Confused About Stupid Seller Paid Concessions

[Deleted member 142783]

Often times concessions are used in lieu of request for repairs. This practice is so common in my market I'd estimate it makes up 1/3 of the closing costs listed in the MLS... Also, when an agent represents themselves in a transaction they will wave commission for same % in cc

 

[J Grant]

"Any adjustment should not be calculated on a mechanical dollar for dollar cost of the financing or concession but the dollar amount of any adjustment should approximate the market’s reaction to the financing or concessions based on the appraiser’s judgment."

Above from the URAR. Concession can be $ for dollar, just not mechanically calculated. Thus, if I adjust concession to same amount of concession, I state something like market reaction shows equivalent adjustment to the $ amount of the concession. Other times I don't adjust for concession, or adjust partially, depending on whether the price shows it was inflated or not above a MV indicated price without the concession. Note the above states the market's reaction, not an individual seller net or what an individual seller says they would have sold it for. Individual statements by parties or RE agents are analyzed in context of market trends, thus the above based on the appraiser's judgment.

 

[Terrel L. Shields]

Concession can be $ for dollar, just not mechanically calculated

How could anyone "prove" it one way or another. I bet in many markets it is relatively easy to make a case anyway you wanted to.

 

[residentialguy]

" Other times I don't adjust for concession, or adjust partially, depending on whether the price shows it was inflated or not above a MV indicated price without the concession. Note the above states the market's reaction, not an individual seller net or what an individual seller says they would have sold it for. Individual statements by parties or RE agents are analyzed in context of market trends, thus the above based on the appraiser's judgment.

Such bull. When 99.99% of the market would sell it lower, guess what? THAT IS THE MARKET'S REACTION! You don't base it on the sale price. If you have a different opinion, than you're wrong and your "judgement" is not supported.

 

[J Grant]

Such bull. When 99.99% of the market would sell it lower, guess what? THAT IS THE MARKET'S REACTION! You don't base it on the sale price. If you have a different opinion, than you're wrong and your "judgement" is not supported.

What you said just proves it is not "bull." If you find that 99% of market reacts as your individual seller indicates they did, you've just shown your adjustment is market reaction based!

99% would be very high, I'd settle for 70% as support.

Personally, I wish there was an edict adjust any and every concession, $ for $, always. But that's not what they tell us to do so...it does come down to our judgment which how can anyone's judgment be 10% "right" 100% of the time ? It can't , we just have to do the best we can what else ca nwe do?\

 

[residentialguy]

Often times concessions are used in lieu of request for repairs. This practice is so common in my market I'd estimate it makes up 1/3 of the closing costs listed in the MLS... Also, when an agent represents themselves in a transaction they will wave commission for same % in cc

Which is why $4$ shouldn't be a strict mechanical adjustment and needs to be verified with the agents. Now, addressing these two things: Wouldn't you get the same result by lowering the price by the amount of the concessions?

 

[residentialguy]

What you said just proves it is not "bull." If you find that 99% of market reacts as your individual seller indicates they did, you've just shown your adjustment is market reaction based!

99% would be very high, I'd settle for 70% as support.

Personally, I wish there was an edict adjust any and every concession, $ for $, always. But that's not what they tell us to do so...it does come down to our judgment which how can anyone's judgment be 10% "right" 100% of the time ? It can't , we just have to do the best we can what else ca nwe do?\

I think you use alternative methods that are inaccurate. I think if you were to ask if the seller would drop the price $4$, you would find that 99.9% of the time they would certainly do that. All markets treat a dollar like a dollar. If your judgement says otherwise, you better re-adjust your judgement.

 

[TJSum]

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

I still assert you are asking the wrong question, at least in our markets here in Maryland. With some of the highest closing costs in the nation, the vast majority of first time home buyer markets demand 3% seller concessions towards those closing costs. So the real answer, at least in this market would be for the seller to take an offer with 3% concessions, or to take a much , much lower cash offer by some investor at a huge discount. Not sure how you get a default $4$ adjustment out of that.

I still believe the real question is if the seller concession inflated the price for the typical buyer in the market, not just that one particular seller/buyer with a question that would not apply to the real world.

As an example, if I appraise a home purchase and state the contract offer falls within the expected market value range, and then one month later, when using it as a comp, adjust out any closing help it might have received, claiming it did in fact raise the sales price above and beyond normal market expectations, to me that is way too much inconsistency. I think the real question is did the seller concession raise the price over and above the expected market value range for that home.

 

[residentialguy]

I still believe the real question is if the seller concession inflated the price for the typical buyer in the market, not just that one particular seller/buyer with a question that would not apply to the real world.

That may be what you would do, but FNMA doesn't look at it that way.

The following excerpt from the Selling Guide, Part XI, Section 406.5 (C) provides further clarification in that situation:
“The need to make negative dollar adjustments for sales and financing concessions and the amount of the adjustments to the comparable sales are not based on how typical the concessions might be for a segment of the market area"

Read Market Value definition. Nowhere does it mention or even suggest that no adjustments are necessary for seller concessions if they are "typical" in the market, but rather just the opposite: The only time you would not adjust is when they occur in all transactions, including cash...as if there was a law stating that the seller had to pay the concessions. There is no such tradition or law in any market area and these costs are not present in virtually all sales, therefore it is clear that typical concessions still need to be adjusted if they result in a different price had the seller not paid them.

 

[TJSum]

My example and thoughts are not based on it being typical. My thoughts are did the concessions raise the price over normal market expectations. The question you seem to base your adjustment on does not apply in these types of markets, as there would be no sale without the concessions, unless it is a lowball cash investor offer.