How Does Shared Ownership Work When You Sell?

Selling a shared ownership property involves a distinct process compared to selling a traditional home. This unique ownership model, often referred to as shared equity in the United States, aims to make homeownership more accessible by allowing individuals to purchase a portion of a property while a non-profit organization, housing authority, or community land trust retains the remaining share.

Understanding Shared Ownership Before Selling

Shared ownership, or shared equity, involves a homeowner purchasing a percentage of a property, with the remaining share retained by a program administrator like a community land trust (CLT) or through deed-restricted homeownership programs. This structure means the property is subject to a ground lease or deed restrictions that limit resale prices to maintain long-term affordability.

The managing entity plays a significant role as a co-owner and administrator, ensuring the property remains affordable for future buyers. The concept of “staircasing” impacts the percentage of the property value the homeowner can realize upon sale. Resale formulas are in place to balance a homeowner’s ability to build wealth with the program’s goal of preserving affordability for future income-eligible purchasers. These programs include a right of first refusal, giving the managing entity the initial option to purchase the property or find an eligible buyer.

Preparing for the Sale

The initial step in selling a shared ownership property is to formally notify the program administrator of your intent to sell. This notification should align with the terms outlined in your specific shared ownership agreement, which often detail required information at this stage, such as your current ownership share.

Following notification, a professional valuation of the property is required. Unlike standard home sales, the valuation for a shared ownership property is governed by a specific resale formula designed to ensure ongoing affordability for future buyers. This valuation determines the maximum allowable sale price and your equity. The program administrator may provide a list of approved appraisers, and the homeowner is responsible for the appraisal fee, which can range from a few hundred dollars to over a thousand depending on location and property type.

Gathering all necessary documentation is another important preparatory step. This includes your original shared ownership agreement, any ground lease documents, and records of any “staircasing” transactions where you increased your equity. An Energy Performance Certificate (EPC) or similar energy efficiency documentation might also be required depending on local regulations. These documents are crucial for accurately determining your share, outlining the resale restrictions, and providing transparency to potential buyers and their lenders.

The program administrator’s initial role also includes reviewing your intent to sell and the valuation report. They will confirm the maximum resale price based on their program’s specific formula. They also begin preparing for their right of first refusal period, during which they will actively seek an eligible buyer for the property from their own waiting lists.

The Shared Ownership Selling Process

The program administrator initiates a nomination period, a designated timeframe during which they have the exclusive right to market the property to eligible buyers on their waiting lists. During this period, the property is offered at the resale price determined by the program’s affordability formula.

If the program administrator identifies a qualified buyer within the nomination period, the sale proceeds through their established channels. The managing entity’s legal team will be involved to ensure all aspects of the transaction comply with the shared ownership agreement and any deed restrictions or ground leases.

If the program administrator does not find a buyer within the specified nomination period, the homeowner is permitted to market the property on the open market, often with a real estate agent of their choice. Even when selling on the open market, the property remains subject to the shared ownership program’s restrictions, including the maximum resale price and the requirement that the buyer meets eligibility criteria. The homeowner’s real estate agent must be knowledgeable about these specific program requirements to effectively market the property.

The conveyancing process for shared ownership properties involves the program administrator’s legal counsel reviewing all transaction documents, ensuring compliance with the ground lease or deed restrictions. This involvement helps to verify that the affordability covenants are correctly transferred to the new owner. The legal steps from accepting an offer to the exchange of contracts and final completion will involve coordination between the seller’s attorney, the buyer’s attorney, and the program administrator’s legal representatives to navigate these specialized requirements.

Financial Implications of Selling

The owner’s equity is calculated based on the agreed-upon sale price and their percentage share in the property, but this sale price is often limited by a resale formula. This formula, which can be appraisal-based, index-based, or an affordability formula, balances the homeowner’s return on investment with the program’s goal of maintaining affordability for future buyers.

Costs involved in the selling process include the valuation fee, which can range from a few hundred to over a thousand dollars, and legal fees for your attorney to manage the conveyancing process, which can be several thousand dollars. The program administrator may also charge administrative fees for their role in facilitating the resale, which might be a flat fee or a percentage of the sale price. If the property is marketed on the open market, real estate agent commissions, typically a percentage of the sale price, will also apply.

Any outstanding mortgage on the owner’s share will be repaid from the sale proceeds. Prorated property taxes, homeowner association (HOA) fees (if applicable), and any outstanding service charges or ground rent due up to the completion date will be deducted from the proceeds.

Each owner of a jointly owned property is responsible for reporting capital gains or losses on their individual tax return, proportionate to their ownership interest. For a primary residence, an individual may be able to exclude up to $250,000 of capital gains from their taxable income, while a married couple filing jointly may exclude up to $500,000, provided they meet specific ownership and use tests. It is advisable to consult with a tax professional to understand the precise capital gains tax implications for your specific situation.