Can I Resell My House?

You may sell a house with CIRT Covenants on it at any time, or the house can be transferred to another owner, but only according to the terms of the Covenants. You, and all future buyers and sellers of the house must abide by these Covenants, and are bound by them. To review a complete copy of the CIRT Covenants, click COVENANTS.

The following is only a summary of the Covenants on sale or transfer of ownership of the house. Please consult your attorney for a legal review of these Covenants.

CIRT’s Right of First Refusal (ROFR): CIRT has a ROFR to buy the house if the owner decides to sell it (see the ROFR in the Covenants). Before putting the house on the open market, the owner must contact CIRT, at which point, CIRT will calculate and set the Maximum Resale Price (MRP). CIRT will also decide if it wishes to exercise its ROFR to buy the house at that MRP and will notify the owner of its decision. If CIRT initially declines to exercise its ROFR, and if the owner has not sold the house after one year on the market, CIRT can reassert its ROFR.

Maximum Resale Price (MRP): If CIRT declines to exercise its ROFR, the homeowner may offer it on the open market at the MRP set by CIRT. The MRP is the highest price the homeowner may offer the house for sale and be paid for it.

The MRP formula recognizes the value of appreciation and reasonable improvements to the house, and balances that with two tests to ensure the price remains reasonably affordable for future year-round families. The lowest value of these three tests becomes the MRP. CIRT will notify the owner of the MRP and provide a copy of the calculation.

The three tests used to determine MRP are: (See NOTES below for more details on the tests.)

  1. calculating the value of appreciation and reasonable improvements to the house;
  2. the maximum affordable cost (MAC); and
  3. a professional appraisal of the house.

Recording of Covenants and Second Mortgage: Current or future buyers must sign a copy of CIRT’s Covenants. A buyer who has been provided a loan through the CHAP program must also sign a note for the loan and a second mortgage on the property ensuring that the loan will be repaid. The Covenants and the second mortgage on the house will be recorded with the deed.

Notes on Calculation of the Three Maximum Resale Price (MRP) Tests

Test #1 – Appreciation and Reasonable Improvements Test: This test recognizes potential increases in value of the house due to appreciation and reasonable improvements made to it.

  • Appreciation: The value of appreciation is calculated by multiplying the percent of increase in the state’s median family income (MFI) over the years of ownership, by the owner’s purchase price.  For example, if the MFI increased by 30% over the years of ownership, then the house’s value is assumed to increase by 30% as well. If the owner bought the house for, say, $260,000, they are credited with a 30% appreciation of that price – $78,000. Thus, the Maximum Resale Price (MRP) the owner can offer and sell the house for increases from $260,000 to $338,000. (The MFI is set annually by the Department of Housing and Urban Development, HUD.)
  • Reasonable Improvements: Besides appreciation, the MRP can also increase due to the value of “reasonable” improvements. These are not repairs or maintenance like keeping the house painted. They are improvements which might realistically increase its value – but without pushing its value beyond what a future working family could afford. Adding a half bathroom or installing a chimney liner may well be considered “reasonable”. On the other hand, installing custom high-end kitchen cabinets or appliances, or a sauna, likely would not be. To be allowed, receipts of the improvements must be provided to CIRT.
    On top of that, the MRP calculation also allows for appreciation of reasonable improvements. This is calculated by multiplying the improvement’s cost by the MFI increase since it was completed. For example, if the MFI rose by 10% during the period, then a $10,000 reasonable improvement would appreciate by 10%, adding another $1,000 to the $10,000.
  • Example: Adding together the $10,000 improvements, the $1,000 in appreciation, and the $338,000 appreciated house value above, Test #1 determines a value of $349,000.
  • A homeowner is free to make any improvements they want on their house, however, if CIRT doesn’t agree they are “Reasonable Improvements” they will not be counted by CIRT in calculating the MRP, because they could push the cost beyond what is affordable for a working family. Owners are cautioned to request CIRT’s determination in advance of making them, so it can advise the owner if the improvements are considered repairs or maintenance, or if they are considered “reasonable” or not.

Test #2 – Affordability Test: Banks often use a calculation to determine if a someone can afford to own a house at a particular price. CIRT uses its Maximum Affordable Cost (MAC) as a similar test, by multiplying the state’s Median Family Income (MFI) by 4.0. The most the house price can be is 4 times the MFI.

The current MFI is $84,800 (it increases annually). Multiplying the MFI by 4 results in $339,200 as the MAC. So, the MAC Test says the highest the house can be offered or sold for is $339,200.

(“4.0” is derived from multiplying MFI by 2.5 (a typical bank standard for affordability) by 1.6 to help account for the higher cost of housing on our islands.)

Test #3 – Professional Appraisal Test: The bank or the homeowner may order a professional bank-certified appraisal of the property. The Professional Appraisal Test uses a bank-certified appraisal, if any, to set the maximum the house can be offered or sold for.

Results of the Three Tests Set the MRP: The lowest value found by the three tests determines the Maximum Resale Price the property can be offered or sold for. This helps ensure that working families are reasonably able to afford to buy the house and live on the islands all year.