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Is Rent a Concession

glenn walker

Elite Member
Joined
Oct 11, 2006
Professional Status
Certified Residential Appraiser
State
California
It is NOT an arms length sale. Would a regular AL buyer get a year worth of rent $ taken out of the price ?

The relationship is tenant and landlord A relationship does not have to be blood relation. Educated buyer and seller have nothing to do with it. Non AL is a sale arising out of a relationship of some kind between parties and if there are unusual terms of sale such as this it reflects that

It is not a concession, it is a reduction of price due to rent already paid. Just explain it and disclose it.

A concession is not a reduction of price, (if anything a price with concession is typically higher ) a concession a seller or other party contributes $ to the costs of closing or some other identified cost. .
You are flat out 100% wrong-Your-Question : Would a regular buyer get a years worth of rent taken out of the price ? Sure we just call it a 5% or 6% seller paid concession but we can give him the same amount of seller paid concessions no matter what we call it as long as its within guidelines. Also we are not taking it out of the sales price and the sales price stays the same and we are paying his costs out of our net proceeds. Also our tenants are not our relatives or friends and we can give the same amount of seller concessions to any buyer and no matter who he/she is it's an- arms-length transaction.

Example: lets say I give a long term tenant a year of rent towards purchasing our property and the rent is $1,500 a month X 12 = $18,000-and we have a sale here in Felony-Flats at $400,000 --We can give him up to 6% towards his allowable non-recurring closing costs so on $400,000 thats up to $24,000 of his closing costs . We also dont have to say it's a year of rent we can also just say we pay 240,000 of his allowable costs. It doesn't matter its just a word game. We do it all the time but normally we just write into the contract we are paying X-Percentage towards his closing costs. It's the Percentage amount of the allowable concession not how its structured or worded. We negotiate the final sales price and concessions and in reality he is normally paying a higher price because we are stacking and packing those concessions into the cake mix. If he didn't want or need us to pay his closing costs we could lower his price by that amount. The-fact is 75% of these lower cost buyers need assistance to get in .

Example : Maybe we have a tenant with a lease option purchase agreement and we agreed to apply 12 months rent towards his/her closing costs . If he exercised his option for Underwriting Purposes its A seller paid concession no matter how its done EXCEPT it cannot go towards the buyers down payment nor does it reduce the sales price agreed upon and it does not change the status of it being an-arms length transaction . Hey Jim Bob we can do this two ways pay 6% of your closing costs $24,000 But as good negotiators we know Jim Bob will think he is getting a better deal if we call that 5% -6% 12 months rent towards his CC. Its just a marketing ploy which makes the tenant think he is in the drivers seat. Also when we sell to a tenant we don't have to vacate it and refurbish it so its a win win and we also skipped 12 months of taxable rental income and so its a twofer.

On FHA any seller paid Seller concessions are limited to six percent of the sale price of the home and while the concessions can be used to pay some of a borrower's closing costs, these funds can never be used as a down payment. Its a qualified concession as long as its within their guidelines. So on a 3% to 5% down FHA loan we can pay up to 6% of my tenants or non-tenants non-recurring closing cost.

Now lets go to conventional F & F type loans -If your down payment is less than 10%, the maximum seller contribution is 3%. If your down payment is 10-25%, the seller can contribute up to 6% of the purchase price. And for down payments greater than 25%, the maximum seller concession is 9%. 99% are in the 3% to 5% range but I have seen a few 8%-9% ones in my life.

Now hopefully you learned something new today -Your expertise is definition of market value not Concessions : )
It is NOT an arms length sale. Would a regular AL buyer get a year worth of rent $ taken out of the price ?

The relationship is tenant and landlord A relationship does not have to be blood relation. Educated buyer and seller have nothing to do with it. Non AL is a sale arising out of a relationship of some kind between parties and if there are unusual terms of sale such as this it reflects that

It is not a concession, it is a reduction of price due to rent already paid. Just explain it and disclose it.

A concession is not a reduction of price, (if anything a price with concession is typically higher ) a concession a seller or other party contributes $ to the costs of closing or some other identified cost. .
It is NOT an arms length sale. Would a regular AL buyer get a year worth of rent $ taken out of the price ?

