Shared Equity Model
DCLT homeowners do earn equity on their land trust homes! They not only build wealth, but share a percentage of it back with the community.
Land trust houses remain affordable because homeowners share in a percentage of the increase in market value (i.e. equity) of the house at the time of resale with future buyers. This resale restriction ensures that the house will be affordable to the next family needing affordable housing and the next, and the next.
We use an appraisal-based formula to calculate final shared equity, as per the chart below. As you’ll see, the amount of equity the owner earns is dependent on the difference between initial price and appraised value at time of sale.
- First, we determine the increase in the house’s value by looking at the difference between initial price as compared to the the appraised value at the time of sale.
- Then, we determine what the shared equity percentage will be (25-45%).
- Then, we add the initial purchase price.
Here is a sample breakdown of the shared equity model:
Appraised value of house at time of sale $125,000
Minus initial price/appraised value of house $95,000
Equals increase in appraised value (“appreciation”) $30,000
Homeowners’ share of appreciation is therefore $10,500
(35% equity earned on $30K for someone who
has lived in a CLT house for 15 years)
Plus initial purchase price $95,000
Equals the new sale price $105,000
Minus cost of paying off home loans $80,000
Equals Total Homeowner’s Equity $25,500