Confused About Stupid Seller Paid Concessions

[Deleted member 134708]

Market participants are in the @Elliott camp from what I see.

I don't see the net to seller, net to buyer maths from market participants.

I see them use emotional/kindergarten maths. They don't figure if the buyer is using a broker that charges $1 closing costs or $10k closing costs. The buyer doesn't figure if the seller is an agent and it cost them $0 to sell their home.

If you do $4$ blindly, and only in 1 direction, you are a net to buyer/seller subscriber. I'm 100% OK with that. Just man up and see it thru though. Go find the maths on all parties gross costs. Agent, transfer, county, special, closing, origination etc.

 

[Slappy]

If a concession is around 2% of sale price or under, it is very difficult to tease out if it was an influence on sales price unless the property and the comps have a high degree of conformity. In my area, realtors and loan agents typically manipulate a sales price percent or so in order to accomodate a seller concesion. They usually withold contract addendums re concessions until after the appraiser has submitted the report. It is kind of hard for an appraiser to retrospectively say a 1% concession had an affect on sales price! As long as it is up to us to determine if a concession has influenced a sales price, realtors will continue to play their tricks. Ultimately, the FNMA should step in and mandate that concessions over say a 3-4% benchmark are inducements and not allowed. That would help curb the abuse.

 

[Marty Boone]

I pretty much never see concessions affecting a sales price. Would sold that price no matter. I explain sales price (not net to buyer) was analyzed and no affect.

Agents say they had offers much higher but went with this one cause they liked buyer or loan more likely to thru etc.

As an Appraiser and a Realtor, the above makes no sense to me.

Here is one way of looking at concession adjustments; comparable sale #1 was on the market for 120 days and during that time the price was reduced twice final list price & sold price is $500,000 with 6% seller assistance, do you think that if that buyer decided to sell the property for any reason could they get $500,000 for it within 30 days or would it most likely sell for $470,000. By not correctly adjusting for seller concessions on purchase appraisals the market begins to get artificially inflated.

 

[Deleted member 134708]

Here is one way of looking at concession adjustments;

If there is #1. Must be at least a 2nd.

Want to offer the other way?

I'm all for either way. I just can't prove without a reasonable doubt a negative adjustment is warranted. Appraisers can write it, say it....but very few can prove it.

 

[Marty Boone]

Well one way that some appraisers deal with concessions is to just ignore them and hit that number. A third way is to realize that when you read the listing history and you see that a comparable sale was on the market for over 160 days at $200,000 and it sold for $212,000 FHA or Conv. with 6% SH, someone was asleep at the wheel so you might want to adjust for that $12,000. Another way is to become a Realtor and negotiate a few deals in the real world or at a minimum take a class on how to write a purchase agreement. As far as proving that an adjustment is warranted, confirming the terms of the sale is not difficult if you verify the details with the listing or selling agent. But, I can see from post #25 that you are a most likely not going to due that. If a buyer really needs to finance those closing costs (and they have a buyer's agent that really doesn't give a damn about ethics or fiduciary duties) maybe it isn't the right house for that buyer. BTW, FHA 6% seller help are the ones that are most likely to become bank owned and then the appraisal will be gone over with a fine tooth comb. If you make the correct / verified concessions for seller help and your value comes in below the purchase price you just did the buyer a favor and given them the opportunity to renegotiate. When you schedule the inspection do you talk to the listing agent? Do you ask them if there have been any additional offers made on the property? How about recent improvements and updating? I'm not trying to throw any shade here I just believe that I can provide a reasonable explanation for my concession adjustments and I make them all the time.

 

[residentialguy]

I'm all for either way. I just can't prove without a reasonable doubt a negative adjustment is warranted. Appraisers can write it, say it....but very few can prove it.

I prove it every time. Seller would lower the price $4$ if they didn't have to pay them. Bam - verified. Proof from the horse's mouth

 

[Tim Hicks (Texas)]

Sometimes the current market conditions determines the adjustment. Last summer hardly any concessions were paid because buyers were bidding for properties. Now that the market has slowed, concessions have returned. But, remember the "virtually all sales transactions..." definition also. Last summer when nobody was paying concessions and there were occasional sales concessions, then dollar for dollar may have been appropriate. Now with a slower market and more properties with concessions, what is the effect of the sales concessions?

 

[Michigander]

Tim has a good point. Did you call the listing agent and ask them if the seller would have sold for $3-$4k less if they didn't have to pay out $3-$4k from their pocket? 99.99% of the time they would, of course...but there's always that .01% chance.

Asking the selling agent makes more sense since they are the ones working with the buyer. They would know the buyers thought process better.

 

[Michigander]

Both Fannie and FHA are asking the appraiser to adjust for concessions related to whether and how they affected the sales price. If the sales price was affected, then you adjust the amount that it was affected. Sometimes a concession can actually impact on the sales price more than the concession amount. Sometimes it won't. It doesn't matter how prevalent they are, as much as whether the house would sell for the same amount were the concession not granted. This does happen, but probably less often than we might like to believe. Maybe something like a negotiated water softener, where the buyer would still buy if they didn't get it, and the seller just credited it. But watch listing histories. Not just the one that is related to the sale, but was it removed from the market and relisted at a higher price? Any time a sale goes over asking and it wasn't a bidding war, dive deep. I personally find the selling agent is the best source if you can't talk to the buyer themselves. Remember, most sellers don't just say, gee I like you, I think I will give you 10K of my hard earned equity.

 

[residentialguy]

Sometimes the current market conditions determines the adjustment. Last summer hardly any concessions were paid because buyers were bidding for properties. Now that the market has slowed, concessions have returned. But, remember the "virtually all sales transactions..." definition also. Last summer when nobody was paying concessions and there were occasional sales concessions, then dollar for dollar may have been appropriate. Now with a slower market and more properties with concessions, what is the effect of the sales concessions?

I'll put money on $4$. It doesn't matter that they are "typical". I suggest you remember "virtually all sales transactions....as if there was a law" saying that seller has to pay the closing costs, including cash deals This has never been the case in any market.

You need to find out and ask the seller's agent (the listing agent) if the seller would have sold for $4$ less if they didn't have to shell that money out of their saving account. Unless they have a side deal, I guarantee they would certainly agree to lowering the price and getting the same in their pocket...esp when it would be more likely to appraise at a lower price without the seller concession inflation.