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  #1  
Old 10-20-2011, 07:00 PM
Lee in L.A.'s Avatar
Lee in L.A. Lee in L.A. is offline
 
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Default Seller concessions, new construction

So, I'm working on a pair of new homes under construction in a KB tract. Both are FHA deals. Both contracts show seller paid closing costs for $5,000, and both have an amendment showing the web published base price increased by $12,000 and then a $12,000 reduction in base price if the buyer closes on time. A worksheet in the file calls it "previously approved price reduction / back pocket money". Contract prices are in the low $390's, and $340's for the smaller one, so they are around 4 - 5% on the price combined.

The problem is I didn't get that information for the comps within the tract. I have sale prices, loan amounts, lot premium figures, and upgrade figures.
But I don't have concessions info on them. The only place to get it is from the sales office who are out the next couple days (well maybe the buyers would answer). The files can wait a couple days, so it's just kind of a pain, not a question.

I suspect they are making similar concessions across the board. Even the one resale I used had a $10,000 closing costs credit. In which case they are typical for the area, I don't need to adjust. Or do I? Actually it seems to me all comps should be adjusted down by at least the $12,000 assuming they all got the credit. In which case the contract price would still be in the adjusted range. Hmm.

MORTGAGEE LETTER 2005-02, under Mortgagee Requirements says in part "4. In accordance with HUD Handbook 4155.1 Rev-5, “Mortgage Credit Analysis for Mortgage Insurance, One to Four Family Properties”, Chapter 1 section 2 (1-7A), contributions from sellers or other interested third parties to the transaction that exceed six (6) percent of the sales price or other financing concessions are to be treated as inducements to purchase, thereby reducing the amount of the mortgage. Each dollar exceeding the six percent limit must be subtracted from the property’s sale price before applying the appropriate loan to value (LTV) ratio."

So, I thought I'd bounce this past some other appraisers for their opinions, I know there's no shortage of that here.

Meanwhile I will cogitate on it and complain to myself about how much fun new construction is. Not. Did I mention they still need roof tiles that are sitting on the roof installed, stucco, drywall, and almost everything else?
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  #2  
Old 10-20-2011, 07:18 PM
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Joyce Potts Joyce Potts is online now
 
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OMG you get it.

Ask KB for copies of the fully executed and dated HUD-1's and contracts for any comps of their's you use. If they don't provide them, it's your choice to use them, but at the very least DISCLOSE that you asked them and they refused. If they're playing FIND WALDO with regard to your deal, what do you think the other closed sales may have involved?

CASH or CASH EQUIVALENCY. NET PRICING. This is where they STRUCTURE the deal so the deed is recorded at the higher price, when in fact, there may very well be hidden, undisclosed concessions. PROTECT YOURSELF. For that matter, protect the public-at-large, even if the Buyer and Seller end up with short-term ******y attitudes. This is the exact shell game that helped create the bubble in many markets.
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Old 10-20-2011, 07:24 PM
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Explain this in the reconciliation maybe, why your opinion of value is concession amount less than adjusted sale price of comp #blah.
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  #4  
Old 10-20-2011, 07:27 PM
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Quote:
Ask KB for copies of the fully executed and dated HUD-1's and contracts for any comps of their's you use.
That was my plan, we'll see if they cough them up. $12,000 "back pocket money" might be nice for the buyer, but then again their taxes are based on the higher price. Seems an odd concession and not one I've seen before. $12,000 @ 1.25% is another $150 a year tax.
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  #5  
Old 10-22-2011, 02:44 PM
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This is the grand catch-22 for appraisers.

We have the 'legal' responsibility to disclose any known concessions (fannie forms are federal legal documents), however Realtor associations, builders, agents, buyers, sellers quite often refuse to disclose concessions paid by the seller.

Here in WA state, the attorney working for the WA State Assn of Realtors has advised their members that they 'don't have the legal obligation' to disclose concessions. Thus many RE office owners (managing broker) and their agents have taken the position that they won't give appraisers the requested info.

When I asked the attorney to at least 'revise' the recommendation to WAR members after I provided the form info and the APB white paper on Concessions, and mentioned that contact info of the 'non-discloser' agents would be put into the report if they were asked and refused, the attorney described that as a "threat."