The relationship is tenant and landlord A relationship does not have to be blood relation. Educated buyer and seller have nothing to do with it. Non AL is a sale arising out of a relationship of some kind between parties and if there are unusual terms of sale such as this it reflects that

It is not a concession, it is a reduction of price due to rent already paid. Just explain it and disclose it.

A concession is not a reduction of price, (if anything a price with concession is typically higher ) a concession a seller or other party contributes $ to the costs of closing or some other identified cost. .
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
You are flat out 100% wrong-Your-Question : Would a regular buyer get a years worth of rent taken out of the price ? Sure we just call it a 5% or 6% seller paid concession but we can give him the same amount of seller paid concessions no matter what we call it as long as its within guidelines. Also we are not taking it out of the sales price and the sales price stays the same and we are paying his costs out of our net proceeds. Also our tenants are not our relatives or friends and we can give the same amount of seller concessions to any buyer and no matter who he/she is it's an- arms-length transaction.

Example: lets say I give a long term tenant a year of rent towards purchasing our property and the rent is $1,500 a month X 12 = $18,000-and we have a sale here in Felony-Flats at $400,000 --We can give him up to 6% towards his allowable non-recurring closing costs so on $400,000 thats up to $24,000 of his closing costs . We also dont have to say it's a year of rent we can also just say we pay 240,000 of his allowable costs. It doesn't matter its just a word game. We do it all the time but normally we just write into the contract we are paying X-Percentage towards his closing costs. It's the Percentage amount of the allowable concession not how its structured or worded. We negotiate the final sales price and concessions and in reality he is normally paying a higher price because we are stacking and packing those concessions into the cake mix. If he didn't want or need us to pay his closing costs we could lower his price by that amount. The-fact is 75% of these lower cost buyers need assistance to get in .

Example : Maybe we have a tenant with a lease option purchase agreement and we agreed to apply 12 months rent towards his/her closing costs . If he exercised his option for Underwriting Purposes its A seller paid concession no matter how its done EXCEPT it cannot go towards the buyers down payment nor does it reduce the sales price agreed upon and it does not change the status of it being an-arms length transaction . Hey Jim Bob we can do this two ways pay 6% of your closing costs $24,000 But as good negotiators we know Jim Bob will think he is getting a better deal if we call that 5% -6% 12 months rent towards his CC. Its just a marketing ploy which makes the tenant think he is in the drivers seat. Also when we sell to a tenant we don't have to vacate it and refurbish it so its a win win and we also skipped 12 months of taxable rental income and so its a twofer.

On FHA any seller paid Seller concessions are limited to six percent of the sale price of the home and while the concessions can be used to pay some of a borrower's closing costs, these funds can never be used as a down payment. Its a qualified concession as long as its within their guidelines. So on a 3% to 5% down FHA loan we can pay up to 6% of my tenants or non-tenants non-recurring closing cost.

Now lets go to conventional F & F type loans -If your down payment is less than 10%, the maximum seller contribution is 3%. If your down payment is 10-25%, the seller can contribute up to 6% of the purchase price. And for down payments greater than 25%, the maximum seller concession is 9%. 99% are in the 3% to 5% range but I have seen a few 8%-9% ones in my life.

Now hopefully you learned something new today -Your expertise is definition of market value not Concessions : )
ridiculous
A concession cap is 6%. Typically a price is HIGHER when seller grants a concession.

Per the OP, the seller applies past year of rent to the price, as a down payment I assume or price reduction. A year worth of rent can be any amount % of sale price, there is no cap.
If you want to call it a concession go ahead but it is what it is, rent applied toward the price arising out of landlord tenant specific situation and not a typical AL concession
 

PerseverancePLUS

Thread Starter
Sophomore Member
Joined
Oct 17, 2013
Professional Status
Certified Residential Appraiser
State
Missouri
It is NOT an arms length sale. Would a regular AL buyer get a year worth of rent $ taken out of the price ?

The relationship is tenant and landlord A relationship does not have to be blood relation. Educated buyer and seller have nothing to do with it. Non AL is a sale arising out of a relationship of some kind between parties and if there are unusual terms of sale such as this it reflects that

It is not a concession, it is a reduction of price due to rent already paid. Just explain it and disclose it.

