Concessions

[JSmith43]

During the cameo appearance of 5% LTV/CLTV deductions in declining markets courtesy of Fannie/Freddie, it really appeared to screw MV for homes above the FHA limit.

In fact, I'd say comps sold just prior to the cutback were not as reflective of MV for subject as comps sold shortly after the imposition of the 5% cutback in maximum financing terms. Fannie & Freddie got the hint and rolled back the change. Try explaining that to a customer ("Sorry, the county flipped to a soft market level 2 and you need to bring in an extra $20,000 next Tuesday. Certified funds, of course).

The terms generally available in the market are a crucial support pillar of MV. Cash equivalency is far less important than available financing terms. When the market is experiencing significant acceptance and expectation of a certain amount of "leverage", MV will be affected when the terms change, much like when interest rates change. However, a small change in down payment requirement seems to be much more powerful influence on MV than a small change in interest rate.

There is no shortage of appraisers that view a certain threshold of seller paid closing costs as not requiring adjustment, if seller financing concessions are prevalent. Except, in brave public comments on this forum

Typically, they adjust dollar for dollar, the concessions that exceed the typical threshold & certainly when the concession exceeds the closing costs and pre-paid expenses. If they don't, an UW will, since that is where UW rules kick in-see my prior post.

It is really interesting that my observations on this topic in the real world conflict with the ever stated principles on the forum. Is there a reality distortion field at work here?

What should be vs what is: In my opinion, if clarity was desired on the situation, clarity would be delivered. Same for Cert 23

 

[Lee Lansford]

state,

The averaging of concessions thingy is pure baloney. No competent appraiser would ever consider such a thing.

The market value of the concessions has to be left up to your own analysis, just like the definition of market value says.

In a general poll, most appraisers (including me) agree that dollar for dollar is what they find to be appropriate in their markets.

Marcia,

Your words make too much sense and will never be accepted by the majority of appraisers who, when the topic of "concessions" is raised, respond with "huh?"

Lee

 

[Louis Pompeo]

Financial concessions should be adjusted $ for $.

That is the true market impact of the concession.

 

[JSmith43]

Financial concessions should be adjusted $ for $.

That is the true market impact of the concession.

Could you show us where it says that in the definition of MV or in the GSE underwriting guides?

I didn't think so. And, there is, of course, a reason that such clarity isn't in there. We may not agree with the reason and exact reason is subject to speculation.

Maybe the "truth" for them that make the rules is situational.

This whole issue should go the path of FHA work orders-report what you find/see and dump it on the UW's lap. As it is right now, it is a lose-lose proposition for appraisers that have a lock on the truth, if a significant number of market participants are operating on the basis of a different version of the truth. In fact, I highly recommend that appraisers define the rationale followed in adjusting for seller concessions within the report.

As always, use sales without seller paid closing costs whenever possible.

 

[Elliott]

Its probably easier to convince a corn farmer that
ethanol is a stupid idea.

 

[JSmith43]

Perhaps Fannie/Freddie officials are reading this thread with amusement and concern.

Here's a suggested path to clarity: Modify the guidelines so that, say, maximum current financing offered for OO SFR is 95% of appraised value plus reasonable closing costs and pre-paid expenses. The standard would require a 5% minimum investment by the borrower.

In other words, borrowers are allowed to roll the costs into the loan. No seller paid financing concessions allowed. Here on out, they are considered give backs. That would give investors mor uniform results since the borrowers would have a more predictable level of skin in the game.