I’m a kindly gazillionaire who wants to build FairyChatMeadows - a community of affordable family homes. Can I make these restrictions:
Homes must be owner-occupied - no rentals.
Anyone wishing to sell within XX years must sell back to me at a reasonably increased price.
Properties must be maintained to a specified standard - not crazy-pants HOA, but reasonable.
The idea is to give people a nice, affordable place to live and build equity while keeping out those who would buy up everything and charge stupid high rents. Buyers would know up front in clear language what the requirements are and what penalties could be imposed.
Would such a development be possible and/or legal?
If you’re the seller, you can put any encumbrances you want on the contract. If the buyer accepts it, and nothing about it is illegal or unenforceable, then your conditions seem mostly doable.
The first and third options are variations on typical HOA language, so no problem there.
The second seems a bit more complicated and maybe a little costly depending how you approach it. It should be fairly straightforward to write a contract giving yourself the right of first refusal if they sell it.
But if you’re specifying that the price must be “reasonably increased” then you’re effectively asking to write a call option on the property, and you & the buyer would have to agree how to price the option. For example you might ask for the option to buy it back at a 10% increase. If the buyer thinks the property won’t appreciate at all, they would gladly give you that option at a low price, because they see no value at risk in taking the option. But the option would be priced higher if they expect it to appreciate 20%, because why would they risk losing that extra 10% to pay for your social project?
On the other hand if you tell them you’ll buy it back at 10% appreciation whenever they’re ready to sell it, I think you’d have a very brisk flipping business on your hands. IOW people would be buying just to sell it back to you the following week and pocket the 10%. So your “no speculators” rule would need to be more specific about what exactly that means.
If all you want is control of the property, just have the contract specify that you have right of first refusal if they sell it. If you’re more community-minded than money-minded, you could also offer to pay 10% premium over their highest legitimate offer (which they have to show you and allow you to verify it’s a legit offer).
Yeah, I think you could probably deal with the buyback appreciation with a fairly simple formula that takes into account the duration of ownership and maybe offers a calculated profit or market value (maybe plus some bonus), whichever is the greater.
I’ve heard of developments in which this was part of the deal. Googling, one such structure is called a limited equity cooperative, described as a “homeownership model in which residents purchase a share in a development (rather than an individual unit) and commit to resell their share at a price determined by formula—an arrangement that maintains affordability at purchase and over the long term.”
I expect what I’ve imagined would be a lot more complicated than I thought. What prompted this was reading/hearing how difficult it is for many people to be able to buy. Homes are either insanely expensive or located in iffy areas or in need of $$$ repairs. My daughter would not have been able to buy without me cosigning her loan, yet 45 years ago, I bought my first house without problems.
I suspect a big part of that comes down to speculators or flippers trying to reap big profits just because. Which comes down to a big question I’ve often mulled over - how much money is enough? But that’s another thread.
No, it’s not an original concept. This sort of thing exists. And further Googling, another structure is deed-restricted affordable housing, in which the homeowner’s equity is limited.
True, of course. But can you be sure they will be enforced in perpetuity?
In the course of time, these can be overridden by state or federal law, which presumably trumps any individual provision?
Such as deeds which specify that the property can not be sold to ethnicities of which the seller does not approve. I think such specifications are now null and void, as they should be in a civilized country.
But more benign conditions could also be overturned by law, I think.
I’m not sure what your point is, as this would apply to any garden-variety real-estate seller contract. You couldn’t add a clause to say “this contract is null and void if we discover the buyer is Latino”. That’s a flaw in a particular type of contractual language, not with the fundamental concept of contracts.
Your contract has to conform to applicable law to be valid, and there’s nothing weird or exotic about a right-of-first-refusal clause. Worrying that it might get overturned by future law is like a contractor worrying that they can’t put a construction lien on a property because it might get legislated away someday. Anything is possible, but that’s not a realistic concern.
Your proposed rules are absolutely bog standard in nearly every condominium in Florida.
The gotcha around here is that under Florida law you can’t mandate owner-occupied forever.
You can mandate that the new owner may not rent the place out for X years after their purchase. 1, 2, or occasionally 5 years being common durations for this limitation.
The goal is to make it uneconomic for speculators, or simply wanna-be real estate moguls (read “slumlords”), to pay for the property to sit vacant for years before they start to see cashflow coming back.
Which amounts to a way to say to wannabe speculators / etc.: Go away. Screw the property next door, not us. Which only works if there are such properties. IOW, once everyone has a 1 year no-rent clause, then your complex is no better defended than any other. So you need to bump to 2 years, or the speculators will simply price the one-year carrying cost into their calculations.
Unrelated to the above:
The way the second rule generally works is the Association has to approve each purchase deal. as a final step after the buyer and seller have completed all negotiations and are all-but ready to close.
Except for engaging in illegal discrimination, the Association can say “no” for any reason or no reason. Purely their discretion. But if they do say “no”, By law they’ve made a binding offer to buy the property right then and there from the seller for the buyer’s agreed price.
Which leads to Associations being very circumspect about saying “no” for any frivolous reasons.
Luxembourg has a national policy related to this. It doesn’t prevent speculation but it does discourage it, and… well, you’ll see.
It’s pretty simple.
When you buy a house or flat, and you move into it as your permanent residence, you pay a three percent property sales tax. (It’s called something else in French, but that’s basically what it is.)
But if you buy it and don’t move into it, the tax is seventeen percent.
There are some rules and nuances about how long you have after purchase to register the dwelling as your residence. And of course this doesn’t block speculation, it just raises the price tag and gives the state a cut.
But our market was spiraling out of control for a few years, and this has cooled things off considerably.
I know that there are many building on Billionaires’ Row in Manhattan that are only occuipied part of the time by people who can afford to buy a $100 million apartment that they live in for maybe a month or two each year. I really wish the city could charge a higher property tax rate on such part-time residences.
A fourth and fifth condition might be that no person can own more than one dwelling unit and no dwelling unit may be owned by a corporation, although the latter may not be practical since a person can create an LLC for their own personal use.
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