Confused About Stupid Seller Paid Concessions

[residentialguy]

It doesn't say "over normal market expectations". It wants to know if it affected the purchase price.

 

[TJSum]

Yes, did it affect purchase price over what the typical buyer would pay. You seem to be stuck on the question that does not apply to the real world, because in the markets I describe, without the concession, there would be no sale.

 

[residentialguy]

You're being an advocate to making a particular market work. It does not say over what the typical buyer would pay. It does not say in order to make this market work, don't adjust.

If they can't afford $5,000...maybe they shouldn't be buying something with a $250,000 sticker on it.

 

[TJSum]

No, this is how the first time home buyer market has worked for the past 70+ years in this region, if the powers to be wanted to outlaw and make concessions illegal they could do that with the stroke of a pen. Or if they wanted a mechanical $4$ adjustment, they would state as such. I still maintain the adjustment applies when it inflates the price over what a typical buyer would pay, not some sort of question that does not apply to the real world in these markets. Now if you are talking mid to high priced homes, I'd say you are correct, because there buyers would be available that do not need concessions, so your question would have merit.

 

[Terrel L. Shields]

, without the concession, there would be no sale.

You give Realtors no credit for being creative. Abolish the concessions and see what happens.

 

[nachocheesefries]

Sean,
Well, the right thing is to negative the concessions, $4$ (about 50% of polled appraisers agree). Don't worry about the terms of the subject's "concessions" as it is not a comparable. I appreciate that you are struggling. This subject has been discussed ad nauseam.

The best solution I've found came from an appraiser who suggested that it wasn't really a "seller paid concession" and it was really the purchaser adding the closing costs to the purchase price and they would be paying them back for the life of the loan.

I agree. Thank you.

 

[Pat Butler]

Just some comments from someone who previously sold real estate.

First, the buyer is typically asking for a concession that will be used for paying points to get a better interest rate- usually because of qualifying purposes. The seller couldn't care less if they are giving money to the buyer in the form of cash at closing, or just by reducing their sales price. The Realtor will be doing a seller's net sheet for the seller and it all comes out the same for the seller, Yes, the seller sees cash to the buyer as no different than reducing the sales price, and I never once had a seller who made such a distinction. That's why there's almost always a one-to-one relationship between the concession and adjustment amount.

The rare circumstance is when you have a buyer with poor credit who really needs a large interest rate buy down or more down payment in order to qualify. Jumping to the next % level of down payment to avoid PMI can also help them qualify by eliminating another set of qualification guidelines. If that buyer finds a seller who is willing to do an unusually large concession, then that seller can usually take advantage of that situation by getting a much higher sales price in excess of the concession amount. Many times this is done without the lender's knowledge if the concession amount is in excess of the qualifying guidelines.

I personally never got involved in that aspect because that action is most likely illegal for the buyer to fail to disclose the concession to their lender, but it unfortunately happens too often. I never figured out how agents pulled those sorts of transactions together anyway, because the cash to the buyer would happen outside of closing and not be documented anywhere. The buyer could get ripped off after the closing and not have any formal written document showing what had been agreed to between the buyer and seller. But I believe these hidden aspects of transactions are more common than most appraisers realize and are a source for funky values that don't seem to make sense.

I've sold houses on contract to buyers who I was willing to take a risk on by giving them favorable payment terms, but at much higher sales prices than market value. That's another quirk in how something like this can work with the negative adjustment being well in excess of the concession amount. I used to sell properties to my long term tenants with financing terms that gave them a payment that was just slightly higher than their existing rental payment, yet with a sales price in excess of market value. All they cared about was that their monthly payment was mostly the same. I got the higher sales price in exchange for taking a risk by doing the seller financing. Worked out well for everyone involved and made for some really bad comparables

 

[Pat Butler]

Someone asked about cash sales versus financing and I couldn't believe the lack of understanding. Sellers are nervous about buyers having them take their house off the market for a month or longer, only to have them not qualify for financing. Having a verified cash buyer eliminates that risk and is worthy of giving that buyer a lower price. Furthermore, the seller can negotiate with that cash buyer to close very quickly because no time needs to be wasted waiting for them to get approved for financing. It doesn't matter as much with the high end market where the majority of buyers are going to get approved anyway. But in the low and mid-range market it can make a big difference and will mostly result in a discount for that cash buyer.

I sometimes think that instead of all the wasted CE work we need every so often, that appraisers should have to get a real estate license and close so many houses prior to get an appraisal license.

 

[Terrel L. Shields]

that appraisers should have to get a real estate license and close so many houses prior to get an appraisal license.

OK...if all appraisers value houses. What about water rights, timber land, mineral, etc.?

 

[Pat Butler]

Well, looks like we need more lumberjacks and jewelers