Resale Formula


Principles as set forth in Bylaws:

Article VII(3). The Resale Formula. Whenever its purpose is to preserve affordability, the Corporation shall restrict the price that ground lessees may receive when they sell housing and other improvements located on the land that is leased to them by the Corporation. A policy establishing such restrictions in the form or a “resale formula” adopted by the Board of Directors and the Regular Members of the Corporation, in accordance with the following principles:

A. To the extent possible, the formula shall allow the seller to receive a price based on the value that the seller has actually invested in the property being sold.

B. To the extent possible, the formula shall limit the price of the property to an amount that will be affordable for other very low to moderate-income people at the time of the transfer of ownership.

Executive Summary

The members of the NHOM Project Review Committee did an extensive analysis of different resale-formula methods in use by community land trusts throughout the United States. Their research revealed that there are a variety of formulas in use and each had its pros and cons. There is no single method that clearly stands above the rest. The most frequently used formula is an appraisal-based formula and a variation of that method was chosen and recommended to the Board of Directors who approved its use on May 30, 2007.

The approved formula uses a 2-step process to incorporate the above principles from the Bylaws. The first part of the formula establishes a ratio based on the price the NHOM Homeowner pays for the property and the fair market value at the time of purchase.

This first step incorporates Bylaws principle (a) noted above in the introduction by taking into account the amount of subsidy received which will vary based on the income category of the buyer established in the Residential Workforce Housing Policy of the County of Maui. The ratio gives a homeowner in the higher income brackets a higher return because they paid a higher purchase price and as a result received less of a subsidy at time of acquisition. The formula also contains a provision for recapture of investments in capital improvements that is in accordance with principle (a).

The second part of the formula establishes the Homeowners share of appreciation based upon the number of years of ownership ranging from 25% to 50%. The analysis done by the Project Review Committee showed the greatest risk to Bylaws principle (b) above – future affordability – came from resales that occurred after a short ownership period during a rapidly appreciating market. A longer period of ownership reduced the risk for future affordability. The proposed formula gives the maximum 50% share of equity after 14 years of ownership.

The approved formula is:

an increase or decrease in an amount determined by the following formulae:

(IPP ÷ IA) x (CA – IA) x SAF = HSA + IPP = BFP

Initial Purchase Price (IPP) divided by Initial Appraisal (IA) multiplied by the difference between the Current Appraisal (CA) minus Initial Appraisal (IA) multiplied by Shared Appreciation Factor (SAF) = Homeowner’s Share of Appreciation (HSA) plus Initial Purchase Price (IPP) = Base Formula Price (BFP).

the SAF shall be determined by the number of years of ownership by Homeowner using the following schedule:

5 years or less from date of acquisition SAF = 25%
More than 5 years but less than or equal to 6 years SAF = 27.5%
More than 6 years but less than or equal to 7 years SAF = 30%
More than 7 years but less than or equal to 8 years SAF = 32.5%
More than 8 years but less than or equal to 9 years SAF = 35%
More than 9 years but less than or equal to 10 years SAF = 37.5%
More than 10 years but less than or equal to 11 years SAF = 40%
More than 11 years but less than or equal to 12 years SAF = 42.5%
More than 12 years but less than or equal to 13 years SAF = 45%
More than 13 years but less than or equal to 14 years SAF = 45%
More than 14 years SAF = 50%


25% – 50% in increments of 2.5% each year after 5 years to 14+ years of ownership

an increase based on the cost of any Eligible Capital Improvements (hereinafter defined) made by Homeowner.

The term “Eligible Capital Improvements” shall mean only those improvements approved in writing by the CLT or its designee in accordance with CLT’s Capital Improvements Policy as revised from time to time. To qualify for an Eligible Capital Improvement, Homeowner must submit a request for approval to CLT or its designee in advance of performing any work, along with plans and specifications for the proposed work, and contractor bids or other cost estimates and any other items required by CLT’s Capital Improvements Policy. CLT or its designee shall approve any Eligible Capital Improvements including the maximum value of any improvement prior to the commencement of construction. CLT shall have an opportunity to inspect to insure completion and satisfactory workmanship prior to issuing a final letter stating the Approved Value of an Eligible Capital Improvement.

CLT shall be under no obligation to approve any capital improvement and shall consider whether the proposed improvement increases number of bedrooms of the home and the impact of the capital improvement on long-term affordability prior to its consent.

Nothing in this section shall prohibit Homeowner from making an improvement, which does not qualify as an Eligible Capital Improvement. However, only Eligible Capital Improvements, authorized in advance and approved after completion by CLT or its designee, may be included in the calculation of the Formula Price, as set forth herein.

a decrease in the amount equal to the value of any excessive damage or neglect. Excessive damage or neglect is defined as damages beyond normal wear and tear.

Such excessive damage may be described as, but not necessarily be limited to holes in walls, damaged or neglected floor coverings and Capital Systems, severely degenerated interior or exterior painted surfaces, damage resulting from neglected Capital Systems, or missing essential household fixtures that were originally a part of the edifice. Determination of excessive damage value will be at the sole discretion of the CLT and/or its agents.

The Formula Price, therefore, shall be calculated as follows:

Initial Purchase Price (IPP) $ _________
Plus Homeowner’s Share of Appreciation (HSA) + $ _________
Equals Base Formula Price (BFP) = $ _________
Plus Capital Improvements Credit (CIC), if any + $ _________
Less Excessive Damage Charge (EDC), if any – $ _________
Equals Formula Price (FP) = $ _________