The Shared Appreciation Program is a program whereby home-buyers can elect to reduce the initial purchase price on the home they are purchasing in return for sharing with the builder the appreciation when the house is resold.
For every 1% discount received, the builder receives a 5% share of appreciation. The maximum discount the purchaser may receive is 10%. Upon the sale of the house, all proceeds up to the original discount price go to the purchaser. Proceeds from the discounted price up to the original list price will go to the builder. Above the original list price, all proceeds will be divided. The builder will receive between 5% and 50% of the excess over the original list price, depending on the amount of the original discount.
In the event that the new sales price is less than the original discounted price, the builder receives nothing. If the selling price is more than the initial discounted sales price, but less than the initial list price, the builder will only be entitled to the excess over the initial discounted price. The builder has the right of first refusal at the time of the resale.
Five years after the closing, the Purchaser will have the opportunity to buy out of this program by paying the builder the original discounted amount together with interest at an annual rate of 4.9% compounded annually.
For example, if the initial list price of the home is $300,000 and the purchaser receives a 10% discount, the price of the home would be $270,000. Shown here are four possible scenarios.
(A) The house resells for $340,000. $30,000 (the difference between the list price and the discounted price) goes to the builder. For the $40,000 profit above the $300,000, 50% or $20,000 will go to the builder. The builder's share will be $50,000 ($30,000 + $20,000). The purchaser's share will be $290,000 ($270,000 + $20,000).
(B) The house resells for $290,000. The builder will receive $20,000 and the purchaser will receive $270,000.
(C) The house resells for $265,000. The builder will receive nothing, and the purchaser will receive $265,000.
(D) The buyer elects the buy-out option at the end of the fifth year. The amount owed to the builder by the purchaser will be $38,106.47 ($30,000 + $8,106.47 interest at 4.9% compounded annually).