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Revision of Repurchase Percentage

Brown to Brown participants have the option to make approved improvements to the property subject to the existing and following program guidelines.  Brown supports improvements that add to the long-term value of the property.  The following guidelines, definitions, and examples explain how the repurchase percentage can be revised as a result of approved major improvements funded by participants. 

Guidelines:

Approved improvements, minor or major (defined below), shall be funded by the participant.  While minor improvements are expected, the benefits typically accrue to the participant and do not add to the long-term value of the property.  However, approved improvements that substantially add to the value of the property (>10% of market value prior to improvement are considered “major”) represent a participant’s investment in the property in which Brown has not shared the costs but could benefit from if the property is sold back to Brown.  Therefore the initial repurchase percentage used to determine the repurchase price will be adjusted as result of these major improvements.  Upon completion of the improvement, the repurchase percentage will be adjusted to reflect the proportionate value of the participant’s investment.

If the Final Value of Improvements (defined below) by the Buyer are equal to or exceed ten percent (10%) of the Market Value of the Premises, then Brown agrees to readjust the percentage at which it has a right to repurchase the Premise calculated by the following formula:

                                   

Readjustment of the repurchase percentage will be done after each approved major improvement.  Brown will not readjust the repurchase percentage as a result of minor improvements (individually or in aggregate) over the course of the participant’s ownership of the property.

Definitions:

The relevant terms are defined as follows.

Market Value of Premises (MV):  Market value of the Premises, prior to any Major Improvement(s), such value to be determined by an appraiser from the Appraiser List.

Minor Improvement: FVI (defined below) is less than 10% of the Market Value (MV) of Property

Major Improvement: FVI (defined below) is equal to or more than 10% of the Market Value (MV)

Updated Market Value of Premises (UMV):  Actual updated market value after Major Improvement(s).  This value reflects both the change in the market value since the Closing of the Premises and the value added by the Major Improvement(s).  UMV shall be determined by an appraiser from the Appraiser List.

Market Value of Major Improvement (MVI):  UMV minus MV.

Actual Cost of Improvement (ACI):  The documented costs of the Major Improvement(s).

Final Value of Improvement (FVI):  The lesser of MVI or ACI.

Initial Repurchase Percentage (IRP):  The percentage at which the Seller was entitled to repurchase the Premises prior to the current readjustment.

Revised Repurchase Percentage (RRP): The percentage used to calculate the repurchase price after adjusting for the value of the major improvement.  (Formula above)

By way of example and for no other purpose, the following examples are provided below to reflect the readjustment formula for Brown’s repurchase of the Premises for certain qualifying major improvements:

Example 1 (Market Value of Improvement and Actual Cost of Improvement are same):

Facts:

Ten years following Closing, Participant plans an improvement (upgrades bathrooms, kitchen), with an estimated cost of $75,000.  At time of planned improvement, the MV of house is $600,000 and Brown maintains a right to repurchase the property at 80% of MV.  The figures to apply to the formula are as follows:

  • $75,000/$600,000 = 12.5%  qualifies as Major Improvement
  • UMV = $675,000
  • MVI = $675,000 - $600,000 = $75,000
  • ACI = $75,000
  • FVI = $75,000
  • IRP = 80%

Formula:

RRP = IRP + (1-IRP)(FVI/UMV) = 0.8 + 0.2 ($75,000)/($675,000) = 82.2%

Accordingly, the revised repurchase percentage would be eighty-two and two-tenths percent.

Example 2 (Market Value of Improvement is higher than Actual Cost of Improvement):

Facts:

Ten years following Closing, Participant plans an improvement (upgrades bathrooms, kitchen), with an estimated cost of $75,000.  At time of planned improvement, the MV of the Premises is $600,000.  The figures to apply to the formula are as follows:

  • $75,000/600,000 = 12.5%  qualifies as a Major Improvement
  • UMV = $700,000
  • MVI = $700,000 - $600,000 = $100,000
  • ACI = $75,000
  • FVI = $75,000
  • IRP = 80%

Formula:

RRP = IRP + (1-IRP)(FVI/UMV) = 0.8 + 0.2 ($75,000)/($700,000) = 82.1%

Accordingly, the revised repurchase percentage would be eighty-two and one-tenths percent.

Example 3 (Actual Cost of Improvement is higher than Market Value of Improvement):

Facts:

Ten years following Closing, Participant plans an improvement (upgrades bathrooms, kitchen), with an estimated cost of $75,000.  At time of planned improvement, the MV of the Premises is $600,000 and the Seller maintains a right to repurchase the property at 80% of MV.  The figures to apply to the formula are as follows:

  • $75,000/%600,000 = 12.5%  qualifies as Major Improvement
  • UMV = $650,000
  • MVI = $650,000 - $600,000 = $50,000
  • ACI = $75,000
  • FVI = $50,000
  • IRP = 80%

Formula:

RRP = IRP + (1-IRP)(FVI/UMV) = 0.8 + 0.2 ($50,000)/($650,000) = 81.5%

Accordingly, the revised repurchase percentage would be eighty-one and five-tenths percent.