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Credit to buyer?

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Frederick R. Ruffell

Thread Starter
Senior Member
Joined
Jan 21, 2002
Professional Status
Certified General Appraiser
State
California
What is the correct way to adjust for Sellers concessions? I have a sales agreement that states "Seller to credit buyer $8,000.00 towards closing costs." but is not accounted for in the sales price. Should I deduct the $8000 from the purchase price 428,000 - 8000 = 420,000 or use the $428,000 contract price and adjust the comparables (without similar consessions) +$8000. It seems to me that if I do the latter then the value would be inflated. I seem to be blocked on how to handle this, please help unblock me.
 

rtubbs

Junior Member
Joined
Jan 15, 2002
Frederick, in my opinion, the purchase price is the purchase price. I cannot see adjusting sales prices of comps for the situation you describe. Maybe I've been missing something but isn't the market value of the subject arrived at by analyzing sales of comparables and adjusting those for any seller concessions of the comparables?

Also in my opinion, that is a poorly worded sales contract.
 

wyecoyote

Senior Member
Joined
Jan 15, 2002
Professional Status
Gvmt Agency, FNMA, HUD, VA etc.
State
Washington
Fredrick,

I state in the purchase price the purchase price on the P&S then the concessions amount on the concessions lines. I do not subtract one from the other in the report.

I also do not deduct the comparable sales for the subject's concessions. I only deduct the comparable sales for there known concessions. IE.. Comp 1 sales price $100K concessions $3,500. deducted in the market grid under concessions line.

Ryan
 

Joe Moore

Junior Member
Joined
Jan 30, 2002
Professional Status
Appraisal Management Company
State
Pennsylvania
Are we talking about the subject property? If so, NO adjustments are to be made as sales comparison adjustments are made to the market, not to the subject. (Fannie Mae Selling Guide Section 403 "Comparable sales must be adjusted to the subject property--except for sales and financing concessions, which are adjusted to the market at the time of sale.")

If this is a comparable you are considering, the following addresses this question:


Fannie Mae Selling Guide Section 406.05 ©

When a quantitative sales comparison analysis is used, the amount of the negative dollar adjustment for each comparable with sales or financing concessions should be equal to any increase in the purchase price of the comparable that the appraiser determines to be attributable to the concessions. 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-large sales concessions can be relatively typical in a particular segment of the market and still result in sale prices that reflect more than the value of the real estate. Adjustments based on mechanical, dollar-for-dollar deductions that are equal to the cost of the concessions to the seller (as a strict cash equivalency approach would dictate) are not appropriate. We recognize that the effect of the sales concessions on sales prices can vary with the amount of the concessions and differences in various markets. The adjustments must reflect the difference between what the comparables actually sold for with the sales concessions and what they would have sold for without the concessions so that the dollar amount of the adjustments will approximate the reaction of the market to the concessions.

Positive adjustments (or relative relationship assessments) for sales or financing concessions are not acceptable.


Hope this is helpful.

Joe Moore
Senior Vice President
Nationwide Appraisal Services
Southpointe Plaza II, Suite 300
380 Southpointe Boulevard
Canonsburg, PA 15317
(800) 920 0050 ext 8479
Fax (800) 396-2726
 

Farm Gal

Elite Member
Joined
Jan 14, 2002
Professional Status
Licensed Appraiser
State
Nebraska
:lol: Frederick... Joe's right!

You just stubbed your toe on the tree and forgot the forest.

To put it another way: If I had a lollipop that I bought at the corner store for 25 cents and the store is still open and there are lollipops in stock... even if you really, really wanted a lollipop, the value of the lollipop is 25 cents. If I GIVE it to you cause you want it so bad, the value is still 25 cents, and if you are willing to pay me 35 cents so you don't have to walk 50 feet to the store the MARKET value is still pretty much 25 cents! (entreprenural profit vs idiocy is hard to explain)

In plain appraisal-speak: you are attempting to find out the value of the subject by determining how the comparables (when adjusted back to the subjects physical and aesthetic marketability) are valued. Any concessions or special financing on the subject is irrelevent to the problem of solving for 'present market value' as determined by the comparables adjusted values.

Glad to see you are hanging around, Joe.
 

