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FHA Seller Comparable Sales Seller Concessions Adjustment

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Debra

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Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Tennessee
Good Afternoon,

At what point do you consider concessions typical and not make a negative adjustment for comparable sales that have seller concessions in the grid??? It is currently typical in my market for sellers to pay concessions. For example, my current subject sale is paying over $5,000 in seller concessions. In this case, all of my comparables have sales concessions of $3,000 - $6,500. Thanks ahead for answers.
 
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nottrav

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May 2, 2011
Professional Status
Licensed Appraiser
State
California
Just analyze the sale. Would the comps have sold for that price without the concession. Grab no concession homes v. $3-$6K concession homes and see if there is a difference.

I personally haven't seen any comps that needed concessions adjustments in a long long time. I note the concession but do not adjust as it would have sold at that price with or without it.

None of my FHA reports have concession adjustments. I even got "randomly" reviewed year or so ago by FHA and lady called me to tell me 3 reports reviewed and only thing she said is change my porch/patio on the grid to to cPatio if covered.

If worried about FHA, that's my story.
 

J Grant

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Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
The answer my friend is blowing in the wind...

Actually, the answer is provided under the definition of market value in next paragraph *Adjustments to the comparables, on the certification page on the 1004 form. It tells us how to handle concessions. (Fannie may provide additional guidance). It says do not adjust if present in virtually all transactions...which is a higher threshold than "typical for market." It says in appraiser's judgement, so if your judgement is market is not showing an adjustment, then note the concessions and why no adjustment is made.
 

J Grant

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Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
"*Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable since the seller pays these costs in virtually all sales transactions. Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third party institutional lender that is not already involved in the property or transaction. 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 pasted from the URAR ...if we make $ 4$ adjustments, state something along the lines of that the $4 $ adjustment is equivalent to market reaction/ in your judgement what property would have sold for without the concession, some statement to show it was not calculated on a mechanical dollar for dollar cost per verbiage in the above.
 
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glenn walker

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Joined
Oct 11, 2006
Professional Status
Certified Residential Appraiser
State
California
I always look at the listings on the comparables if listed for $200,000 and sold for $205,000 with a stacked concession then an adjustment may be warranted. BUT I have been warned by FHA over the years that using the word TYPICAL or COMMON is not acceptable and the proper way is to state you verified concessions with MLS and the agents and based on market reaction there "is or is not" any concession adjustment warranted. There are many times when I use 1/4 or 1/2 the concession. Also remember the Subjects concessions have nothing to do with the concessions paid on the comparables. The subject is not adjusted ** sit it aside and remember you are adjusting each comparable for whatever the amount of the sellers paid on it.
 

Tom D

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May 22, 2015
Professional Status
Certified Residential Appraiser
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Pennsylvania
I BUT I have been warned by FHA over the years that using the word TYPICAL or COMMON is not acceptable and the proper way is to state you verified concessions with MLS and the agents and based on market reaction there "is or is not" any concession adjustment warranted. .
thank you, angry cat, for that comment. real life statements are better than most of the gunk i read, and post here.
 

PerseverancePLUS

Sophomore Member
Joined
Oct 17, 2013
Professional Status
Certified Residential Appraiser
State
Missouri
I make adjustments to comps on prepaids and closing costs as I 'typically' (and won't be using that word again) see sellers getting 100% lp/sp ratio on an FHA or USDA in an area that gets 93% on conventional - says to me if it was a conventional mortgage, that prepaid wouldn't need an adjustment. It's particularly evident when the contract starts at a 'typical' ratio and suddenly goes up to exactly the amount the seller is now willing to pay in concessions. What am I missing?
 

CANative

Elite Member
Joined
Jun 18, 2003
Professional Status
Certified Residential Appraiser
State
California
The answer my friend is blowing in the wind...

Actually, the answer is provided under the definition of market value in next paragraph *Adjustments to the comparables, on the certification page on the 1004 form. It tells us how to handle concessions. (Fannie may provide additional guidance). It says do not adjust if present in virtually all transactions...which is a higher threshold than "typical for market." It says in appraiser's judgement, so if your judgement is market is not showing an adjustment, then note the concessions and why no adjustment is made.
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 or financing concessions and the amount of the adjustments to the comparable sales is not based on how typical the concessions might be for a segment of the market area. Large sales or financing 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 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.

https://www.fanniemae.com/content/guide/selling/b4/1.3/09.html

I don't know about this higher threshold you mentioned.
 

Michigander

Senior Member
Joined
Oct 23, 2003
Professional Status
Certified Residential Appraiser
State
Michigan
Ask the selling agent if the buyer would have paid the same amount had they not received the concession (and ask what it was for). Easy peasy.
 
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