What Is a Community Land Trust Property
A community land trust is a nonprofit organization that owns land and leases it to homeowners at below-market rates. You buy the house but lease the land underneath it through a ground lease. The trust typically subsidizes your purchase price to make homeownership more affordable, but this creates unique appraisal challenges.
The ground lease includes resale restrictions that limit how much you can sell the property for in the future. These restrictions keep the home affordable for the next buyer but also affect the property's market value. Fannie Mae requires a special appraisal approach that values your leasehold interest as if these restrictions didn't exist.
Why Community Land Trust Appraisals Are Different
Standard appraisals don't work for community land trust properties because the subsidized purchase price doesn't reflect true market value. The appraiser can't simply use recent sales of similar community land trust homes as comparables because those sales prices were artificially limited by the ground lease restrictions.
Instead, the appraiser must determine what your leasehold interest would be worth in an unrestricted market. This protects Fannie Mae's investment if they ever need to foreclose and sell the property without the community land trust restrictions.
The Three-Step Valuation Process
Your appraiser must follow a specific three-step calculation to determine your property's value:
Step 1: Determine the fee simple value using comparable sales of similar properties that aren't subject to ground leases. If no fee simple comparables exist, the appraiser can use other leasehold properties but must adjust for the different lease terms.
Step 2: Calculate the leased fee value by dividing your annual ground rent by a market-derived capitalization rate. This represents the value of the land ownership that the community land trust retains.
Step 3: Subtract the leased fee value from the fee simple value to arrive at your leasehold value.
Here's how this works with real numbers. Say your annual ground rent is $300, the capitalization rate is 5.75%, and the fee simple value is $100,000. The calculation would be: $300 ÷ 5.75% = $5,217 (leased fee value). Then $100,000 - $5,217 = $94,783 (your leasehold value).
Appraiser Qualifications and Requirements
Your lender must ensure the appraiser has specific experience with leasehold valuations and the direct capitalization method used for community land trust properties. Not every appraiser can handle this type of assignment.
The appraiser must indicate "leasehold" as the property rights being appraised on the standard appraisal form. They must also show your annual ground rent payment and include the estimated fee simple value in their sales comparison grid.
The final appraisal report must check the "as is" box and include an addendum with detailed calculations. This addendum must contain the specific statement: "This appraisal is made on the basis of the hypothetical condition that the property rights being appraised are the leasehold interest without resale and other restrictions that are removed by the Community Land Trust Ground Lease Rider."
How Appraisers Find Comparable Sales
The appraiser must use comparable sales of fee simple properties (regular homeownership) to determine your property's unrestricted value. They cannot use sales of other community land trust properties as comparables because those prices reflect the artificial restrictions in their ground leases.
If fee simple comparables aren't available, the appraiser can use sales of properties subject to other types of leasehold arrangements, but they must make appropriate adjustments to reflect fee simple ownership.
The appraiser must discuss any recent community land trust sales in the neighborhood in their report, but only to explain why they weren't used as comparables. This helps document that they considered all available market data.
Determining the Capitalization Rate
The capitalization rate is crucial for converting your ground lease payments into a land value. If your area has active sales of both fee simple properties and other leasehold properties (not community land trusts), the appraiser can extract the rate directly from market data.
They calculate this by dividing the annual ground rent by the difference between fee simple sales prices and leasehold sales prices for comparable properties. This market-derived approach provides the most accurate capitalization rate.
If no leasehold comparables exist, the appraiser must develop a capitalization rate by comparing it to low-risk investment rates like long-term government bonds. They select a rate that reflects a "riskless" investment return.
Required Documentation and Legal Considerations
Your lender and you must execute Fannie Mae's Community Land Trust Ground Lease Rider. This document removes the resale restrictions from your ground lease if Fannie Mae ever needs to foreclose. The land records must show that these rider terms have been adopted.
The appraisal addendum must include detailed development of the capitalization rate and expanded discussion of all comparable sales considered. This extra documentation helps underwriters understand the complex valuation process.
For lenders using the Uniform Appraisal Dataset (UAD) 3.6, additional requirements apply as outlined in Fannie Mae's UAD 3.6 Policy Supplement.
Common Challenges and Potential Issues
Finding qualified appraisers can be difficult since community land trust valuations require specialized knowledge. Your lender needs to verify the appraiser's experience with these techniques before ordering the appraisal.
Limited comparable sales data often complicates the valuation process. In areas where most affordable housing involves community land trusts, finding fee simple comparables becomes challenging. The appraiser may need to expand their search area or use older sales data.
The ground lease terms themselves can create complications. Some leases include escalation clauses that increase rent over time, while others have fixed payments. The appraiser must understand these terms to properly calculate the leased fee value.
Processing times typically take longer than standard appraisals due to the additional research and documentation requirements. Plan for extra time in your loan timeline to accommodate this specialized appraisal process.
References
For the official guidelines, see B4-1.4-06: Community Land Trust Appraisal Requirements in the Fannie Mae Selling Guide.
