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Concessions And Reconciliation

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The Nightfly

Junior Member
Joined
Jan 23, 2008
Professional Status
Certified Residential Appraiser
State
Texas
In my experience with both in person conversations and from comments on this forum, I think the majority of appraisers will weigh a contract price in the reconciliation. For example:

Five best comparables adjusting to 150k, 150k, 151k, 153k, 155k
List price at 155k, contract price at 155k, no concessions
OMV = 155k (unless considerable data showing otherwise)

Question - is it still acceptable to weigh the contract price when you know its influenced by concessions? Take the above example, and say that the list price was 150k, and contract price is 155k with 5k in concessions. Now an opinion of 155k seems like number hitting. While the contract price may still fit within the most probable range, it is not a cash equivalent meeting of the minds. I have run into this scenario several times over the past couple months, and I'm uncomfortable with what to do. In each scenario the adjusted range is fairly tight, and the contract price is at or near the top of that range only because of concessions. On one hand, appraising it at 150k seems like playing appraiser god (I know more than the market participants); on the other hand, appraising it at 155k feels like Mr. Kennedy's bullseye.

Am I overthinking? Any comments are appreciated.
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
In my opinion any concession is impacting the CASH Equivalent value and MV definition seems to imply strongly in terms equivalent to cash.

in terms of cash in U.S. dollars or in terms of financial arrangements comparable​

I see no reason to consider a concession "comparable" to cash.
 

Artemis Fowl

Senior Member
Joined
Mar 16, 2004
Professional Status
Certified Residential Appraiser
State
Michigan
Did you ask during verification if the sale would have still taken place without the concessions? Consider them/adjust for them based on the answer.
 

The Nightfly

Junior Member
Joined
Jan 23, 2008
Professional Status
Certified Residential Appraiser
State
Texas
I see no reason to consider a concession "comparable" to cash.

So you're saying that if you weighed the subject's contract price, it would be minus the concessions?

Did you ask during verification if the sale would have still taken place without the concessions? Consider them/adjust for them based on the answer.

Thank you, but I'm talking about the subject - not concessions on a comparable sale.
 

residentialguy

Elite Member
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Mar 24, 2009
Professional Status
Certified Residential Appraiser
State
Minnesota
Take the above example, and say that the list price was 150k, and contract price is 155k with 5k in concessions.
Yes, the subject can be a good indicator and is strong market evidence of value, which you need to consider. If they had $5k in concessions, then most likely (with rare exception) the sale would be considered a $150k sale once adjusted for seller paid concessions, not $155k. Obviously you can't target the sale price, rather you treat is as a market pending sale...one that needs no other adjustment. It's already on your SCA as the subject (notice that even the sale price is carried over to the grid), so you wouldn't paste the same info into a comp slot, just as you wouldn't double the comps.
 
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J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
The test is whether the price is affected by concessions- it has nothing to do with cash equivalency. Cash equivalency merely says cash of equivalent in financing, thus 150k if a buyer pays cash or if it's 150k with 10k down and 140k financed, its the same 150k in cash funds at closing to seller. Whether the price was inflated to cover the amount of concessions is for the appraiser to determine ...compare it to prices without concessions, after any time or other adjustments a picture should emerge . . A SC price is another piece of market data and can be a strong, weak or middling indicator for the market value opinion- what did the rest of your appraisal support in the other sales, the cost approach, market analysis etc?
 

Peter LeQuire

Elite Member
Joined
Jan 3, 2005
Professional Status
Retired Appraiser
State
Tennessee
Nope - talk to a buyer who didn't have the cash to close at the indicated price, and who borrowed the funds above her available cash whether she would have paid the same price had she not had the loan.
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
*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...the individual buyer and seller have their concessions and thier price ....aka the seller sell if for 150k without the 5k concession...but is the price affected by concessions as far as the opinion of market value as an indicator...that is the appraisers' judgment.
 
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