Builder Incentives/Sales Concessions

[AWorthy]

Ok, I have a situation going on right now where the builder is discounting their products for paying the 'development' fees or CDD fees as they call them here for approx. 30 years. If the builder pays the CDD fees, they discount only $13,000, however if they don't pay the CDD fees they discount $30,000. They are trying to say that this will 'go with the land' and is transferable in the future to new buyers and has 'real value'. If the buyer pays the CDD fees, it is added on their tax bill at a rate of $1350+ a year.

This is an FHA appraisal and there are no re-sales within this S/D to use to compare to the builder sales as it is a new development. Are there any rules that say we have to use 2 sales from within the S/D or can all be outside if there are no re-sales as this is a newly developing area. The builder has closed sales and pending sales available of course. Frankly this stinks and I'm totally confused! Can anyone help shed some light on how to handle this? (Just ask as I'm not sure if any of that made sense, sorry!)

 

[Michigan CG]

Moved to General Appraisal discussion. Ask an Appraiser is for the general public.

 

[VolcanoLvr]

If a builder lists houses for "X" dollars, then offers an incentive which reduces the net proceeds to the builder, it's a concession.

The problem you have is you have two concession amounts. What does your subject have applied to its purchase? There is a $17K difference in your example.

Builder sales/pendings are closer to 'cost', not value (or market value). That would be determined by uninfluenced resales. The builder cost sales prices may be entirely different than current resale prices of similar nearby homes.

Do you have any other similar S/D's in a 3-10 mile radius that have been developed similarly, with similar concessions that applied to the initial sales, and with recent sales? See if there is any difference in the resale values for similar sized homes sold with different concession amounts and try to determine a % difference which could be applied as an adjustment.

You probably are going to have to use sales from other S/D's in the report, with 1 or 2 from the new S/D.

Another tip: FHA maintains 'help lines' to which appraisers can call to talk directly to an on-staff FHA appraiser. I don't know where your area HOC is located for the east coast, but I do have a number for the California HOC. I suggest you call them ASAP.

 

[Mike Boyd]

I have not done one of these in several years. However, it seems to me that any improvement bonds (streets, sewers, street lighting, curbs and gutters, street widening, etc) had to be paid off for an FHA loan.....IF....a specific amount was assigned to each property. Many bonds are in bulk and property owners are assigned a percentage that must be paid with their tax bill....and cannot be paid off until the bond matures.

Otherwise, I agree with Dave. For comps, obviously you will have to go outside the development and you will have to research for what the bond situation was. I would use these outside sales and maybe 2 or 3 pendings or actives as additional comps.

 

[Ross (CO)]

What a bag-of-snakes these new-home builder incentive and concession programs can create ! A shell game.....for no one but the appraiser......and their client/lender who is unwilling to FIRST see and review that purchase contract prior to the appraiser commencing their analysis and report.

The client/lender should be telling YOU what they conclude as the actual selling price for the house+land, what they see for a(ny) concessionary amount being included within a larger designated "price" for the property......and then you scrutinize the market's data and conclude the opinion of current value. By proceeding in this manner there can never be any surprises about "not meeting contract" when the report is delivered.....if a thorough and diligent analysis of the data is performed and thusly presented in the report ! Discounts of $13,500, or $30,000, yikes, wow. So, what is the actual price of the house+land. Same house, same land......yet, if a different buyer with a different set of financial circumstances and negotiatory progress were sitting across the desk from the builder rep......they might get a different "price" for the property ? Just work the equation and go forth with the residual. Recorded selling price - transaction costs and special offerings = actual selling price. We are obligated to base our analyses on knowing these actual selling prices.

There are still too many states not willing to tackle the concessions "problem" and offer declarative position statemenmts for how their state's appraiser's should investigate and reconcile them in the normal course of business. The notion of killing the deal is not a relevant excuse. Appraisers can't kill deals if they are doing their diligence accordingly. I stopped serving the new-home market in 2004/2005 when the level of corruption and unwillingness to disclose information pushed me beyond my tolerances. My market area is no more pristine than anybody else's.

Lee will be along soon to clarify the concessions issue for you.