Affordable Market Value (AMV)

What Is Affordable Market Value (AMV)?

Affordable market value is 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 properties held by the FDIC.

The purchase prices of AHP properties are below fair market value, and in return, owners must make a specific number of units available to low-income households through affordable rents.

Understanding Affordable Market Value

Traditionally, the market value of a property is the amount a buyer is willing to pay, and not necessarily the value placed on the property by the seller. However, as property values increase, the loan needed to buy the property — called a mortgage — also increases. The larger loan leads to a higher mortgage payment for prospective buyers of a property.

As a result, higher rents need to be charged to cover the higher mortgage payment. When property values increase steadily over time, lower-income renters can get priced out of the market, meaning they can't afford the higher rent payments.

The Federal Deposit Insurance Corporation (FDIC) has established the Affordable Housing Program (AHP), which is designed to help sell single-family and multifamily properties that will benefit 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, meaning the price is lower than the price that would normally be charged in the market.

In other words, the affordable market value of a property is lower than the appraised value of the property, since it takes into account that lower rents will be charged for some of the units, as well as 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 low- and very low-income households 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.

Requirements of Affordable Market Value

The program has four basic requirements to ensure that AHP multifamily rental properties provide affordable housing to low-income tenants.

Occupancy Requirements 

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 purchaser of a property 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.

Types of Properties

The AHP program allows most condominiums and one-to-four unit properties to be purchased, including properties that are purchased in bulk by qualified buyers. Regardless of the number of units or buildings purchased, the property owners must follow the same basic occupancy requirements. Also, if some of the units are converted to owner-occupied condominiums, a set number of those converted units must be sold to low-income families.

Benefits of Affordable Market Value

One of the goals of the FDIC is to assist communities with their housing needs, which led to the creation of the Affordable Housing Program. It is designed to help low- and moderate-income families purchase residential properties previously owned by failed banks. When a financial institution fails, the FDIC is charged with ensuring that the institution’s assets are sold off in a timely manner. It brings in a managing agent to take charge of operations and has asset specialists to value assets and work with asset managers to sell those assets off.

The FDIC, through a network of state housing agencies, monitors and ensures compliance with the Land Use Restriction Agreements (LURA) that govern the use of single and multifamily properties in the Affordable Housing Program. The Land Use Restriction Agreement is a document that owners of an AHP property must sign when purchasing a property through the program. The LURA outlines the 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 has been sold to another buyer. As a result, affordable rental units are assured through the program for many years in the future.

History of Affordable Market Value

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, advocates for affordable housing for low-income families wanted it to help fulfill housing needs in the areas served by failed banks.

To accomplish this goal, the RTC provided low-income families with the right of first refusal, 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.