Concessions

[StateCertJoe]

Would someone please clear this up between two fighting appraisers! There are 3 comps with a $5,000, a $7,000 and a $15,000 concession. One appraiser puts the exact dollar amounts at the top of the grid. The other averages them and gives all 3 the same. Is either correct? Definition of Market Value clearly states,"Any adjustment should not be calculated on a mechanical dollar for dollar of the concession but the dollar amount of any adjustment should approximate the markets reaction to the concession based on appraisers judgement". So, what is the correct procedure?

 

[Michigan CG]

I moved this to general appraisal discussion, otherwise in Ask An Appraiser all responses had to be approved.

 

[Thomas Fiehler]

Not knowing your market area, I tend to make a $ for $ adjustment. When I see a contract for $199,000; listing price of $190,000; commission based on $190,000 then I see that as a $9000 concessions.

 

[Tudor]

The other averages them and gives all 3 the same.

This one sure doesn't sound right.

If someone is going to go that route, might as well just take all your comps. add up the sales price then take the average and whamo, there's your appraised value.

 

[StateCertJoe]

I am confused on your reply. I am talking about the comparables having concessions. The subject is a Refi.

 

[JSmith43]

Use the search function. There have been great debates on the subject that aren't easy to duplicate.

Currently, there are a spate of short sales locally where the listing price is way under market. Final selling price is almost invariably above list price.

In order to get most loss mitigation departments off the dime, short sale experts list the property significantly below market to attract an initial offer. At that point, the short sale negotiations can begin in earnest. During the negotiations, short sale specialists have found that the under market list price attracts a lot of interest. An auction like frenzy often results in multiple offers, some actually approaching/surpassing MV.

One has to discover the motivations of the parties to really know if a list price vs selling price has anything to do with a concession. It is subject to great error for one to automatically assume that is the case and base a dollar for dollar adjustment on the difference between list price and selling price. Better to dig deep and find sales without concessions to hang your hat on.

For CE to keep up my RE brokers license, I attended a popular REO/Short sale seminar & lo and behold, that is where my suspicions were confirmed about the low ball listing strategy.

 

[stefan olafson]

Wow, I'm not a smart as Mentor, to write something that interesting.

My interpretation of concessions is not to give a dollar for dollar adjustment but to study the market and discover if that $7,000 concession has anything to do with market or is it there just so the buyers can purchase the home. I've seen a bunch of contracts with purchase price $5,000 or so above list price, then a $5,000 concession for closing costs. That's a crock, it's there for the express purpose of making the purchasers eligible for the loan in most instances.

So study the market, don't average and don't put down the actual amount, unless the market tells you to.

Happy Friday!

 

[JSmith43]

That's a crock, it's there for the express purpose of making the purchasers eligible for the loan in most instances.

In certain ways, the definition of MV is a crock

Stefan, I was born in ND and am 1/2 Norwegian, but have managed to put that understated humility stuff behind me

If the definition was tightened up a bit, if Fannie guidelines to appraisers were more clear, if pigs had wings.....

All they would have to do is say disclose financing concessions and their nature & the lender will decide whether to dollar for dollar them, place the loan into a different risk category, whatever. That way every final point value opinion of MV can have a little * after it reminding the underwriter to apply whatever decisioning rule they want based upon the amount and type of concession and the appraiser's explanation of market behavior regarding seller financing concessions.

BTW, seller financing concessions are technically distinct from seller contributions to a 503C, at least for FHA, where they are treated exactly like any other gift funds. I don't get it, but I know the rules. That's a crappy situation to hang on any professional, IMO.

 

[Lawrence R.]

OK, if a concession has been given(verified) on a comp sale, I adjust it dollar for dollar.

You do not need to research the market to know what cash equivalence is.

If the selling price is 100K, and I am going to finance it, and the seller is willing to pay 10K in closing costs, what would happen if I came back to them the next day and say--I won the lotto last night for 90K. Can I just give you the cash--you won't need to pay closing costs, as I have all the money up front.

What would the seller say? What would you say? Would you say NO, you must get a mortgage in order for me to sell you this house and net out 90K, I will not just take 90K up front.

Lets all say it together.

.....please.

 

[Jeff Horton]

If the selling price is 100K, and I am going to finance it, and the seller is willing to pay 10K in closing costs, what would happen if I came back to them the next day and say--I won the lotto last night for 90K.

Exactly the way I see it.

For what that is worth.