FHA Seller Concessions

[VegasJim]

Hello, I am seeking some guidance regarding a notice of deficiency I received from HUD. They cited me under: failure to obtain timely and suitable comparable data. The notice indicates "I am required to make market-based adjustments to the comparable sales for any sales of financing concessions that may have affected the sale price. The adjustment for each comparable must reflect the difference between the sales price with concessions and what the property would have sold without concessions." But here is my issue, in my report I used 4 comparable sales. Comparables 1,2 & 3 had concessions, comparable 4 did not. Comparable 1 was listed for $154,900 and sold for $150,000 with $3,250 in concessions. Comparable 2 was listed for $150,900 and sold for $149,900 with $6,880 in concessions. Comparable 3 was listed for $160,000 and sold for $150,000 with $2,500 in concessions. Comparable 4 was listed for $155,000 and sold for $155,000 with no concessions. I may be completely off base here, but I did not given any adjustments for concessions because the market indicates no adjustments were warranted. The comparables that sold with adjustments closed at a lower price than they were listed for while the comparable with no concessions sold at the list price. Seems to me that this individual is stating that an adjustment should be given to any comparable that has seller concessions period. But that is not a market based adjustment when the inclusion of the concessions did not have an impact on the sale price and concessions are typical for the conventional, VA and FHA loans within my market. Where am I going wrong here?

 

[Randolph Kinney]

The criteria for not adjusting for concessions is not what is typical. The question becomes, did the concession affect the price paid.

 

[VegasJim]

The criteria for not adjusting for concessions is not what is typical. The question becomes, did the concession affect the price paid.

Agreed. However, how am I supposed to determine what affect the concessions had on the price when the property sold for less than the list price and the inclusion of the concession do not appear to have impacted the sale price. Outside of speaking with the owner of each comparable, how do we accurately determine the impact.

 

[Randolph Kinney]

From the FHA Handbook 4000.1

The Appraiser must verify transactional data via public records and the parties to the transaction: agents, buyers, sellers, Mortgagees, or other parties with relevant information.

The Appraiser must verify the characteristics of the transaction (such as sale price, date, seller concessions, conditions of sale) and the characteristics of the comparable property at the time of sale through reliable data sources.

MLS records and property site visits alone are not acceptable verification sources.

The dollar amount of any adjustment should approximate the market’s reaction to the Sales Concessions based on the Appraiser’s analysis of observable and supportable market trends
and expectations. The adjustment should reflect the difference between the sales price with the Sales Concessions, and what the Property would have sold for without the concessions under typical market conditions.

The Appraiser must verify all comparable sales transactions for Sales Concessions and report those findings in the appraisal. The Appraiser must clearly state how and to what extent the sale was verified. If the sale cannot be verified with someone who has first-hand knowledge of the transaction (buyers, sellers, real estate agents involved in the transaction, or one of their representatives), the Appraiser must report the lack of verification.

The Appraiser must make market-based adjustments to the comparable sales for any sales or financing concessions that may have affected the sales price.

 

[CANative]

I see your colorization of certain phrases and segments but I still don't see an answer to the OPs question.

My solution is "dollar for dollar and no one will holler." lol

 

[Randolph Kinney]

Read the FHA Handbook more closely, pausing after each word to digest the meaning and application to the question.

Appraiser’s analysis of observable and supportable market trends and expectations

The adjustment should reflect the difference between the sales price with the Sales Concessions, and what the Property would have sold for without the concessions

The Appraiser must clearly state how and to what extent the sale was verified.

 

[Elliott]

VegasJim said, "I may be completely off base here, but I did not given any adjustments for concessions because the market indicates no adjustments were warranted."

And how do you know the "market indicates no adjustments were warranted" ?

If I have three sales with adjustments of around $3000 and I make a $4$ adjustment, how do you know that isn't the appropriate adjustment?

I'm not trying to give you a hard time and I've grown fairly tired of the whole debate, since in the words of the female politician with the thick glasses, "What difference does it really make." I think most people understand concessions were added to the process because borrowers didn't have the scratch, so they rolled it into the loan and the borrower pays for it over the next 30 years.

 

[Marty Boone]

Comparable 2 was listed for $150,900 and sold for $149,900 with $6,880 in concessions.

If comparable #2 was put back on the market the day after closing @ $149,900, do you think someone would pay $149,900 for it without a seller concession. Yes, No or Maybe. Most likely that $6,880 just vanished into thin air, don't let that air be used to inflate the bubble. Be careful in the market areas where FHA and 6% SA are leading the parade, REO sales are usually not far behind.

 

[CANative]

Read the FHA Handbook more closely, pausing after each word to digest the meaning and application to the question.

Appraiser’s analysis of observable and supportable market trends and expectations

The adjustment should reflect the difference between the sales price with the Sales Concessions, and what the Property would have sold for without the concessions

The Appraiser must clearly state how and to what extent the sale was verified.

<Moderator edit> you Kinney. You still have not answered the OPs question nor offered a solution as to how to go about doing that. It's not reasonable to expect residential appraisers to call the sellers and buyers and interview them about their transaction. And when you ask a listing or selling agent "what would that property have sold for without the concession" I can image the saying several things, none of which would be helpful, must less polite.

For the most part 3% concessions or credits for closing costs is less than the market noise and variances in how buyers and sellers negotiate their individual transactions. Dollar for dollar at that level is neither too high nor too low to criticize because there is just no market data to make the case.

 

[CANative]

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