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How Do You Make Financing Adjustments

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Stan Johnson

Freshman Member
Joined
Nov 25, 2002
Professional Status
Certified General Appraiser
State
Colorado
I've been reading the forums for quite a while and am quite impressed with the quality of the responses. :beer: Anyway I want to find out how other people are handling this situation. In the Denver Metro area it is becoming more common for properties to sell for more than listing price to cover down payments closing costs whatever. Sometimes it is as high as 10% of the sales price. What the Realtors are doing is then going back into MLS and raising the listing price to the sales price. Previously when getting MLS info all that shows is the last listing price. When I would come across one of these sales and would call the Realtor they would swear up and down there were not any sales concessions. Upon further discussions they would admit the seller had paid X amount but there were not concessions. Several I have talked did not really understand what sales concessions were or they didn't want to. Anyway our MLS now provides a listing history. What I see is a property listed 9/02 for $180K, reduced 10/02 $175K, reduced 12/02 $170K withdrawn 1/03 new listing 1/02/03 $170K Status change to UC 1/05/03 New price change 1/06/03 $180K. This is all in a stable market. What I have been basing my adjustments on is the lowest listing price. Property was on the market for over 4 months didn't sell at $170,000 found someone to offer $180K with nothing down. Most of the time this is happening in the entry level market with less than informed buyer's. In this case my adjustment would have been $10K. Am I way off base or is this a legimate basis on which to make an adjustment? What say yea? :question:
 
B

Bemis Pownall

Guest
LET ME GUESS DSW
6TH AN PERRY?

Hard to find any comps with NO concessions.

Deduct for concesions paid..we do

good luck
 

Frederick R. Ruffell

Senior Member
Joined
Jan 21, 2002
Professional Status
Certified General Appraiser
State
California
If the concession (s) are common and typical in the market then no adjustment, if not then adjusted to the market reaction to the concession. I always use the recorded price per the assessors records and work from that figure to get to what the MLS listing says, if different. Agents will not admit to these games. I always try to reflect the true sales price.
 

Oregon Doug

Senior Member
Joined
Jan 15, 2002
Professional Status
General Public
State
Oregon
Stan - Sounds to me like you got a handle on your local market.

Way back in the olden days - when cheats had class - it was referred to as "creative financing". Then along came that little S & L incedent and kinda spoiled the whole scheme for awhile. Now, its back. The new generation of bright, young Realtors and Loan Brokers have discovered/invented this new program (which, none of us old folks have never ever seen before!).

Glory be! They sure are a bright set of young'uns.

These transactions are now quite common in Oregon (and all 'round the nation). Oregon's foreclosure rate is now as high (or higher) than it was in 1986 and there is no end in sight. Yet, the Realtors are writing sales agreements that exceed the listing prices by adding the down payments and closing costs to the contract. Many of these are short sales based on the list price (list price is less than the total mortgage due) but the Realtor's commission is calculated on the total contract price. Can you say "screw the seller"?

Lenders are making 100% loans based on these fluffed up sales contracts and lots of local appraisers are going right along with the flow by providing the required inflated appraisals.

Hope you're not one of 'em.......Oregon Doug
 
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
Welcome Stan! Sounds like you've got their game figured out. Yes, I deduct for sales concessions under those circumstances. The Realtors here will try just about anything to keep me from finding out about that game from flat out lying about what I already know they did - to the newbies telling me what really happened then trying to tell me that's confidential information that cannot be used in the appraisal.

"Don't tell anyone we couldnt' sell it for $100,000 for six month but wrote it up for $110,000 when we found the right sucker with the right loan officer who has an appraiser that will do these."

They're just trying to artificially inflate the market more than it already is. Makes the statistics they publish look so much better than reality.

:twisted:
 

Elliott

Elite Member
Joined
Apr 23, 2002
Professional Status
Certified General Appraiser
State
Oregon
I'ah only usea the besta sales to makea the appraisal!!!
Never makea the financing concessions. That'sa why my
appraisals are so sweet.

elliott
 

Phil McDonald

Junior Member
Joined
Feb 27, 2003
Professional Status
Certified General Appraiser
State
Colorado
Hi Stan,
I heard Stewart Leach speak on this topic last month and he indicated that it should be handled just as you have described. He indicated that the "typical for the market" is not correct and a dollar for dollar adjustment should be made. He also mentioned that the FHA 6 point rule with no adjustment did not apply, but indicated that Mr. Collins at the HUD office should be consulted.
This is how interpruted his remarks, but it was late and I was tired.
 

Farm Gal

Elite Member
Joined
Jan 14, 2002
Professional Status
Licensed Appraiser
State
Nebraska
Boy as far as I am concerned anytime I see a sale price over list I am going to start asking questions! Our market just doesn't appreciate beyond list prices... and the number of times I have seen a bidding war locally, I can count on one hand with my thumb tied back, and fingers left over!

Phil:

Did the gentleman address what to do when area listings start to look like they are reflecting the history of 'sales' with inflated value due to anticipated inclusion of closing costs??? or were you a
:asleep: by then...


In other words when MOST folks move into listing their homes 'high' to encompass (without distinction) the closing costs which they then expect to contractually pay on behalf of the seller? What's a poor appraiser to do?

We have a few sub-market areas that swing back and forth on this issue... and man can it give you a headache to puzzle THOSE out... and decide when/if there is a market reaction (in other words partial market expectation) in an amount different from the raising of original list prices... or when it is just a full give-away of a 2-3% concession every time as 'common to the area'...

Which winds up as for those poor souls lacking representation and advice or innate guts to ASK for 'closing cost assistance when making a full price offer' :rolleyes: what I call a rip-off at full price! and the realtor calls a sucessful sale at full value!
 

Ross (CO)

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Stan, .......You are doing right to research the listing histories of each of the addresses you use in your report. Agents have all sorts of tricks to shade aspects of their transactions....all in place to make their effectiveness at listing and selling appear "better". Not uncommon to find overlapping listings and cancelled/expired lists end one day, just to open up the very next day as "New" and sometimes at the same price as expired the day before. Go figure. When I portray in my grid the total days-on-market and %-of-original list price for a sale I do follow and add any (reasonable and logical) string of listings and do not speak of just that last one. When the posted selling price exceeds the last list price it generally means, here at least, that there WERE concessions of seller-paid assistance to the buyer and added to that "price". I do check county's recording of price too. Sometimes those two numbers are the same AND there were concessions worthy of subtraction. The other situation is the bidding war between interested buyers all moving in fast on a real cream-puff property, priced-to-sell, and legitimately making a new appearance on the market. While we may sometimes get the run-around from a listing agent about whether or not concessions were inserted in their posted selling price, I never hesitate to also contact the buyers' agent to ask because they seem to have better "memory" of this fact than the lister might. We are detectives, and we are investigators......now, if only we could carry a sidearm and a badge......oh, we don't need no stinkin' badges!
 

Farm Gal

Elite Member
Joined
Jan 14, 2002
Professional Status
Licensed Appraiser
State
Nebraska
Ross:

I quite agree that there are times when a cream-puff can result in an 'upwardly mobile price'... but like yourself when I see multiple listings over a period of time and a final sale price above the asking... well my little antennae go up and my nose twitches...

Didn't My Favorite Martian do that ? I mean the nose twitch thing... (egad REALLY aging myself there :p ) or have I been hanging around this blue heeler too long...


Inquiring minds do the best they can with what they have to work with.

I WANT a badge (and sometimes the sidearm~ bad idea over all though ~ I might be tempted to use it on some of the agents with deliberately 'faulty memory' :angry:
 
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