A concession is not a reduction of price, (if anything a price with concession is typically higher ) a concession a seller or other party contributes $ to the costs of closing or some other identified cost. .
Done!
 

glenn walker

Elite Member
Joined
Oct 11, 2006
Professional Status
Certified Residential Appraiser
State
California
Its
ridiculous
A concession cap is 6%. Typically a price is HIGHER when seller grants a concession.

Per the OP, the seller applies past year of rent to the price, as a down payment I assume or price reduction. A year worth of rent can be any amount % of sale price, there is no cap.
If you want to call it a concession go ahead but it is what it is, rent applied toward the price arising out of landlord tenant specific situation and not a typical AL concession
The rent is NOT being paid towards the selling price its being applied towards the buyers allowable closing costs and it has no different effect on the sellers net proceeds whether he call it rent being applied or calls it a 6% concession. In all transactions involving seller paid concessions the price is negotiated at that time based on market trends,. In Red-Hot markets the seller's tend stack the concessions on top but in slow-dead or declining markets the seller pays concessions in order to find a buyer because nobody has any cash. In an-up market its a positive for the buyer and in a down market its a positive for the seller to help him unload the property . Too many appraisers automatically assume a concession is a winner for only one party :)
 
Last edited:

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
Its

The rent is NOT being paid towards the selling price its being applied towards the buyers allowable closing costs and it has no different effect on the sellers net proceeds whether he call it rent being applied or calls it a 6% concession. In all transactions involving seller paid concessions the price is negotiated at that time based on market trends,. In Red-Hot markets the seller's tend stack the concessions on top but in slow-dead or declining markets the seller pays concessions in order to find a buyer because nobody has any cash. In an-up market its a positive for the buyer and in a down market its a positive for the seller to help him unload the property . Too many appraisers automatically assume a concession is a winner for only one party :)
OP post ... I've tried to search for this as there have been lots of discussions on concessions - but here it is - if the purchase contract states that the previous year's rent will be applied to the purchase price, is that amount a Concession? Seems simple enough?
 
Last edited:

Sadie

Member
Joined
Mar 20, 2008
Professional Status
Certified Residential Appraiser
State
Oregon
I considered it an arm's length transaction. No relationship, and meets all criteria for educated buyer and seller, etc.
You don't have to be related for the transaction to not be arms length. And a renter buying from a landlord with the rent contributing to the purchase price is not a typical transaction.
 

NP_MAI

Senior Member
Joined
Apr 10, 2018
Professional Status
Certified General Appraiser
State
Florida
I've tried to search for this as there have been lots of discussions on concessions - but here it is - if the purchase contract states that the previous year's rent will be applied to the purchase price, is that amount a Concession? Seems simple enough?
Yes
 

NP_MAI

Senior Member
Joined
Apr 10, 2018
Professional Status
Certified General Appraiser
State
Florida
ridiculous
A concession cap is 6%.
I don't remember reading this in The Appraisal of Real Estate :unsure: :rof:

@J Grant, we see all kinds of concessions, atypical financing, etc. on the commercial side. Likely, much more creative concessions than you are used to on the resi side. Just because a year's rent is given as a concession, it does not automatically discount the sale as non arm's length. This is a quantifiable adjustment, whereas sometimes the concessions or financing implications cannot be fully quantified.

Assuming everything else about the sale appears reasonably consistent with a market transaction, I would deduct the previous year's rent from the sale price to arrive at the adjusted (net) sale price and keep moving.
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
I don't remember reading this in The Appraisal of Real Estate :unsure: :rof:

@J Grant, we see all kinds of concessions, atypical financing, etc. on the commercial side. Likely, much more creative concessions than you are used to on the resi side. Just because a year's rent is given as a concession, it does not automatically discount the sale as non arm's length. This is a quantifiable adjustment, whereas sometimes the concessions or financing implications cannot be fully quantified.

Assuming everything else about the sale appears reasonably consistent with a market transaction, I would deduct the previous year's rent from the sale price to arrive at the adjusted (net) sale price and keep moving.
Its the subject so we don't adjust anything. Concessions capped at 6% is lender policy. Therefore would not be in the Appraisal of Real Estate.

A concession per regs has to be applied to closing costs, not the sale price. This rent is applied to the purchase price.
 
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