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Financing Concessions

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Julia Young

Sophomore Member
Joined
Feb 23, 2002
Professional Status
Certified Residential Appraiser
State
Tennessee
Lately, reporting is becoming a little more reliable on financing concessions. Still I think underreporting and creative concessions make it difficult, if not impossible to adjust, how much and when does one adjust for financing concessions.
For the most part, reporting has been unreliable, making it difficult to compare. In our local market, financing concessions are typical all the way up to the high-end housing. 3-5% seller's concessions on closing costs are common. We have builders who are giving away strange things at closing, fences, appliances, whirlpools, etc. even hard cash back. In view of the unreliability and inconsistency of the types of concessions, I list them as typical unless there is an extraordinary cash concession noted. In this case, I usually avoid using the sale because it isn't typical anyway. Wondering how others are handling financing concessions?

Also, is there signifcant resistence or adjustments called for with cash and unknown sales? The creative financing these days bears examination.
(this may fit in the water cooler section better still I am here right now, and this section gets more answers.)
 
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
I wonder the same things. I wish it was mandatory for the Realtors and Builders to report the concessions at the very least in the MLS data. Most here flat out refuse to tell me when concessions are involved.

Confused in Florida.
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
So what is typical???? Since VA is the typical financing method in MY market does that mean we should add 2 or 3% to a cash sale because they didn't pay discount points and a funding fee? I don't think so.

I have a comment in my standard addendum that says..."VA and FHA financing is typical to the market and comprises a major portion of the market; therefore, unless concessions exceed 3% no adjustment is considered necessary." That 3% isn't a magic number and could be 4% or even 5% depending on YOUR market.
 

Rich Hahn

Senior Member
Joined
May 2, 2003
Professional Status
General Public
State
Colorado
Sitting in the sales office for a condo Im doing(patiently waiting for the hostess to unlock the subject) I overheard the sales person ask a potential buyer to "sign here because you are recieving $3,000 back, this is very important that we get YOUR signature on this one becuase you are getting $$ back". Umh does everyone else involved in the transaction know about the buyer getting $$ back??
I doubt it...
 

Julia Young

Sophomore Member
Joined
Feb 23, 2002
Professional Status
Certified Residential Appraiser
State
Tennessee
Yes, the kick-backs over and under are available in new construction. Sales have commissions figured in too so if we stacked that against a FSBO house, you could actually say that is cause for adjustment too. As I cannot rely on reporting, whether broker-based or not, why should I penalize a homeowner who is refinancing by deducting the amount of a rebate or financing concession?

I agree with Mike in that closing cost help is typical with VA and FHA, but in some cases go unreported or concealed. Not that it matters to us but if I start deducting percentage I would be faced with whether it was right to deduct the entire amount or only a part of it. Dollar for Dollar it might be a large adjustment.
3% was common once but now I see more and more 5%.
I was just wondering how everyone else handled this.
 

Tim The Enchanter

Elite Member
Joined
Jan 24, 2002
Professional Status
Certified Residential Appraiser
State
California
That's a sticky wicket for sure.
How do you make an adjustment when you have no believable, I mean reliable <_< , data?

Edit, that's "believed reliable but not guaranteed." :lol:
 

Charlotte Dixon

Senior Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Delaware
Seller Concessions are seen in our marketplace, but it depends on the price range, I found. There's no way I can determine a percentage adjustment, so on sales where our multi-list gives that data, I deduct that dollar amount. Now, if ALL 3 sales sold with seller concessions and the subject also did, I just indicate "typical" in that space on the grid. Our county MLS is very good about putting "closing costs paid by seller" on the MLS sheet.

This is another one of those "if" questions that makes what we do so complicated to explain. I often think of a private job I did many years ago where I had to estimate the value of a 10' x 40' strip of land that a homeowner wanted to buy from the neighbor. I put about 40 hours in to that doing research, grids, and a spread sheet. A big part of my estimate was based on experience, knowledge of the market and common sense. The fee was $100. My client said "In other words, you made it all up, huh?"
 

Julia Young

Sophomore Member
Joined
Feb 23, 2002
Professional Status
Certified Residential Appraiser
State
Tennessee
My client said "In other words, you made it all up, huh?"
Isn't that what we do? Offer an opinion of value?
When confronted with similar opinions or when testifying, I usually respond with my experience, training, research and knowledge of the market, factors that make opinion a little more than something pulled out of the sky. Like physicians diagnose, based on knowledge, training and their experience.
I had a CE instructor tell me once, if you use adjustment methods based largely on 'opinion,' rather than through evidence or supported data, you should, at the least, be consistent and ready to defend your reasoning.
 

Bill_FL

Senior Member
Joined
Aug 23, 2002
Professional Status
Certified General Appraiser
State
Florida
Julia,

In the senario you described, it would sound like the concessions are typical of the market. Would I adjsut for "market typical" concessions. Probably not.
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
If there are 2-3 points, I simply comment. However, I have run across sales that involved new-buyer incentive programs and Neimiah (FHA) programs that can push the sale price up $8000-$10,000 on a $100,000 home. I generally catch these in reports when an appraiser is trying to make a high value and the sales are generally lower. Of course, the appraiser doesn't comment on the concessions.

Roger
 
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