Declining Markets and Sales Concessions

[Judy Whitehead (Florida)]

I still don't understand why a mortgage should make a difference. In MY market most of the purchases are with a mortgage - mostly conventional and FHA, and some cash sales (probably more than 5% due to our retirees) and after selling real estate for 10 years and now appraising it for 15 years, I cannot determine that there is enough difference to adjust for a market reaction for a cash sale versus a sale that involves a mortgage.

If you are saying that you are ignoring seller paid closing costs, then in my opinion we should be able to "+" the amount that you consider "common in the area" to the cash sales, or to the sales that don't involve seller paid financing concessions. These amounts can be pretty substantial and can skew the true sales price of the home - in other words, what the seller would have accepted in cash. If one seller accepts $200,000 and pays closing costs for the buyer of $5,000 then in my opinion, he would have accepted $195,000 without paying closing costs. That's not to say he/she wouldn't have been thrilled to get $200,000 without paying out any extra of anything

 

[Randolph Kinney]

My market in San Diego county is contracting substantially on sales volume. Prices are declining. Even REO properties have seller paid closing costs for the buyers and FHA financing.

The real problem is the down payment and terms of the loan. ARM mortgages with interest only payments give the buyer a measure of affordability. But, the FICO scores have been raised to 700 and LTV lowered to 75%. There is no second mortgage market or PMI to make up the difference between the max LTV and 100% of value like before.

The accounting game for net to seller is rife with hide and seek gimmicks.

 

[Judy Whitehead (Florida)]

Well, our market is suffering from some of the same things.....higher credit and higher down payment needed and very definitely a declining market. In fact, we have been living with the declining market aspect for so long, I felt like I could have "almost" taught that portion! We also have (in the general area) large subdivisions with excess builder inventory with the builders trying to include cars, first year's payments, etc. However, those arrangements have to be done separate from the real estate and I am grateful that I don't have to appraise in those neighborhoods, as they are generally a bit out of my area. Sometimes living in a small town has it's advantages. Finding out personal agreement contracts to include these items would be next to impossible, I would think.

 

[Mztk1]

I did an appraisal on a property with multiple offers. One was for $210,000 and the other $220,000 and the sellers took the $210,000 because it was an all cash deal.

It turns out there were two other contracts in the past 3 months on the house that fell through due to financing, so the sellers were delighted when not only were they guaranteed the money was there but the closing could happen very quickly.

That's the only situation where a cash sale had an effect on value for me that I could recall.

If a seller accepts $200K on a cash deal and then pay $5,000 of the buyer's closing costs, that is very silly. Why not just accept $195,000 unless there is some type of tax incentive involved...which I doubt.