I Am I Correct?

[The Bob]

Originally posted by appraiserman@Feb 6 2005, 02:22 PM
Jim, is that USPAP's Frequently Asked Questions that you quoted? I could not find it in the 2003 or 2004 editions. I don't have the 2005 edition yet. Or is it HUD's source? Thanks.

appraiserman,

go to......

http://www.HUD.gov/groups/appraisers.cfm

Look for "Appraiser's frequently asked questions" under General Info. Then click on "Appraisers" under Appraisal-FAQ's. Then "open PDF". Then scroll down to pages 9 and 10 and look for question #31.

 

[Lee Lansford]

Someone else may have already cited this--I have not read each and every post in this string--but, from "HUD Mortgagee Letter 2005-02: Seller Concessions and Verification fo Sales" on 1/4/05:

"Appraiser/Appraisal Requirements...

2. The appraiser must also verify all sales transactions for seller concessions and report those findings in the appraisal. If the sale transaction (i.e., buyer, seller or one of their represenatives), the appraiser must clearly state how the sale was verified and explain to what extent.

3. In the Sales Comparison Analysis, Sales or Concession Section, the appraiser must report the type and the amount of sales or financing concessions for each comparable sale listed. If no concessions exist, the appraiser must note 'none'.

4. The appraiser is required to make market-based adjustments to the comparable sales for any sales or financing concessions that may have affected the sales price. (note: I'm adding emphasis here!) THE ADJUSTMENT FOR EACH COMPARABLE SALE MUST REFLECT THE DIFFERENCE BETWEEN THE SALES PRICE WITH THE SALES CONCESSIONS AND WHAT THE PROPERTY WOULD HAVE SOLD FOR WITHOUT THE CONCESSIONS."

In my experience SELDOM does a property sell for the same price WITH concessions than it would WITHOUT any sales concessions.
The seller is concerned with how much money is going into his or her pocket at the time of closing.
The appropriate adjustment may or may not be dollar-for-dollar, but I have very seldom found that the difference is inconsequential, either.

The amount of the appropriate adjustment is to be found in the market via paired sales comparison analysis.


Lee Lansford, IFA

 

[Gerald Martin]

I agree with Lee. Its paired sales analysis. The same way GLA, view, garage or basement finish adjustments are supposed to be derived. The market is the guiding force. Find similar sales and adjust for significant differences, the remaining difference is the impact of concession - amazing!

 

[JSmith43]

Find similar sales and adjust for significant differences, the remaining difference is the impact of concession - amazing!

Or some other unrecognized factor :blink:

However, that is still a favored way. Also, feel free to expand your sample size and use regression analysis

 

[David McInturff]

APLOGIES FOR THE BUMP

Originally posted by leelansford@Feb 6 2005, 03:34 PM
"THE ADJUSTMENT FOR EACH COMPARABLE SALE MUST REFLECT THE DIFFERENCE BETWEEN THE SALES PRICE WITH THE SALES CONCESSIONS AND WHAT THE PROPERTY WOULD HAVE SOLD FOR WITHOUT THE CONCESSIONS."

This is my first post and I am here because I am loosing clients over my stance on this, so please let me know if I am doing the right thing or "too strict for my own good" But first and foremost, I am NOT a skippy nor will I become one, I want to help make this profession better, but I would like to stay in this field long enough to do that, and I need to keep clients to stay in this field.

I have been appraising for 23 months and about a year ago I came to believe that all concessions have impact on sales price. Since then I have backed out all concessions from comparables. Why? Because I believe, if anyone including myself would accept $100,000 for my house with $5000 from my pocket to the buyers closing costs, then anyone and I would also accept $95,000 for my house with $0 from my pocket. I was happy to read the FHA letter about a month ago, that seemed to state that I was doing the right thing. I know the 1004b (and even the new Test 1004) says but I still feel all concessions should be backed out.

Am I to back all concessions for FHA appraisals? But for Conventional loans only back out those concessions over the 2-3% that may be common in certain markets in my area? If I am understanding the rules of the FHA and for USPAP correctly, then how does this make sense? Couldn't an appraisal for the same house have two appraised values depending on if it was conventional or FHA?

It may feel like we are beating a dead horse with this but I would appreciate any feedback on my particular point of view and situation. I feel terrible because I just lost a regular client over my stance on backing out all comprable concessions. Did he find a skippy or am I too blame?

 

[Lee Lansford]

If you are able to include sales comparisons in the appraisal where there no extraordinary seller concessions.

You state that seller concessions in the amount of 2%-3% are common in your area. However, I surmise that there are at least some other sales that do not involve seller concessions, yes? If I am correct, you should be able to reasonably extract an appropriate adjustment.

And, while I may not adjust for extraordinary seller paid concession on a dollar-for-dollar basis, it certainly is logical to expect what you have presented as an illustration as being how the market might work. The seller is concerned with how much cash ultimately goes into his, or her, pocket at closing.

Also, see Fannie Mae Form 1004B (also found on Fannie Mae Form 2055) for the definition of market value and just how seller concessions (for the comps) are to be considered.

Further...No, there won't be two different market values.

 

[David McInturff]

Thanks for the reply. I was just reading/understanding that HUD was wanting appraisers to back out all concessions but upon further review the way its is worded it's still up to the appraiser to determine the adjustments. which is exactly how I have interpreted the 1004b.

I think I understand your point regarding the adjustments not always being dollar for dollar and how to determine the amount of adjustments that will be made.

To sum up what I learned:

1) FHA and USPAP both say to handle concessions in the same manner, and as such equal treatment/adjustments would result in same value
2) concessions may or may not be dollar for dollar
3) I lost good clients for no good reason (ignorance)

 

[JSmith43]

3) I lost good clients for no good reason (ignorance)

I don't know anyone that hasn't been initiated into the same club!