Yet Another Seller Concession Question

[Peter LeQuire]

"You are making this all about seller acceptance and what seller would accept, when that is not the question asked..."

It's about the price paid for and the terms of sale of comparables - nothing more, nothing less.

This is my Emily Litella moment.

 

[J Grant]

*Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable since the seller pays these costs in virtually all sales transactions. Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third party institutional lender that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical dollar for dollar cost of the financing or concession but the dollar amount of any adjustment should approximate the market’s reaction to the financing or concessions based on the appraiser’s judgment."

Above from the URAR certification page...don't shoot the messenger...or do your cert pages say something else ( lol ....

 

[residentialguy]

he question asked about whether to adjust or not for concessions is what impact (if any), did the concession have on price.

Right....what would the purchase price be if the seller did not have to pay the concessions. That is the impact. Pretty simple....ask them. The answer is always the same 99.9% of the time: "Duh, it would have sold for the same net". That is the market's reaction!

 

[residentialguy]

Any adjustment should not be calculated on a mechanical dollar for dollar cost of the financing or concession but the dollar amount of any adjustment should approximate the market’s reaction to the financing or concessions based on the appraiser’s judgment."

Above from the URAR certification page...don't shoot the messenger...or do your cert pages say something else ( lol ....

The messenger apparently didn't get the complete message.

The impact of that sale will approximate the market reaction, not vice versa.

Selling Guide, Part XI, Section 406.5 (C)
"The adjustments must reflect the difference between what the comparables actually sold for with the sales concessions and what they would have sold for without the concessions so that the dollar amount of the adjustments will approximate the reaction of the market to the concessions.”

 

[Peter LeQuire]

It's unfortunate that "financing" and "concessions" are lumped together. Closing costs are reasonably easy to deal with: financing concessions, seller financing, balloon mortgages, "teaser rate" mortgages or quick trigger ARMs are significantly more complex to deal with.

 

[residentialguy]

balloon mortgages, "teaser rate" mortgages or quick trigger ARMs

I don't believe these have any affect on sale price because the seller couldn't care less what the buyer does to get the money. The buyer could get it through a loan shark at 50% interest for all he cares. The thing that really affects the price are the thing that involve both the seller and buyer, ie seller paying the buyer's closing costs or the seller financing the deal for the buyer. "I'll do you a favor, but not for free"

 

[Peter LeQuire]

I don't believe these can have any affect on sale price because the seller couldn't care less what the buyer does to get the money. The buyer could get it through a loan shark at 50% interest for all he cares. The thing that really affects the price are the thing that involve both the seller and buyer, ie seller paying the buyer's closing costs or the seller financing the deal for the buyer. "I'll do you a favor, but not for free"

I shoulda' listed seller financing also. My bad - now I go home and mow.

 

[timd354]

I shoulda' listed seller financing also. My bad - now I go home and mow.

yes, potential comparable sales that were sold using seller provided financing can be quite tricky and require additional analysis. Even if the seller provided financing appears to have similar terms as financing available from institutional lenders, there is a possibility that the seller provided financing because the borrower had crappy credit and could not get a mortgage from a bank or other institutional mortgage lender and the contract price was set higher than it would have been if the seller did not provide financing.

 

[residentialguy]

yes, potential comparable sales that were sold using seller provided financing can be quite tricky and require additional analysis. Even if the seller provided financing appears to have similar terms as financing available from institutional lenders, there is a possibility that the seller provided financing because the borrower had crappy credit and could not get a mortgage from a bank or other institutional mortgage lender and the contract price was set higher than it would have been if the seller did not provide financing.

One of the few times that I didn't adjust for 3% seller concessions was when I called the listing agent and asked if the seller would have sold for less price if the buyer said that they didn't need the seller to pay out 3% out of their pocket for concessions...and to my surprise, the listing agent said "no". I asked her "why is that?" She replied; "Because the seller only offers to pay the buyer's concessions if they finance through them. They get their 3% back." Sure enough, other sales from the seller proved that there was no price variance on deals without seller paid concessions.

So there you go. That's why dollar for dollar can't be mechanical, rather it must be verified.

 

[residentialguy]

Contract for Deed can produce huge affects on sale price...always in favor of the seller's bank account. They can mimic loan shark deals