The only way that this can be resolved is federal and state legislation, ultimately signed as law, that requires concession disclosure so that it can be properly reported.

Unfortunately, this won't be successful unless every appraiser in the US and the appraiser organizations get behind the process to make it happen.

As Joyce said, this is a 'shell game' to disguise the actual net value of a real property.
  #6  
Old 10-22-2011, 02:51 PM
NorthTexValuation NorthTexValuation is offline
 
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I would require the contracts, and HUD-1 or closing statements and all seller concessions in writing from KB or I would not use the comparables, period. Cover all your bases twice when appraising in these neighborhoods.
  #7  
Old 10-22-2011, 02:57 PM
NorthTexValuation NorthTexValuation is offline
 
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Quote:
Originally Posted by Lee in L.A. View Post
I suspect they are making similar concessions across the board. Even the one resale I used had a $10,000 closing costs credit. In which case they are typical for the area, I don't need to adjust. Or do I? Actually it seems to me all comps should be adjusted down by at least the $12,000 assuming they all got the credit. In which case the contract price would still be in the adjusted range. Hmm.
It doesn't matter if the $10,000 clsoing cost credit is typical or not, it needs to be adjusted downward (cash equivalency). And I would not "assume" anything in relation to what seller concessions were in the comps, I would "confirm" it.
  #8  
Old 10-22-2011, 03:07 PM
leelansford leelansford is offline
 
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Quote:
Originally Posted by Lee in L.A. View Post
...

I suspect they are making similar concessions across the board. Even the one resale I used had a $10,000 closing costs credit. In which case they are typical for the area, I don't need to adjust. Or do I? Actually it seems to me all comps should be adjusted down by at least the $12,000 assuming they all got the credit. In which case the contract price would still be in the adjusted range. Hmm.

MORTGAGEE LETTER 2005-02, under Mortgagee Requirements says in part "4. In accordance with HUD Handbook 4155.1 Rev-5, “Mortgage Credit Analysis for Mortgage Insurance, One to Four Family Properties”, Chapter 1 section 2 (1-7A), contributions from sellers or other interested third parties to the transaction that exceed six (6) percent of the sales price or other financing concessions are to be treated as inducements to purchase, thereby reducing the amount of the mortgage. Each dollar exceeding the six percent limit must be subtracted from the property’s sale price before applying the appropriate loan to value (LTV) ratio."

So, I thought I'd bounce this past some other appraisers for their opinions...

You misunderstand.

The section of the HUD Handbook from which you quote does NOT apply to you as the appraiser. Let me repeat...does NOT!

And, as for these concessions being "typical" of the market...REALLY? "Typical" in the 'good times', too? "Typical" ALL the time?
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  #9  
Old 10-22-2011, 04:20 PM
Walter Kirk Walter Kirk is offline
 
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Always look at the settlement sheet before reporting on any development sale comparable.
  #10  
Old 10-22-2011, 04:36 PM
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VolcanoLvr VolcanoLvr is offline
 
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We need to be sure we understand how the 'concession' situation works when using the Fannie/Freddie forms.

Mathematically, 'you'd think' that any seller-paid concession applying to the subject property should be deducted from each comp to get the comps to a net cash equivalency with the subject...........but NO!

That's not how mama fannie wants it done. Concessions that apply to individual comp properties are deducted from them individually, separately.

The assumption is that when the concessions are deducted from the comps, an appropriate range of value for the Subject is thusly revealed. But it's not always the case.

Using this process, the adjusted value range can, in some cases, be higher than the net value of the subject when the Subject concession is deducted from the Subject sale price. That's the fault of the mandated process.

The only way we can account for a Subject concession is to report it on the form page 1, and then state the net proceed value of the sale property after the concession is deducted from the contract sale price. It's then up to lender underwriters to figure out what the loan amount will be.

Remember that your adjusted value range of the comps might be higher than the subject's net value. "It Depends" is based on the characteristics of the comps, not their sale prices, as a search parameter.

I've been told that commercial property appraisers account for seller concessions 'mathematically differently' than us residential fannie-form appraisers. Their process is similar to what I first mentioned above. And probably more accurate, and easier for lender underwriters to understand.
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