Gift of Equity?

[sharonp]

Is a gift of equity reported as a sale concession? This is a purchase from parent to daughter for below market value and a $35,000 gift of equity is declared in the contract.

 

[Jim Shoe]

Is a gift of equity reported as a sale concession? This is a purchase from parent to daughter for below market value and a $35,000 gift of equity is declared in the contract.

If a 'gift' is something given with no expectation of something in return, then the answer is yes.

 

[sharonp]

Thank you Jim!

 

[Webbed Feet]

Is a gift of equity reported as a sale concession? This is a purchase from parent to daughter for below market value and a $35,000 gift of equity is declared in the contract.

I don't agree. That is simply a tax matter taking place. And it doesn't matter anyway as what you need to report is this is not an arms-length transaction. However, just placing the gift on the subject concessions field in a report form should not harm anything. The idea is you reviewed the contract.

 

[Terrel L. Shields]

It is NOT a sellers concession per se. It is simply not an arm's length transaction. The sales price has no meaning in determining the value. Webbed is right. There is no adjustment to make

 

[OminousRun]

It is NOT a sellers concession per se. It is simply not an arm's length transaction. The sales price has no meaning in determining the value. Webbed is right. There is no adjustment to make

I agree.

You are appraising the property, not evaluating the contract between the family members.

Now if you had to use that sales as a comp in the future (unlikely because it appears to be an unqualified non-arms length transaction) than you would make the adjustment. Adjust the comps, not the subject.

 

[sharonp]

Gift of Equity

Thank you, everyone, so much. I appreciate all the input.

 

[Lee Lansford]

The "gift of equity" is not a concession (i.e., buyer receives $$ or other item of value from the seller at closing).

I would, in my analysis of the contract of sale, discuss the non-arms-length nature of the transaction (particulary in light of the contract price being notably different from the opinion of market value).

 

[Jim Shoe]

Per FNMA Guidelines, 'Sales Concessions' are Interested Party Contributions (IPC's) that take the form of non-realty items. Examples include cash, furniture, automobiles, decorator allowances, moving costs, insurance, warranties, and other giveaways, as well as financing concessions that exceed Fannie Mae limits. The key term here is 'non-realty'. In order to answer the original question, we need to define 'non-realty'. 'Equity' is not physical land or improvements, nor is it included in the Bundle of Rights. It is simply an accounting term which I believe is most synonymous with 'cash'. The reason for the gift (tax write-off) isn't included in the definition of Sales Concession.