Frederick R. Ruffell

Thread Starter
Senior Member
Joined
Jan 21, 2002
Professional Status
Certified General Appraiser
State
California
Thanks everybody, I am refering to the subject. The sales contract is on a California, Revised Association of Realtors Residential Income Property Purchase Agreement and Joint Escrow Instructions (and reciept for deposit)(C.A.R. Form RIPA-11, Revised 4/01).
It states who the offer is from the property address, APN, etc.. Then Line 2A the deposit amount over in the right column $4,000, then line 2B increased deposit amount and over in the right column a BLANK, then line 2C the first loan amount over in the Right column $406,000, then line 2D second loan amount over in the right column blank, Then line 2E Additional Financing Terms and over in the right hand column (blank) , and then right under line 2E is a typed note "Seller to credit buyer 8,000.00 towards closing costs", Then Line 2F Balance of purchase price and over in the right hand column $17,400 , Then Line 2G Total Purchase Price over in the right hand column $428,000.
Now the $8000 credit to the buyer should have been subtracted from the Total purchase price making it $420,000 right????? My thinkig is if the buyer is paying the seller $428,000 and the seller then pays the buyer $8000 the total purchase price is $420,000 Right???? SOOO what is the correct way to show this in the sales grid. Do I put 428,000 or 420,000 in the subjects Sales Price Field??? I am leaning towards putting the 428,000 in the subjects Sales Price Field and then putting a +8,000 (i.e. inferior sales or financing concessions) adjustment in the Sales or Financing Consessions field for the comparables that did not have any credits to the buyer. But doing it this way supports a $428,000 purchase price when the true purchase price is $420,000. Am I making sense ? Doing it this way is in keeping with the rule that one must adjust the comparables TO the subject Not the subject to the comparables.
 

Frederick R. Ruffell

Thread Starter
Senior Member
Joined
Jan 21, 2002
Professional Status
Certified General Appraiser
State
California
Just had a thought, how about condition the appraisal upon a revised purchase agreement reflecting the true purchase price!!!!!
 
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
Frederick,

Subject total purchase price is $428,000.

Line on the right front page of URAR, above the lender/client address is where you would put: $8,000 buyers CC.

On the grid: There is NO adjustment for these subject seller concessions. Seller concessions are ONLY adjusted for when the seller of one of your comps paid them for that sale.

Think about it this way, if/when you use this subject property as a comparable sale after it sells, you would then deduct the sellers concessions. Seller concessions are only deducted when that property is used as a comparable sale.

Why do you care what the contract price is? Those are just numbers to be put on the form. Disclose in the appraisal what the seller concessions are per the provided contract on page one only. Choose your comps to match the subject PROPERTY, verify as much as you can regarding the comps possible seller concessions and adjust as necessary, bring the subject value in wherever it belongs.

RULE: Subject seller concessions are disclosed on page 1 only and are never on the sales comparison grid. Comparable sales seller concessions are disclosed and adjusted for on the sales comparison grid.

Sometimes, I don't fill in the subject sale price and contract information until after I've finished the sales comparison grid. Maybe if you do it that way, you'll understand the difference. That information makes no difference what so ever in the sales comparison.
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
The purchase price is the purchase price. Concessions are adjusted for only on comparable sales. Never in the sales grid. You are required to comment on the concessions as to their being ordinary and customary.

Remember that in the Sales Grid, the comps are adjusted to the Subject. And the subject's sales price is the sales price. You will also note that when you print a 2055 or a 1004 form, the Sales and Financing Concessions is blanked out, meaning that you do not put anything in for the subject.
 

Farm Gal

Elite Member
Joined
Jan 14, 2002
Professional Status
Licensed Appraiser
State
Nebraska
You are hangin out there in actual danger hon'...!! :eek:nfire:
It is one thing to be momentarily confused: but if any California regulator sees your subsequent posts you are quite likely to be undergoing some SERIOUS perusal of your work... I STRONGLY reccomend that you go open a book or two and read and may want even to edit your post(s) beyond the first one.... at which point I will edit this one.

This is a VERY basic concept that many appraisers just don't get. Re-read my simplistic lollipop analogy, there is more there than just homespun....

In very blunt terms you are very wrong about wanting to adjust for subject concessions: the little number that they put in the 'what we want to pay' box has diddly-squat to do with the VALUE of the property. Your job as an appraiser is to solve for value. You do this by sorting out the three approaches to value. In that market approach you are worried about you are ONLY relating the sales back to the subject PHYSICAL and "other factors" appeal reality, not some number that someone thinks they WANT to pay for it.

We don't (and the bank shouldn't) CARE what they think its worth: you as the appraiser are supposed to be an expert in what it is really worth. Many appraisers I know simply fold the order, or contract in half, and take a look at it after they have FINISHED the appraisal. Not a bad option in MY opinion.... and oen you may wish to consider if you are still tripping up on this concept.

Contract prices can contain all sorts of rediculous concessions from excess personal property, to enough cash to buy a Ferrarri, who cares, it has nothting to do with the assignment of finding the value of the real estate.

Open your books, get to mentor FAST, or just listen to the wisdom of the senior members of this forum: you need help with this concept, NOW.
 
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