Concessions on New Construction

[J Grant]

Nottrav, what you wrote makes no sense

 

[NachoPerito]

Lets expand the concessions for clarity. Say concessions are $100k for a $200k home. If you were a bank would you feel comfortable loaning on the $200k if you knew you had to give $100k to sell the property? No. The net price is $100k so the bank should have an LTV associated with $100k. Same rule should apply if concessions are 3% of the purchase price.

 

[Proactive]

Concessions like that are already taken off the sales price. Just add all the figures up. If you adjust for concessions, the home has been adjusted twice for the same thing. Builder reduced by $13k and you again reduced by $13k

No soup for you.

 

[Deleted member 134708]

base price $350k, lot premium $10k, upgrades $30k, property sold for $367k. Builder incentives of $23k were given. So adjust another $23k down and and let me know where to let some investors know where to buy property for $23k discount.

 

[J Grant]

base price $350k, lot premium $10k, upgrades $30k, property sold for $367k. Builder incentives of $23k were given. So adjust another $23k down and and let me know where to let some investors know where to buy property for $23k discount.

the math does not add up. Builder sales sell at what they cost to build plus lot plus lot premium plus upgrades (typically) 350k base model plus lot premium of 10k is 360k, plus upgrades is 390k. The sale price of all those added up is 390k,.

If builder is including concessions , then the price is 390k with a builder incentive of 23k . ( the incentrive of 23k could be builder paid closing costs or cash back, however they structure it. )

I have no idea where you got a discount price of 367k from.

If a property cost to build of 390k sold for 367k and included concessions, then the concessions did not impact price upward and would not need adjusting. But in 20 years of appraising 5 years in sales, I have never seen it happen that way.

 

[Deleted member 134708]

Actual:

Look at the second sale with the pen lines. Base price + lot + options = $456,048. Has ($42,058) builder incentives. Sold for $413,990. So go ahead and take off another $42K and let me know where that subdivision is.



This is one builder. Other builders will have different accounting terms but is all the same outcome net-net. Incentives in new construction is already taken off the final sales price. New construction incentives v. existing homes is very different.

 

[J Grant]

I have no idea what any of this means. Why would a base price of 41399 plus lot premiums and upgrades and options sell for only the base price? Where are the $42058 builder incentives on that list...and is what you call a builder incentive a concession? Or is it "free" upgrades," (aka builder does not charge for the upgrades or lot premium?) I am not sure if what you call a builder incentive is the same thing as a concession.

A concession is cash back from a seller or paid costs associated with closing that are typically paid by buyer, such as points or closing costs, that will be paid by the seller.

What is a builder incentive of $42,058, what does that consist of.

 

[Deleted member 134708]

I am answering OP question. Someone is upset because the OP double adjusted. The OP didn't go into detail but their sales sheet and contract will have figures on it like I showed. Reason I said do the math. I bet anything that $13K is already taken off the final sales price. So when you adjust $13K again, you're going to be $13K under MV.

1 builder I do has $10K closing cost credit in every sale they do nationwide. That credit would be shown in the sheet I posted so net-net they can call it any name they want and makes no difference.

 

[J Grant]

They are not upset because the OP "double adjusted", they are upset because the OP adjusted down the amount of concession and the appraised value opinion is below the SC price.

Concessions on URAR forms are to be adjusted per insructed on the certification of the URAR You can argue with me but you can't argue with what the cert states (though you can ignore it I suppose)

The question is, why offer a concession? What does the builder get out of it? Are they Santa Claus giving money away?

When a builder offers concessions, they are not stupid, they are offering it in order to offset a sales price, (it also acts as a form of down payment assistance. If a builder pays a buyer's 15k of closing costs (and/or points) that gives buyer 15k more toward down payment .

.Analyze the price with and without concessions, compare builder price with resales, homes sold without concessions resale listings in subdivision, other builder sales etc. It is not easy to figure out impact on price (or if there is none).

 

[NachoPerito]

I think we need to distinguish between concessions (seller paid closing costs) and upgrades (tangible real estate that increases the value of a new home).

Concessions should be deducted from the sale price, but what do you do about upgrades: Subject to completion?