Concessions on New Construction

[J Grant]

The OP needs to find out if the price of $367k already reflects the $13k in concessions or not. Is the net price to the builder $367k or $354k.

If I was talking to the builder regarding the $370k above from nottrav I would make sure the closing costs weren't already taken out. Is the contract price $381,202 or $370,000. If the contract price is $370,000 then the closing costs were already given. In the end the builder will need to clarify this.

No matter what the builder statement says , it can be smoke and mirrors because all a builder has to do is price their initial base model high enough to absorb any concessions or credits they "give", a buyer ( or any discounts or credits they minus off the total price).

What the builder nets and what the builder adds or subtracts on their statements is what it is. Ultimately, there is a final sale price. For OMV purposes we are anaylzing final SC price and if a concession or creative financing is present, was final sales price affected by it..

 

[Michigander]

Think how quickly a market could be artificially inflated by appraisers not adjusting for sales concessions. If they affect the price then they have to be adjusted

 

[J Grant]

Think how quickly a market could be artificially inflated by appraisers not adjusting for sales concessions. If they affect the price then they have to be adjusted

That happens, and worse happens. Too many appraisers don't actually appraise new construction properties for market value. They simply use the builder sold comps, which in their mind "proves" that the SC price is MV, and if they even bother finding a resale, they simply adjust it up to the SC price make up the difference, attributing it to C2 vs C1.

When a whole community is "appraised" in this manner, the whole community sells at inflated prices, why we often (not always, but often) see new home communities lose value right after build. It's not just depreciation or buyers will pay more for new, the whole darn community was over valued. ( for the clueless, builders will often "sell" the very first few properties to associates who agree to pay the price, thus setting the first pending sale prices for appraisers ( and first 2 or 3 sold comps).

I am not anti new construction and more than happy when on an assignment, my MVO is that of the SC price. But I See so many inflated builder sale prices "supported" by appraisals that did nothing more than rely on builder sale prices.

 

[Mark K]

And this is why the appraiser needs to use one or more market resale in with the other comps because the "assembled" comps, the lot/house/incentives/concessions/kickbacks, etc. from the builder comps are not market value, they are a cost "value", a just-bought-but-not-driven-off-of-the-lot-yet value.

If the resale market shows that all of these bogus concessions, etc. have value, so be it. I'm guessing that most of the time this is not the case.

 

[Deleted member 134708]

All posters to this thread sans "Cindy" need to pull up Khan academy accounting. I showed 2 real life examples of how new construction is structured and received an answer of "yeah but still."

I actually answerd the OP question.

@jgrant

You are typing a ton without saying anything.

All concessions, credits, awards, prizes, tax credits are all taken off x price to net a final sales price. That's why I love math as there is no alt. answer.

What I have shown is mathematical fact.

Side Note: A potential 55+ buyer also looks at non? A new home potential buyer also looks at existing?
Hmm. Going to say different potential buyers.

 

[J Grant]

All concessions, credits, awards, prizes, tax credits are all taken off x price to net a final sales price. That's why I love math as there is no alt. answer. What I have shown is mathematical fact.

Math may not by itself lie or provide alternate answers, but people can use math to lie, and provide alt answers . Bernie Madoff's math was perfect. In fact, the accounting on his brokerage statements was so good he fooled auditors for years. The math looked correct, but the facts behind the math were lies.

If a builder credits a buyer 11k off a final sales price factored from a base model house price 355k, all the builder did was add 11k into his base price of house (or base price of lot). For example, Instead of charging 344k for a base model, he charged 355k, then credits the buyer back 11k, Buyer can add whatever lot premiums and upgrades they want, the builder has already covered the 11k he is "giving" as a credit.

Your job is to analyze whether or not 11k concession/credit affected the final sales price of 370k, and if so, adjust for it. Cncession and creative financing adjustments concern the price paid for the property, not net to seller.

The builder statement of "final net" price by subtracting 11k on paper from his own figures is done to 1) make buyers think they are getting a good deal 2) Fool appraisers such as yourself who believe the 11k concession was already "taken out" of the price, so the appraiser won't adjust for concession.

 

[bart nathan]

Free builders upgrades or credits are the builders way of making price reductions without reducing the price.

 

[J Grant]

If a builder "reduces" a price, it's from a base price his company invented so what does that mean? The price is the price. "Free" upgrades are not free, the builder is including them at cost and buried the cost of any "free" upgrades in price of base model or the lot. Concessions are an incentive to purchase...they act as down payment assistance. If builder offers 10k credits/closing costs that normally buyer would pay out of pocket, that puts 10k cash in buyer's pocket for down payment/ability to purchase.