Cash Equivalency on Comps

[Matt McCormick]

Have a 1004 with 2 comps Conv financing a bit below list price, one FHA well above. Typical sellers concessions in market is 3% Seller concessions on FHA comp is 5.82% over list.

I made a dollar for dollar adjustment for every dollar over the 3% typical threshold which should equate it with cash value.

Local MLS crew advised realtors/associates not to disclose concessions, so that is a moot point.

Any thoughts to the contrary?

 

[Joyce Potts]

Hidden, disclosed and cleverly disguised concessions are one of THE BIGGEST issues that need to be addressed if mortgage lending/appraisal reform is going to make any significant difference.

Either mandate the recording of HUD-1's or some other additional disclosure sheet signed by all parties, in addition to the 'closer' attesting to all the charges, etc., on the closing statement with the exception of the payoff(s), perhaps.

The creativity I'm seeing regarding closing statements has totally rendered my faith in recorded deed amounts in the public records as highly suspect, especially with builder sales. Many have effectively manipulated the HUD-1's with creative 'credits', 'escrows' and excessive real estate commissions, thus trying to get to the real NET SALE PRICE is almost impossible, resulting in many artificially inflated markets, IMO.

 

[Mztk1]

Have a 1004 with 2 comps Conv financing a bit below list price, one FHA well above. Typical sellers concessions in market is 3% Seller concessions on FHA comp is 5.82% over list.

I made a dollar for dollar adjustment for every dollar over the 3% typical threshold which should equate it with cash value.

Local MLS crew advised realtors/associates not to disclose concessions, so that is a moot point.

Any thoughts to the contrary?

FHA concessions are 5.82% over the list, but this doesn't tell you everything. Concessions could have been 6% or even 6% to close plus 3% to a gift program for downpayment. On every sale you should talk to someone involved with the transaction...call the listing agent at the very least and ask if the the seller paid any of the BUYER'S closing costs and how much. Even if 3% is now typical in the this down market for the seller to pay the buyer's closing costs, the seller is still paying what traditionally is, or by law would otherwise be, the BUYER'S closing costs - and that is a concession that needs to be adjusted. The 3% adjustment should be made even if it is across the grid. Concession adjustments are not made against the subject and so across the grid adjustments are not only acceptable but in my markets very common.

I read in Ohio a big shot wrote that agents who disclose concessions are breaking privacy rules. I don't know if he is wrong or right, nor do I care, that's for the agents own comfort level. Just because an agent isn't supposed to disclose a contract price on a pending sale, for instance, it doesn't preclude my efforts to make the call and try to find out how much the house is selling for.

 

[Jim Bartley]

Have a 1004 with 2 comps Conv financing a bit below list price, one FHA well above. Typical sellers concessions in market is 3% Seller concessions on FHA comp is 5.82% over list.

I made a dollar for dollar adjustment for every dollar over the 3% typical threshold which should equate it with cash value.

Local MLS crew advised realtors/associates not to disclose concessions, so that is a moot point.

Any thoughts to the contrary?

Define "typical"

 

[Restrain]

Do not jump on the "cash equivalency" bandwagon. This was done back in the 80's, and the rules have since changed. You adjust on the basis of the effect on the sales price. You may have $5K in concessions, but have a $2K effect on the sale price. This is determined by an examination of the market, not by a mechanical adjustment of dollar-for-dollar.

That being said, some lenders have supplemental requirements that all adjustments be pulled out at a dollar-for-dollar rate. If that's your lender's requirements, then make the comment.

 

[Matt McCormick]

Strahan,

I think you confirmed my original point. If the market bears 3% on typical transactions, shouldn't I adjust dollar for dollar above that? Frankly I don't have supporting evidence, but I don't have dissenting evidence either. I am totally against paired sales analysis and think it is a bogus approach and tend to adjust based on %, but that just my opinion.

 

[leelansford]

Have a 1004 with 2 comps Conv financing a bit below list price, one FHA well above. Typical sellers concessions in market is 3% Seller concessions on FHA comp is 5.82% over list.

I made a dollar for dollar adjustment for every dollar over the 3% typical threshold which should equate it with cash value.

Local MLS crew advised realtors/associates not to disclose concessions, so that is a moot point.

Any thoughts to the contrary?

"...3% typical..."

So, in VIRTUALLY ALL sales transactions...by custom or law...the seller pays (approx.) a 3% concession? AND, such concessions are present whether market conditions are characterized as a seller's OR a buyer's market?

Point of clarification if you would, please.

 

[leelansford]

...If the market bears 3% on typical transactions...

Good times and bad times (for sellers, that is)?

 

[Mztk1]

Is this a 1004? Read the definition of market value. It is what is typically paid by custom or law. That basically means you must ask yourself, If nothing is added to the contract who will pay for what? If the contract read the seller will pay 3% of the buyer's closing costs, than the seller is OBVIOUSLY agreeing to pay for closing costs that by law or custom would otherwise be paid by the buyer...otherwise the stip in the contract would not be needed.