Thursday, April 19, 2012


We moved to Maryland with the idea that we would not be here long. I was going to school, and once I finished, we expected to move who-knows-where to find a job. But school led to more school, and part-time job became full-time. We started having kids, and before we knew it, ten years had gone by, and we weren't going anywhere. With our second child on the way, we were hoping to find more space than the two-bedroom condo we were renting. We also figured it was about time to buy a place, if we could afford it.

Howard County is a nice place to live--good schools, plenty of shopping and services, and not terribly far from Washington or Baltimore--but it's very expensive. We chose to live on one income, which almost inevitably meant that we couldn't afford to buy much of anything--especially in 2007, at the height of the housing bubble. Our one real shot was the Moderate Income Housing Unit (MIHU) program:
The MIHU Program is an inclusionary zoning program that requires developers of new housing in specific zoning districts to sell or rent a portion (generally 10-15%) of the dwelling units to households of moderate income. MIHUs are sold or rented through the Department of Housing & Community Development at affordable prices and rents set by the Department. Any person or family can apply to buy or rent an MIHU, provided their household income does not exceed [80% of median income to buy, 60% to rent].
We were deemed eligible for what I think was the second drawing they conducted. As units become available, they are put into drawings. Any approved applicant who wants to participate can put their name in. If you get picked, you enter into a contract with the seller. You buy the unit outright--the county just sets the rules and prices. We were picked first for a batch of three-bedroom townhouses in Elkridge Crossing. They weren't what we considered to be ideal homes, but given the market conditions, we didn't have much choice. We signed a contract and tried to make the best of it.

Since this was our first time buying a home, we did not immediately think of everything to ask. But we were initially surprised at the difference in price between the two sets of townhomes in the drawing. We were also concerned about resale of the unit. They try to keep units in the program, so when you're ready to move on, the County sets the pricing and holds a new drawing. Without knowing how they had come up with the price in the first place, we wondered how we would know whether they were setting a fair price years later.

Once we received the price breakdown from the County, we had even more questions. The builder had apparently been very thorough in identifying markups to the base price set by the County. They didn't get everything they asked for, but they still got a lot--more than $20,000 in markups on a $200,000 house. Some of them seemed reasonable, but many raised red flags:
  • $5000 for a garage--not a bad price, but the unit also lacked a basement
  • $3000 for nine-foot ceilings--nice to have, but they serve no real purpose
  • $150 for an ice maker, and $500 for a larger refrigerator--really? a markup for both?
  • $2500 for a deck off one of the kids' bedrooms--not very functional, and there was no reciprocal adjustment for the absence of a fenced-in backyard
  • $300 for a hardwood foyer--the foyer was vinyl
  • $1000 for taller kitchen cabinets--nice to have, I'll admit, but is it really worth a markup?
  • $150 for a gas water heater--the water heater was electric
  • $500 for upgraded carpet--I can't even fathom what would be lower grade carpet than that
  • $2000 for brick trim and landscaping--they changed the landscaping on our row of buildings so that it barely conformed with the minimum standard, but the markup remained
  • $500 for a Roman shower--i.e., no bathtub in the master suite
  • $300 for a garage door opener--yes, a garage door opener
We went back to the County and questioned several of the markups. It took a year to complete our building, but the only adjustment was a $500 refund for the obvious errors of the hardwood foyer and the gas water heater, and we didn't receive that until after we moved in. The landscaping change we didn't discover until shortly before completion of the building. The County accepted the builder's excuse that we were paying for the overall landscaping of the whole community, not necessarily what was immediately in front of our house. The other issues they completely ignored, explaining that we had no cause for concern. The resale pricing would be based on what we paid when we bought the unit.

In 2010, we contacted the County to ask once again about how resale pricing would be determined. We were told that the county kept on file the details of how our unit was originally priced, and the resale price would be comparable for the current economic conditions. Based on that, they provided a ballpark estimate that our unit would sell through the program for around $250,000. We asked for, but never received, a more detailed estimate. Building in the community had re-started, and new units on the open market were selling for less than the program pricing on our unit. We were told that, if such were the case when we decided to sell, the County would extinguish our covenant, and we could do what we wanted. But with new units available at competitive prices, we decided to wait.

