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Excessive Builder Concessions

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Restrain

Thread Starter
Elite Member
Joined
Jan 22, 2002
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Certified General Appraiser
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Florida
In the late 80's at the beginning of the housing crunch, I started seeing untoward builder schemes, such as a Cadillac in the garage at closing, or a Sale Price of 125% of actual sale price so you could get an 80% loan, and there would not actually be any money changing hands at closing.

Well, it appears that these times are back. Saw a sign on a Pulte homes development. Closeout Special - FREE POOL with home.

Now, I want to see what an appraiser does with this concession, or if its even reported. Just hope I get a field review
 

Frederick R. Ruffell

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Jan 21, 2002
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California
No adjustment as the subject, cash equivalent adjustment if used as a comp. right?
 

Richard Carlsen

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Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
No adjustment of subject; no adjustment as a comp.

Do you think that perhaps and maybe the builder might just have considered the cost of putting an in-ground pool into his building costs and selling price before he broke ground?

If an in-ground pool was part of the deal and therefore was part of the sales price and became part of the real estate, then no concession is called for. The only time I consider concessions for adjustments is if they can get up and walk away or end up in the buyer’s bank account. If it is something that becomes part of the real property, I consider it as part of the property and part of the sale. No adjustment is then needed.
 

Mountain Man

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Jan 15, 2002
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Georgia
I wonder if his son owns a pool supply business intown. Had a pool before, don't want one again. Those things cost too much to keep them from turning green.
 

Frederick R. Ruffell

Senior Member
Joined
Jan 21, 2002
Professional Status
Certified General Appraiser
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California
Richard how would you handle a builder's finance incentive. I recently appraised a new construction house where the builder had offered incentives in terms of loan discounts, i.e. the builder also did the loan on some but not all the homes.
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
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Licensed Appraiser
State
Michigan
Financing incentives are not part of the real estate and therefore would be considered as concessions. Remember that the word Concession means a conceding and a thing conceded. The test of a concession is that the person conceding is actually giving up something. In other words, it is going form his pile to someone else’s pile. If the buyer gets the seller to contribute 5% of the sales price toward closing costs and pre-paids, that is a concession. If the normal selling practice is for the seller to contribute 4% to the buyer for this purpose, then there is only a 1% concession. If the house is priced at $82,900 and the sales price is raised to $87,263 with the seller paying 5% of the buyers closing costs, there is no concession since nothing is being given up by the seller ($87,263 - 5% = $82,900 which was the listing price the seller would accept when offered).

One of the things we have to be careful of in adjusting for concessions is that we properly identify the actual concession value and that what is being given is actually a concession in the first place.
 

Frederick R. Ruffell

Senior Member
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Jan 21, 2002
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Certified General Appraiser
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California
Richard is it your experiance that trying to get a straight answer out of the builder or builder's agent (concerning incentives/concessions) is difficult at best?
 

Richard Carlsen

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Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
Not really. Builder concessions are very rare in this market due to the high demand and the new construction going on. Typically, builders, if necessary, just get competitive with their pricing with the result that "Cost Equals Value" in new construction.

I think it is typical of builders in general to not be too open about what they had to do in order to satisfy the customer, including changes during construction, etc. Maybe it is just a point of pride with them. I really don't pressure them for details unless it is something major. A lot of that is just part of the building business.

With builders that are involved in new constructions where I will be doing the draw inspections, I tell them up front that I will attempt to get to the site within 48 hours of receiving a request for a draw inspection so they can make their draw. However, in order to do that, if I ever need docs or data or costs or anything, I have to have it on a very timely basis. That usually gets their attention and I am never wanting for info that I need.
 

Restrain

Thread Starter
Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
Richard:
Builder concessions are the name of the game around here. The pool being given is an extreme, but hidden concessions of $5000-$10000 is not unusual. We never see them as they are in upgrade concessions, etc or financing as the major builders (Weekley homes, etc) have their own mortgage companies. So, we are seeing inflated builder prices. The result is a 10% differential in a 1 year old home vs. a new home, and that's provable through paired sales. However, you can't prove that it's builder concessions - has to be shown as "market differential" between new and existing.
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
Got ya!

Actually, they sell at market but full disclosure is not made with the resulting overvaluation. Be interesting to ask the owners at the time of refinancing just what concessions the builder made when they bought the house.

Actually, I disagree that there are ever any "excessive" builder concessions. They can do whatever it takes to sell their product. The problem is that the concessions are "undisclosed" and we don't know if these concessions went into the buyers pocket or into the real estate.

Like the King said; "‘Tis a puzzlement."
 
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