FRISCO — Changes may be coming to the way Frisco handles deed restrictions.

At the Frisco Town Council meeting last week, town staff proposed changes to the town’s deed-restricted housing covenants, hoping to increase flexibility for sellers, maintain affordable prices for buyers and remove unintended consequences of the restrictions.

“Several residents came in and asked to meet with us and demonstrated that, with the current covenant that they’re under, … people who are living in some deed-restricted homes were selling their home after owning it for even five years or so for less than they paid for it,” town manager Nancy Kerry said. “In a really good market, it didn’t make any sense.

“If the government is going to interfere in the market, it has to be really clear about its purpose. Its purpose is to keep those prices low so that people can get into homes. The purpose wasn’t to make sure that nobody could sell it for a reasonable price. We want it to remain affordable with the government suppressing prices, but at the same time, not so much so that we’re creating a false recessionary market for people living in those homes. There was something wrong, we knew right away, that is resulting in an upside-down market.”

The issue stems from the way several deed-restricted covenants are set up in town. Katie Kent, a planner with Frisco, said there are about 170 deed-restricted units in Frisco. While there’s little consistency in the covenants, with numerous variations throughout town, Kent said a majority contain the same language in regard to maximum resale value for sellers.

Under most current covenants, home sellers are allowed to sell their homes for a sum that’s equal to the lesser of the following two scenarios:

• The purchase price plus 3% per year (not compounded)

• The purchase price plus a percentage increase equal to the percentage increase in the area median income from the time the unit was purchased until the time it’s listed for sale

In other words, negative changes in AMI — calculated using variables in a national formula by the U.S. Department of Housing and Urban Development, with local variations — can have dramatic effects on maximum sale price under some of Frisco’s housing covenants.

“Let’s say someone purchased a house in 2011,” Kent said. “You actually pull out this spreadsheet from 2011 and look what the AMI was that year, then you look at the AMI in the year they want to sell it and calculate the difference, whether it’s positive or negative. It all depends on what year you bought. You can only look at the year you purchased and the year you’re selling. And because the covenant says lesser of, if that number has gone down, that’s the formula, and that’s how you get the negative sell price.”

Why this matters so much for home sellers is that AMI can go down even during stretches of economic growth if income isn’t keeping pace with the economy. It also means that two people selling identical houses might have radically different maximum sale prices based on the year they purchased their homes.

Staff’s proposal is to design a new formula for calculating maximum sale price that would assure sellers aren’t forced to take a loss while also assuring the units stay affordable for buyers.

The proposed formula would set the maximum sale price as the sum of the seller’s original purchase price, a max 3% increase on purchase price per year (not compounded), the cost of permitted capital improvements made to the unit and the cost of a real estate agent’s commission. There also would be a 2% bump for commission if the seller used the Summit County Housing Authority — a move meant to incentivize the use of agents so that new buyers properly understand the covenant they’re signing.

Even with the new formula, sellers wouldn’t be allowed to sell their house above the price set by the Summit County AMI maximum sales price (unless it’s below the original purchase price), and there’s no guarantee that sellers will be able to sell their homes at max value as they’ll still need to find a buyer willing to pay that price.

If the proposed amendment is approved by council, it would be opt-in only, meaning individuals who are unhappy with their covenant could sign into the new one with the town, while those with less restrictive covenants might choose to stay put.

Town staff also is proposing that sellers be given increased flexibility in finding buyers. So while the maximum sale price can’t be crossed, there soon might be more options for who can purchase the property, as the town is considering a 10%, 20% or 30% spread in AMI for buyers. In other words, residents who bought a house with a 100% AMI restriction soon might be able to sell their house to individuals qualifying under 110% or 120% AMI.

Staff hopes the addition of permitted capital improvements to the proposed formula also will incentivize individuals to make improvements to their homes without as much fear of missing out on added value when selling.

“The overall outcome here is focusing on buyers’ affordability and not having too much government control on what sellers do, creating more of a flexible market for sellers,” Kerry said. “We’re trying to encourage things that council has prioritized, like energy efficiency, affordability and an inclusive community.”

The new covenant will be introduced formally to town council in a resolution in early August.