Concessions on New Construction

[JMinCA]

Hi, there's a new condo development where all the units are getting closing costs paid and many getting incentives for upgrades as well. The unit I'm appraising has purchase price of $367k. It's getting $8k in closing costs paid by seller as well as $5k credit toward the upgrades. Total incentives $13k. Every other model unit in that is getting the same, usually between $8-13k in concessions.

I came in at $355k because all model comps in project had concessions, and that is what was supported. Highest model match comp was $368k, and it had $13k in concessions. I made dollar-for-dollar concessions adjustments.

Broker is yelling at me for not hitting purchase price. (I know, I know.) "This is the first time I've ever had a low appraisal on new construction!," etc.

I thought I was doing this the right way. I called FHA (this is not an FHA loan), and they said I was right with the comp concessions. But I just got back a value appeal. I suppose I could add a larger comp (within 20% GLA) in project that sold for higher and would support sales price even with concessions, but this seems weird, especially since there are plenty of model matches.

Advice?

 

[gregb]

It is important to have sales outside of the subject project in order to judge if the seller concessions for the sales in the subject project impact their selling price.

 

[JMinCA]

It is important to have sales outside of the subject project in order to judge if the seller concessions for the sales in the subject project impact their selling price.

I used a comp in another project with no concessions. It sold for slightly less but was also 4 years old. Subject is brand-new.

 

[J Grant]

Who cares what broker thinks you did it the right way.. WTF would you throw in a larger model just to hit a value to make a broker happy? great way to get kicked off the FHA approved list. Stand tall, the builder can adjust price or buyer can walk so sick of this crap they should not pressure us like this.

 

[Proactive]

I used a comp in another project with no concessions. It sold for slightly less but was also 4 years old. Subject is brand-new.

Tough to give advice... you've appropriately reduced sales prices to cash equivalency and used sales (or a sale) from outside the project. I presume with the "value appeal" they have provided other sales for you to consider (if they didn't, I would be done, there... no other data to consider, no change in value). It's not the first time I've heard the ol' "This is the first time I've ever had a low appraisal..." bit, either.

Some days are diamonds, some days are stones.

Good luck!

 

[sandpiperapp]

If all the comps used have concessions, it seems that the concessions are typical for the market. If they are typical, does it make sense to adjust?

Not criticizing, just an honest question.

 

[Proactive]

If all the comps used have concessions, it seems that the concessions are typical for the market. If they are typical, does it make sense to adjust?

Not criticizing, just an honest question.

Honest answer: Yes.

 

[J Grant]

The standard for URAR form work is; are concessions present in virtually all transactions (virtually would be almost all, aka 99% to 100%). read from financing and concession adjustments on the cert page and limiting conditions page on a URAR form below the MV definiton ( as explained in a FAQ from Fannie, even if concessions are typical for market, if they are not present in virtually all transactions they need adjusting if seen to impact price)

 

[DWiley]

If all the comps used have concessions, it seems that the concessions are typical for the market. If they are typical, does it make sense to adjust?

Not criticizing, just an honest question.

1. What is common in the market is irrelevant.
2. Adjusting mechanically $ for $ is contrary to the instructions printed right on the form.
3. The subject's concessions are irrelevant.

For each comp, how much did the concesion affect the price? NOT the net cash to the seller - the PRICE. That is the proper adjustment for concessions.

 

[Deleted member 134708]

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