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Original Fannie Mae Guideline Text
B4-1.4-06, Community Land Trust Appraisal Requirements (06/04/2025)
Appraiser Qualifications for Appraising Properties Located in a Community Land Trust
Appraisal Requirements for Community Land Trust Appraisals
Comparable Selection Requirements for Determining Fee Simple Value
Addendum to the Appraisal Report
Uniform Appraisal Dataset (UAD) 3.6 Policy
Appraiser Qualifications for Appraising Properties Located in a Community Land Trust
The lender must ensure that the appraiser is knowledgeable and experienced in the appraisal techniques, namely the direct capitalization and the market derivation of capitalization rates that are necessary to appraise a property subject to a leasehold estate held by a community land trust. Lenders must establish policies and procedures to ensure that qualified individuals are being selected in accordance with Fannie Mae requirements including the Appraiser Independence Requirements.
Appraisal Requirements for Community Land Trust Appraisals
The appraisal requirements for community land trust properties are as follows:
The appraiser must analyze the property subject to the ground lease when a leasehold interest is held by a community land trust. Because the community land trust typically subsidizes the sales price to the borrower, that price may be significantly less than the market value of the leasehold interest in the property.
The appraised value of the leasehold interest in the property must be well supported and correctly developed by the appraiser because the resale restrictions, as well as other restrictions that may be included in the ground lease, can also affect the value of the property. Fannie Mae requires the Community Land Trust Ground Lease Rider, that the lender and the borrower must execute, to remove such restrictions from the community land trust’s ground lease. The land records for the subject property must include adoption of the terms and conditions that are incorporated in that ground lease rider. The appraiser must develop the opinion of value for the leasehold interest under the hypothetical condition that the property rights being appraised are the leasehold interest without the resale and other restrictions that the ground lease rider removes when Fannie Mae has to dispose of a property acquired through foreclosure. (For additional information, see Section B5-5.3, Shared Equity Transactions, for legal considerations.)
The appraiser must use a three-step process to develop an opinion of value.
1
the fee simple value of the property by using the sales comparison analysis approach to value,
2
the applicable capitalization rate and convert the income from the ground lease into a leased fee value by using the market-derived capitalization rate, and
3
the leasehold value by reducing the fee simple value by the lease fee value. (For detailed information related to this process, see below.)
Note: When this appraisal technique is used, there is no need to document the actual land value of the security property.
On the actual appraisal report form, the appraiser must
indicate “leasehold” as the property rights appraised,
provide the applicable ground rent paid to the community land trust,
show the estimated fee simple value for the property in the Sales Comparison Approach adjustment grid,
report the “leasehold value” as the indicated value conclusion, and
check the box “as is” and include in the addendum the development of the capitalization rate and an expanded discussion of the comparable sales used and considered.
Comparable Selection Requirements for Determining Fee Simple Value
In determining the fee simple value of the subject property, the appraiser must use comparable sales of similar properties that are owned as fee simple estates. If this is not possible, the appraiser may use sales of properties that are subject to other types of leasehold estates as long as they make appropriate adjustments, based on the terms of their leases, to reflect a fee simple interest.
When the community or neighborhood has sales activity for other leasehold estates held by a community land trust, the appraiser must discuss them in the appraisal report, but must not use them as comparable sales because, in all likelihood, the sales prices will have been limited by restrictions in the ground lease. Therefore, these sales transactions would not be comparable to the hypothetical condition that the property rights being appraised are the leasehold interest without the resale and other restrictions on which Fannie Mae requires the appraisal of the subject property to be based. See B4-1.3-08, Comparable Sales, for general requirements regarding comparable selection.
Determining the Capitalization Rate
When the community has an active real estate market that includes sales of properties owned as fee simple estates and sales of properties subject to leasehold estates other than those held by community land trusts, the appraiser can use the most direct method for determining the capitalization rate, extracting it from the market activity. To extract the capitalization rate, the appraiser must divide the annual ground rent for the properties subject to leasehold estates by the difference in the sales prices for the comparable sales of properties owned as fee simple estates and the comparable sales of properties subject to leasehold estates.
If there are no available comparable sales of properties subject to leasehold estates other than those held by a community land trust, the appraiser must develop a capitalization rate by comparing alternative low-risk investment rates, such as the rates for long-term bonds, and selecting a rate that best reflects a “riskless” (safe) rate.
Determining the Leasehold Value
To determine the leasehold value of the subject property, the appraiser must first convert the annual income from the community land trust’s ground lease into a leased fee value by dividing the income by the market-derived capitalization rate. The appraiser must then reduce the estimated fee simple value of the subject property by this leased fee value to arrive at their opinion of the leasehold value of the subject property.
For example, assume that the annual ground rent from the community land trust’s ground lease is $300, the market-derived capitalization rate is 5.75%, and the estimated fee simple value of the subject property is $100,000:
$300 annual rent/5.75% capitalization rate = $5,217.39 (rounded to $5,200)
$100,000 fee simple value – $5,200 leased fee value = $94,800 (leasehold value)
Addendum to the Appraisal Report
Because Fannie Mae’s appraisal report forms do not include space to provide all of the details required for appraising a property subject to a leasehold held by a community land trust, the appraiser must attach an addendum to the appraisal report to provide any information that cannot otherwise be presented on the appraisal report form. As previously mentioned, the appraiser must check the box “as is” and include in the addendum the development of the capitalization rate and an expanded discussion of the comparable sales used and considered. The addendum must also include the following statement:
“This appraisal is made on the basis of the hypothetical condition that the property rights being appraised are the leasehold interest without resale and other restrictions that are removed by the Community Land Trust Ground Lease Rider.”
Uniform Appraisal Dataset (UAD) 3.6 Policy
Lenders using UAD 3.6 must follow the requirements in the UAD 3.6 Policy Supplement .
