price is lower than would normally be charged in the market.
In other words, the AMV of a property is lower than the property's appraised value, since accounts for lower rents that are charged for some of the units. Other considerations include the physical condition of the property, expected operating expenses, and financing options.
In exchange for purchasing a property at a price below the fair market value, purchasers agree to make units available to households in need at affordable rents. The rent and income restrictions are designed to assure that, for the next 40 to 50 years, the property serves families in need of affordable housing.
The program has four basic requirements to ensure that eligible properties provide affordable housing to tenants who aren't able to rent units at the market rate, Note that household income is defined by the Section 8 program administered by the U.S. Dept. of Housing and Urban Development (HUD), which also issues income eligibility limits and guidelines adopted by AHP.:
- Occupancy: The AHP program has four requirements for owners of multifamily rental properties purchased through the program. The property owner needs to set aside a specific number of units that are reserved for low-income renters. The program requires at least 35% of the total number of units must be made available for low-income households.
- Rent Limits: Property owners under the program also maintain the rent for low income at an affordable rate. The program establishes limits for the maximum amount of rent that can be charged based on the median income in the geographic region.
- Resale Requirements: The occupancy requirements, which set the minimum number of units that need to be provided to low-income families as well as the rental limits need to remain in effect even if the owner sells the property. In other words, the new buyer also needs to adhere to the program's requirements.
- Compliance Period: Property owners must comply with the affordability requirements under the AHP program for the entire useful life of the property.
The AHP program allows most condominiums and one-to-four unit properties to be purchased, including those purchased in bulk by qualified buyers. Regardless of the number of units or buildings purchased, property owners must follow the same basic occupancy requirements. Furthermore, if some of the units are converted to owner-occupied condominiums, a set number of those converted units must be sold to families with financial limitations.
History of Affordable Market Value (AMV)
The AHP is related to the Resolution Trust Corporation (RTC), which was created in response to the savings and loan crisis of the 1980s and early 1990s. The RTC was designed to help manage and dispose of assets of failed financial institutions.
Because it took on some governmental responsibilities, affordable housing advocates for low-income families wanted it to help fulfill housing needs in the areas served by failed banks.
The RTC provided these families with the right of first refusal (the right to enter a business agreement before anyone else), and organizations were allowed to make purchases if a certain proportion of a multifamily unit was reserved for low-income residents. This policy meant that the highest bidder was not necessarily the one to wind up with the property.
During the early 1990s, the average adjusted market value for a property reserved for lower-income families was two-thirds of the appraised market value.
The Affordable Housing Program was developed as a result of a provision in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
Benefits of Affordable Market Value (AMV)
The Affordable Housing Program was established out of the FDIC's goal to assist communities with their housing needs. The AHP is designed to help low- and moderate-income families purchase residential properties that were previously owned by failed banks.
When a financial institution fails, the FDIC ensures its assets are sold off in a timely manner. It brings in a managing agent to take charge of operations and has specialists who value assets and work with asset managers to sell them off.
Through a network of state housing agencies, the FDIC monitors and ensures compliance with the Land Use Restriction Agreements (LURA) that govern the use of single- and multifamily properties in the program. The agreement is a document that owners of an AHP property must sign when purchasing an eligible property. The LURA outlines affordability requirements for the property as well as the rental limits and any restrictions regarding the use of the property.
The LURA also binds the purchaser and any succeeding property owners to the agreement in which the conditions remain in effect even if the property was sold to another buyer. As a result, affordable rental units are assured through the program for many years in the future.
What Is Affordable Housing?
Affordable housing is meant to provide housing to people with limited income. Local and state housing authorities and agencies typically have annual income thresholds as to how much individuals must earn in order to qualify. Some renters may even qualify for housing assistance through government programs. Property owners may be able to receive tax credits when they offer their tenants affordable housing units.
What Is the FDIC's Affordable Housing Program?
The Federal Deposit Insurance Corporation's Affordable Housing Program allows investors to purchase certain properties at affordable market values rather than their appraised values provided they follow certain guidelines. This includes reserving a portion of the properties for individuals and families that need affordable housing.
What Are the Requirements for the FDIC's Affordable Housing Program?
Investors who own properties under the Affordable Housing Program must meet four major requirements. At least 35% of the units in a property must be set aside as affordable housing, rents must be maintained at affordable rates, affordable units must remain as such even if the owner sells the property, and the owner must comply with affordability provisions for the useful life of the property.
How Do I Qualify for an Affordable Housing Unit?
You can search for affordable housing units through local and state housing agencies as well as nonprofit organizations in your area. You must meet certain income thresholds in order to qualify for a unit. The FDIC lists affordable rents and income limits on its website, which are often adjusted annually for inflation.