A year later, building in the neighborhood ceased again. We followed up on our earlier request for a detailed price estimate, and this time they sent back a breakdown of the current pricing on new units. Instead of basing our resale price on what we had originally paid, they used a much simpler list of adjustments, including the original markups for garage, laundry, and extra half-bath, but offsetting with a $5000 cut because there was no basement. The base price was significantly lower, but there was a substantial markup to adjust for differences in the cost of homeowner's fees and other regular expenses. The total was a little over $220,000--almost $30,000 less than they'd estimated a year earlier.

Our apprehensions were fully realized, but we chose not to argue the point, because given the market conditions, we felt we'd be better off with the current pricing. They weren't likely to find a buyer through the program if they charged much more than that, and if we had to sell the unit ourselves, we'd incur a realtor commission, additional preparations to show the house competitively, and probably have to pay the buyer's closing costs. Better to take our chances selling through the program and still come away with enough return for a substantial down payment. We decided it would be better to wait out the winter and sell in the spring, so we arranged to contact them again after the pricing was reset in January.

Their response was a long time coming, and when we finally received word, we understood why. They had discovered a mistake in their calculations. The $14,000 condo fee adjustment should have been subtracted, not added. So even though the base price went up slightly, the newly recalculated price dropped to a little over $205,000. At that point we had no choice but to contest the whole pricing structure they were using. Fortunately, our earlier questioning had produced enough written documentation that they had to address the earlier set of markups. They still insisted on applying the condo fee adjustment, but even so they determined that the resulting price was too high to sell the unit through the program. We considered getting out and selling on the open market, but by that point there were too many short sales and foreclosures in the neighborhood to expect that we would walk away with enough money to buy the kind of house we really wanted. Our four months of optimism had been shattered, along with any confidence we might have had in the county program.

The MIHU program was great to have available at the time that we needed to buy our first house. It may not be as useful now, with lower market rates, but it will probably be just as helpful to others in the future. But the County seems to have got off to a bad start. Between the two builders with units in our drawing, one seems to have got away with using a downgraded unit for the program, while the other inflated the price with every markup it could get. The County should have called them on these tactics.

In the first case, they shouldn't have let them use a downgraded unit at all. From what I understand, it was a converted two-bedroom model with the basement adjacent to the garage serving as the third bedroom. Any family that needed three bedrooms would be faced with the choice of which child to put on the ground floor by themselves. The units were also visibly smaller than those sold on the open market, which would easily identify program participants for anyone who was looking. If they did allow it, they should have enforced a significant price cut for the lack of a distinct basement.

In the second case, the County should have cut the price for lack of a backyard or basement and omitted some of the petty markups requested by the builder. They also should have forced the builder to refund the markup for the landscaping when it became apparent that they had completely changed it in the newer rows. It was nice to see that in the most current breakdown they seem to have adopted a better strategy (still no backyard), but the change highlights a bigger problem--that there really is no good system for ensuring that unit owners will get a fair resale price, consistent with what they paid in the first place. We were assured repeatedly that the County would use consistent standards in determining the resale price, but it only took three years (not the 30 that I was envisioning) for them to replace the original pricing scheme with--albeit one more sane--but radically different nonetheless.

I like to think that our input had some positive effect on the program--it seems, at least, that the new pricing breakdown has incorporated some of our recommendations. But the process was more often frustrating than not. We sometimes waited months for a meaningful response to some of the simplest questions. We got our most important answers only by involving our County Council representative. If they did adjust the pricing structure in response to some of our advice, they never expressed any intention to do so or any appreciation for our input. So the other area I would recommend for improvement is definitely communication with the unit owners. I have little expectation that any of them have been made aware of any of these issues, unless they have done the work themselves to demand some answers.

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