( 4 ) Fixed-rate formula. The participating jurisdiction may use a fixed-rate formula to determine the homeowner's fair return on investment. Fixed-rate formulas adjust the value of the homeowner's investment by a fixed percentage (rate) per year ( e.g., 3.5 percent). To determine the fair return on investment using this model, the fixed rate is multiplied by the number of years the homeowner owned and occupied the home ( e.g., 3.5 percent × 10 years = 35%). The resulting rate is then multiplied by the sum of the original purchase price of the home and the value of any capital improvements to the property to calculate the fair return to the homeowner. The formula may also depreciate the value of the capital improvements and may take into consideration any reduction in value due to property damage or delayed or deferred maintenance of the property condition.
Formula 4 to Paragraph ( a )(5)( i )(A)( 4 )