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Financing Concessions

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SKahane

Thread Starter
Freshman Member
Joined
Nov 19, 2007
Professional Status
Licensed Appraiser
State
Texas
I am appraising a new Pulte home. If purchased through Pulte's in-house lender the price of the home is +/-$175k. If an outside lender is used the price is $190k. I was assigned (and completed) the appraisal from an outside lender based on the price of $175k. Since then the builder repealed their $15k incentive for in-house financing. Pulte has no comps to support the $190 value as all other buyers take advantage of the $15k incentive. The lender has asked me to 'take another look at the value' to see if it could go higher. The original report has already gone through underwriting. There are penty of resales and new homes from competing builders to justify the higher value, although they are located in different sections of the community. The buyer will forfeit some of his relocation benefits if he uses Pulte's mortgage co.

1.) Is it reasonable to re-submitt the report with a $15k (or appropriate) positive financing adjustment for the Pulte comps? Or, is the $15k price difference a financing cost of my borrower for using and outside lender?

2.) If everyone (or nearly so) receives the $15k financing incentive for in-house financing, doesn't that represent the market value of the home? This would suggest the home is not worth $190k.

3. How will this look to underwriting?

Any thoughts or suggestions are appreciated.
 

Jim Bartley

Senior Member
Joined
Jan 20, 2002
Professional Status
Certified Residential Appraiser
State
Virginia
2.) If everyone (or nearly so) receives the $15k financing incentive for in-house financing, doesn't that represent the market value of the home? This would suggest the home is not worth $190k.

I think you just answered your own question
 

Tim Hicks (Texas)

Elite Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Texas
What does the buyer pay without concessions? Do you have Pulte re-sales? A $15,000 incentive is ridiculous. What if they have a cash buyer? Does he pay $190,000 like a fool, when he can finance it at $175,000?
 

SKahane

Thread Starter
Freshman Member
Joined
Nov 19, 2007
Professional Status
Licensed Appraiser
State
Texas
Great question about the cash buyer! I presume they would, like a fool, pay $190,000. Without concessions the price is $190k. I haven't found any Pulte resales in the subject's section. However, it is a large master planned community with nearly 6,000 homes and still growing. There may be some in another section but they would be really tough to find.
 

TJSum

Elite Member
Joined
Nov 12, 2007
Professional Status
Certified Residential Appraiser
State
Maryland
I wonder what the difference is in interest rates, etc. The people using the builder's lender could end up paying more in the long run. Plenty of refi's are done on relatively new homes for this reason (the purchase with the builder's lender to get the incentives and then refi to a better loan ASAP).

I thought the Feds were cracking down on this sort of thing? Maybe the borrower can demand the true market value with threats of contacting HUD who is supposed to be cracking down on it. Anyway, it sounds like your market value is $175,000, your first opinion is correct.
 

Tim Hicks (Texas)

Elite Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Texas
Great question about the cash buyer! I presume they would, like a fool, pay $190,000. Without concessions the price is $190k. I haven't found any Pulte resales in the subject's section. However, it is a large master planned community with nearly 6,000 homes and still growing. There may be some in another section but they would be really tough to find.


I think if there was no financing, they would probably sell it for the $175,000. Cash is cash, you know.
 

stefan olafson

Senior Member
Joined
Apr 2, 2003
Professional Status
Certified General Appraiser
State
North Dakota
Reality Check!

If you can buy a new Jaguar for $50,000 through Jag Finance and you have $50,000 cash the Jag dealer who wouldn't sell you one for $50,000 cash is not going to be in the market long, RIGHT!

If Pulte (?) finances homes at $175,000 and you have a cash buyer at $175,000 I can't really believe they (Pulte) would say, nope we need $190,000!!

If so something else in the deal is stinking also, are the homes really only worth $150,000???
 

Ross (CO)

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
SK,.....You speak of "not finding other Pulte re-sales" yet are there NOT other re-sales of homes by the other builders that can serve in your comparison process ? Any re-sales.....will take you closer to the real pulse of a Market Value conclusion than to be literally trapped within a net and using only sales of new homes.....going to the first owner ! The first owner buys price. The second owner determines that property's value and all other declarations of value that come from other buyers of that property in the years ahead.

IMHO, one is a long way from experiencing Market Value when new construction is being transacted. The financing shenanigans that have been co-mingled into so many transactions in these recent boom years is paramount to the national realty industry maladies. With all the shell-game tactics, contract revisions, give-and-take, amenity upgrades, freebie this, and incentives IF you use OUR lender....it is a true wonder that any lender feels that they NEED an appraisal on a new home. I actively "stopped" appraising new homes (for purchase) in about 2004/05. I was no longer a "good fit" in that process.

Credit score good, so what ? Heh, the house is NEW. It's not like one is wrestling with condition and depreciation "issues". If they default in the first 36 months the lender should inherit a relatively nice home, right ? As far as the key players are concerned....the quoted builder's "price" and the amount being agreed to by the purchaser is all they need to calculate 80% financing with 20% down. Right ? - - Oh, wait, this $15K switcheroo stuff wouldn't be jumbled into other details of the contract papers in any way as to mask a fact......that maybe 20% down is NOT the amount actually coming out of the buyer's pocket and being placed on the closing table ? I have always thought that when loan facilitators were "processing" 20% down that it actually meant that there was to be.....20% down. Is the math that complicated today ?

Heh,...Bundled loan buyers, Yo....FBI, and all you others who care......You might want to take a real close look at all this concessions stuff that is going on out there !
 
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Mike Plumlee

Junior Member
Joined
Feb 21, 2007
Professional Status
Certified Residential Appraiser
State
Texas
It would be proper to ignore the Pulte's altogether. If you have 6,000 homes, find new comparable homes from different builders and a couple re-sales 1-3 years old. Then adjust for condition and location if necessary. You can't let the builder mentally dictate your comps.
 

Mztk1

Senior Member
Joined
Dec 3, 2006
Professional Status
Certified Residential Appraiser
State
Florida
Concessions adjustments are made to show the actual cash to the seller. If you have a house that sold for $175,000 because it was discounted $15,000 due to the borrower's choice of lender, that is still $175,000 to the seller. Making a concession adjustment up would be inappropriate.
 
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