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Has Concession Adjustment Changed?

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BRCJR

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I read, once upon a time, that the GSE's expected concessions to be addressed (adjusted) unless concessions were found in virtually all transactions in the market for that particular property type.

I was reading the sellers guide and do/did not find that directive.

Anyone know the source if it (virtually all) has not changed?
 

BRCJR

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Read the definition of value on pg 4 of the report

Thanks.

I was also thinking there was a mortgage letter that came out and was trying to find it. Maybe there was no letter.
 

J Grant

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"DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

*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."

The section in red appears in directive about concessions/adjustments, below the Definition of market value (P 4 in URAR form) , on the certifications page pre printed verbiage
 
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BRCJR

Elite Member
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Joined
Sep 20, 2005
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Licensed Appraiser
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Virginia
"DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

*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."

The section in red appears in directive about concessions/adjustments, below the Definition of market value (P 4 in URAR form) , on the certifications page pre printed verbiage
thanks. I was not clear in my question. I was looking for a letter that I thought had come out. Maybe one did not.
 

J Grant

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Florida
I don't recall a letter like that.
 

DWiley

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Thanks.

I was also thinking there was a mortgage letter that came out and was trying to find it. Maybe there was no letter.
There was a ML addressing concessions, but it did not say that. See ML 08-30. It says what Fannie has always said - adjust IF it affects the price
 

residentialguy

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Mar 24, 2009
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Certified Residential Appraiser
State
Minnesota
I read, once upon a time, that the GSE's expected concessions to be addressed (adjusted) unless concessions were found in virtually all transactions in the market for that particular property type.

I was reading the sellers guide and do/did not find that directive.

Anyone know the source if it (virtually all) has not changed?
I always put this in my sales comparison comments


SELLER CONCESSIONS: These adjustments reflect the difference between what the comparables actually sold for with the sales concessions and what they would have sold for without the concessions so that the dollar amount of the adjustments will approximate the reaction of the market to the concessions. There are some appraisers and reviewers believe that if the concessions are "typical" in the area, then no adjustments are necessary. This is incorrect with regards to Fannie Mae and Market Value, as defined.

The definition of Market Value states:
"(6) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale."

Further clarity is given to sales concessions; Nowhere does it mention or even suggest that no adjustments are necessary for seller concessions if they are "typical" in the market, but rather only when they:
"are normally paid by sellers as a result of tradition or law in a market area"

How does one identify this? Market Value goes on with additional clarity;
"these are identifiable since the seller pays these costs in virtually all sales transactions."

There is no such tradition or law in the market area and these costs are not present in virtually all sales, therefore it is clear that typical concessions still need to be adjusted if they result in a different price had the seller not paid them.

The following excerpt from the Selling Guide, Part XI, Section 406.5 (C) provides further guidance for these circumstances:
“The need to make negative dollar adjustments for sales and financing concessions and the amount of the adjustments to the comparable sales are not based on how typical the concessions might be for a segment of the market area—large sales 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.... The adjustments must reflect the difference between what the comparables actually sold for with the sales concessions and what they would have sold for without the concessions so that the dollar amount of the adjustments will approximate the reaction of the market to the concessions.”

This adjustment is not a mechanical dollar for dollar adjustment, nor should it be. Market value states: "Any adjustment should not be calculated on a mechanical dollar for dollar cost..." The key word is "mechanical"; Dollar for dollar is often the market reaction, but this cannot be assumed. In order to get the most accurate insight, the agents of the comparable sales are called to verify the contributory value of the concessions and then tested against the market for reasonableness.
 
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Marty Boone

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Pennsylvania
Well done ResGuy.
 
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