Q. Are you familiar with any CCRC’s that offer an entrance fee plan or an option that adds to the standard refundable portion 100% of the appreciation in the entrance fee when it is resold to the next occupant?

A. The Cypress at Hilton Head and the Cypress at Charlotte are “equity communities.” Residents purchase their homes and then upon resale receive 90% of the gross selling price. The communities are managed by Life Care Services, but the communities themselves are for-profit with the remaining 10% of the selling price going to investors. Since a licensed Realtor sells the homes, there are also a 7% Realtor fee and closing costs to pay. Residents of these communities are making a real estate investment so the success of the communities is greatly influenced by the economy. This arrangement has worked well for the two Cypress locations and their residents primarily because of the strong appreciation rates for the units. According to Becky Davis, the Realtor selling the homes at The Cypress in Hilton Head, this type of plan works best for an area with younger demographics.

WRC Senior Services in Pennsylvania refunds a flat 92% of the original purchase price regardless of an increase or decrease in the market value. WRC also gives a 50% refund for any structural upgrades done at the time of initial construction.

Kendal – Crosslands community, also in Pennsylvania, has two communities that act as “feeders” to their campus: Coniston and Cartmel. Both are located near Kendal. These residential retirement communities provide independent living with maintenance and housekeeping services and access to health care on a space available basis. Residents pay a onetime occupancy rights fee and ongoing monthly fees which include payment of real estate taxes. The occupancy rights fee purchases a contract but includes no interest in real property. The occupancy rights are resold upon moves to Kendal or Crosslands, withdrawal, or death and most, if not all, of the moneys are returned to the residents. The equity model allows the seller to share in the appreciation as well as the risk.

Lathrop Community in Northampton, MA used to have a contract in which, upon move out, the resident was refunded 94% of what they paid and 25% of the appreciation value. It was replaced by a contract in which, upon move out, the resident was refunded 90% of what the new person paid or 100% of what they paid, whichever was less. Both of these types of contracts were considered to be “financially devastating” for the community. The community strongly recommends not offering these types of contracts. The current contract stipulates a refund of 90% of what the person paid.

Willow Valley has a provision for sharing in the appreciation of the entry fee in their original contracts. The original entrance fees were underpriced to begin with, so the result has been mildly nightmarish for them. There are people with 33% return contracts who would potentially get back more than they had paid originally.

Westminster Canterbury Richmond (WCR) has 10 freestanding homes that they call “The Glebe.” They have traditionally sold them as a lifecare contract in which the resident receives 80% of the resale price once they move out. However, this contract has been very poorly priced relative to the rest of the community, and WCR is looking to change it.

The Garlands of Barrington, in Barrington, IL, has an equity contract where the resident receives 90% of the resale price. The condominium ownership plan secures a resident’s investment with a tangible asset and provides tax benefits as well.

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