Steve Maylone via Brynn Grey Partners Ltd.
FRISCO — The town of Frisco is hoping to remove some of the unintended consequences of past deed restrictions placed on homes in town.
The Frisco Town Council unanimously voted to adopt a resolution at their regular meeting Tuesday night that would allow homeowners with a deed restriction on their property to opt in to a new housing covenant offered by the town. The move is meant to help incentivize home improvements on restricted properties, and provide more flexibility to sellers so they aren’t forced to take a loss, while still assuring affordability for buyers. Council members Jessica Burley and Melissa Sherburne recused themselves from the vote.
“We tried to address each problem that was identified,” said Nancy Kerry, Frisco’s town manager. “It isn’t a perfect solution. Not every homeowner will make money. That’s how the housing market is for anybody. The goal of the council was not about guaranteeing any sales prices. But it also isn’t to force people to lose money. So we’re trying to thread the needle to the right outcome with as few unintended consequences as possible.”
There are currently about 170 deed-restricted covenants in Frisco, and while they aren’t completely consistent in terms of restrictions, most include the same language in regard to maximum resale value for sellers. Kerry said that language is the heart of the problem.
Under most current covenants, sellers are only allowed to sell their homes for a sum that’s equal to the lesser of two scenarios: either the purchase price plus 3% a year (not compounded), or the purchase price plus a percentage increase equal to the percentage increase in the area median income (AMI) from the time the unit was purchased until the time it’s listed for sale.
This means that in some cases, when there’s a negative or static change in AMI from the time of purchase — calculated using a national formula by the U.S. Department of Housing and Urban Development, with local variations — homeowners would be forced to sell their property for less than they purchased it for or a very small profit. It also means individuals with similar properties may be forced to sell under extremely different circumstances based on when they sell their homes.
“Let’s say someone purchased a house in 2011,” said Katie Kent, a planner for Frisco, in an interview with the Summit Daily this summer. “You actually pull out this spreadsheet from 2011 and look at what the AMI was that year, then you look at the AMI in the year they want to sell it and calculate the difference, whether it’s positive or negative. It all depends on what year you bought. You can only look at the year you purchased and the year you’re selling. And because the covenant says lesser of, if that number has gone down, that’s the formula, and that’s how you get the negative sell price.”
The new resolution creates a voluntary covenant that owners of current deed-restricted properties can join to change the maximum sale price calculation on their covenant.
The new formula would set the maximum sale price as the sum of the seller’s original purchase price, a 3% increase annually (not compounded or guaranteed), the cost of qualified capital improvements on the property, and the cost of real estate commission. Sellers can also add a 2% bump on the commission if they use the Summit County Housing Authority to list their home.
Of note, homeowners won’t be allowed to sell above the set maximum purchase price in the published Summit County AMI at the time, even if the new calculation suggests they should be getting more. The only time someone would be able to sell their property above the published AMI is if they would otherwise be forced to take a loss on the deal — at which point they could sell for the original purchase price.
The new calculation also doesn’t guarantee that homeowners will get to sell at their highest allowed price, as they’ll still have to find a buyer within the correct AMI threshold to agree to that price. Though, it does provide increased flexibility for both buyers and sellers. For the first 30 days a property is listed, members of the Frisco workforce will have priority to purchase the property at its original AMI. Though, if the home isn’t sold in those 30 days, a 20% AMI spread goes into effect opening the door for more buyers.
For example, if someone lists a property restricted to buyers at 100% AMI and it doesn’t sell in 30 days, individuals who qualify at up to 120% AMI would then be allowed to buy the home.
Town officials also hope that by adding capital improvements and real estate commissions to the calculation they can encourage homeowners to make improvements to their homes without fear of losing value when selling, and to use a real estate agent so buyers aren’t left unaware they’re purchasing into a deed-restriction.
Kerry said that individuals interested in changing their deed restrictions would have to fill out an application, and have an informational session with town staff to make sure they understand how the new covenant would affect them.
“The goal is to have an inclusive community, and we want a range of people to be able to afford to live here,” said Kerry. “But in manipulating the market there are unintended consequences, and that is true for all affordable housing programs. … You have to be really careful. You can’t think of every possible outcome. But you can try, and that’s why we gathered as much information as we could to try and find the real causes of the problem.”