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8 <br />` program can be enhanced and may only be possible by funding, publicly and privately, and <br />both, a reserve for the buy-back. <br />Fair Return/Shared Equity <br />With this strategy, .the sale of the property during the period of affordability must be <br />accomplished in a manner that will allow the seller to receive a "fair return" on investment, <br />including any significant property improvements, while ensuring that the unit will be <br />"affordable" to the new purchaser. There are three possible approaches to fair return. <br />1. Market Pricing Minus Subsidy <br />This approach allows the market to set the value of the property at the time of <br />sale. As in the open market, the seller is entitled to any resulting increase in value <br />that remains after all debt, including subsidies provided by the public agency, is <br />repaid. <br />This approach seems to work in a relatively stable market or in a market where <br />property values and incomes are likely to increase or decrease proportionately. <br />xample: <br />roperty Sale Price $85,000 <br />first Mortgage Pay-off $58,000 <br />eferred Loan Principal 7 0 <br />et Proceeds to the Seller $10,000 <br />In this example, the full amount of initial subsidy of $17,000 would be repaid and <br />the seller, the first-time homebuyer, would retain the. net proceeds of $10,000. <br />The property may or may not be affordable to a subsequent buyer considering the <br />market values and incomes at the time of sale. <br />2. Formula Pricing <br />Under this. approach, the .fair return is determined by a formula that takes into <br />account the original purchase .price, the value of improvements, a cost of living <br />factor since the time of acquisition, mortgage amortization, and other <br />contributions by the homeowner such as sweat equity. If the owner chooses to <br />sell before the period of affordability runs out, the formula is used to set the actual <br />return to the seller and the maximum sales .price, irrespective of actual property <br />value fluctuations. The formula approach uses an income index, cost of living <br />index, or consumer price index instead of property value appreciation in order to <br />