Builder Closing Cost Credits/Sales Concessions Adjustments

[FLRealEstateValuator]

My supervisor trained me to ALWAYS adjust closing costs credits dollar for dollar because in our North/Central Florida market, a buyer sees these credits as a discount from the total price paid for the house. About 95% of my work is new construction, and it is very typical for builders to credit $20k - $30k in closing costs to buyers when paying $300,000 to $500,000 for a house. Are you adjusting for these closing cost credits on new construction? How are you handling this?

 

[NC Appraising]

95% of your work is new construction? You better not deduct anything....you want have any work if you do.

This is how builders are not having to reduce prices, because they have plenty of appraisers willing to play along (not talking about you).

So to your question, read the definition of mv that you sign on a daily basis.

....must be made
...none to be made traditional or law...virtually all transactions.

Typical....this is the magic word that appraisers use to justify not making sc adjustments. ....ie inflating the values to make the deal work...to stay on the gravy train.

So, are these same seller conessions being paid by cash buyers? In the resale market? I would guess NO. Virtually all...it doesn't differiant between new construction or the resale market.

in my market, the only thing that you will see in virtually all sales is the seller paying the home warranty.

Lastly. Were these same builders paying the same amout in 2021? No. It is not what currently happening in the market or what is currently typical.


Note...you will not find typical anywhere below....it is a made up word.

DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming
the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and
the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both
parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a
reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms
of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

*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.

 

[FLRealEstateValuator]

95% of your work is new construction? You better not deduct anything....you want have any work if you do.

This is how builders are not having to reduce prices, because they have plenty of appraisers willing to play along (not talking about you).

So to your question, read the definition of mv that you sign on a daily basis.

....must be made
...none to be made traditional or law...virtually all transactions.

Typical....this is the magic word that appraisers use to justify not making sc adjustments. ....ie inflating the values to make the deal work...to stay on the gravy train.

So, are these same seller conessions being paid by cash buyers? In the resale market? I would guess NO. Virtually all...it doesn't differiant between new construction or the resale market.

in my market, the only thing that you will see in virtually all sales is the seller paying the home warranty.

Lastly. Were these same builders paying the same amout in 2021? No. It is not what currently happening in the market or what is currently typical.


DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming
the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and
the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both
parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a
reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms
of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

*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.

Thanks so much for your detailed response. Surprisingly - I've always deducted them, sometimes come in under the sale price, and they keep sending me work! I never just play along to stay in the game; I do what I believe to be right. This concessions thing, I always trusted my old supervisor on, and re-questioned him several times about it, but he insists on dollar for dollar - even using some of the same statements you sent me here about MV and market adjustments. That's why I wanted to ask what other appraisers are doing with this. And this client is super picky. I have to explain - with math included - how I calculated each and every adjustment amount, so that's what makes it difficult...

 

[Sadie]

95% of your work is new construction? You better not deduct anything....you want have any work if you do.

This is how builders are not having to reduce prices, because they have plenty of appraisers willing to play along (not talking about you).

So to your question, read the definition of mv that you sign on a daily basis.

....must be made
...none to be made traditional or law...virtually all transactions.

Typical....this is the magic word that appraisers use to justify not making sc adjustments. ....ie inflating the values to make the deal work...to stay on the gravy train.

So, are these same seller conessions being paid by cash buyers? In the resale market? I would guess NO. Virtually all...it doesn't differiant between new construction or the resale market.

in my market, the only thing that you will see in virtually all sales is the seller paying the home warranty.

Lastly. Were these same builders paying the same amout in 2021? No. It is not what currently happening in the market or what is currently typical.


Note...you will not find typical anywhere below....it is a made up word.

DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming
the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and
the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both
parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a
reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms
of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

*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.

I just had this convo with a review appraiser. She was silent when I asked her if the credit was there for cash buyers.

 

[NC Appraising]

Thanks so much for your detailed response. Surprisingly - I've always deducted them, sometimes come in under the sale price, and they keep sending me work! I never just play along to stay in the game; I do what I believe to be right. This concessions thing, I always trusted my old supervisor on, and re-questioned him several times about it, but he insists on dollar for dollar - even using some of the same statements you sent me here about MV and market adjustments. That's why I wanted to ask what other appraisers are doing with this. And this client is super picky. I have to explain - with math included - how I calculated each and every adjustment amount, so that's what makes it difficult...

Good for you. Glad to hear that there are some honest and ethical appraisers out there.

The only minor disagreement is dollar for dollar. In the real world, we would call up or text every agent to see what the SC was for. Repairs, overly motivated seller, over priced, become stale and gave a higher amount of SC in order to move it, etc.

When the seller has multiple offers, they do not always chose the highest price. They will often chose the offer that will make it to the closing table. In some situations, the 2-4k in sc did not affect the price.

Thats is why in the definition of MV it is a judgment call.

In new construction, upgrades, rate buydowns or for closing costs.

In one new pud, the builder was selling the home at the same price for cash buyers no SC and for buyers with mortgages and was giving 20k. So was it affecting the sale price?

Currently in my market, builders are hiding the rate buydowns and other SC. playing appraisers like a fiddle. They know that appraisers will just go to the MLS pull three cherry picked sales and move on. Not verifying anything. The builders are not putting the amount of the rate buydowns in the MLS, just the closing costs...

 

[FLRealEstateValuator]

Good for you. Glad to hear that there are some honest and ethical appraisers out there.

The only minor disagreement is dollar for dollar. In the real world, we would call up or text every agent to see what the SC was for. Repairs, overly motivated seller, over priced, become stale and gave a higher amount of SC in order to move it, etc.

When the seller has multiple offers, they do not always chose the highest price. They will often chose the offer that will make it to the closing table. In some situations, the 2-4k in sc did not affect the price.

Thats is why in the definition of MV it is a judgment call.

In new construction, upgrades, rate buydowns or for closing costs.

In one new pud, the builder was selling the home at the same price for cash buyers and for buyers with mortgages and was giving 20k. So was it affecting the sale price?

Currently in my market, builders are hiding the rate buydowns and other SC. playing appraisers like a fiddle. They know that appraisers will just go to the MLS pull three cherry picked sales and move on. Not verifying anything. The builders are not putting the amount of the rate buydowns in the MLS, just the closing costs...

Good points. I'm not doing dollar for dollar on this one, because the comps are just not aligning closely enough if I do. And, I'll take it on a case by case basis going forward. I have to de-program myself from my old supervisor's training. I just have to figure out how to explain my judgment call to the picky underwriter.

 

[Tom D]

Fannie had a recent news letter, din't rememer date, where they were complaining about appraisers not adjusting for concessions. It does make sense that you would pay less with no concession. I take off now for every comp, but concessiins don't seem to be there like before.

 

[FLRealEstateValuator]

Fannie had a recent news letter, din't rememer date, where they were complaining about appraisers not adjusting for concessions. It does make sense that you would pay less with no concession. I take off now for every comp, but concessiins don't seem to be there like befo

Fannie had a recent news letter, din't rememer date, where they were complaining about appraisers not adjusting for concessions. It does make sense that you would pay less with no concession. I take off now for every comp, but concessiins don't seem to be there like before.

My old supervisor worked for Fannie Mae for a period of time...that explains why he pushed for me to always adjust for them.

 

[J Grant]

Fannie had a recent news letter, din't rememer date, where they were complaining about appraisers not adjusting for concessions. It does make sense that you would pay less with no concession. I take off now for every comp, but concessiins don't seem to be there like before.

I thought the newsletter complained about appraisers not making adjustnments for market conditions ( time adjustments )

 

[NC Appraising]

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