Positive Adjustment on Seller Concessions

[Mile High Trout]

I'll be the underdog - forever more.

Until there's a formula and not just my dollar for dollar intuition.

Dare to dream about a level playing field.

 

[residentialguy]

Dude, what is so difficult to understand that the seller would sell the property for the exact amount less if they didn't have to pay that money out for concessions? You are setting yourself up for non winnable position in court. You can't ignore such obvious market reaction.

 

[Elliott]

Since the AF Draft, I had a conversation with a couple of realtors and asked them how they see concessions and value (which is what the draft is asking us to do). Surprising enough they said that the 'buyer paid closing costs' in some segments of the market have become baked into the cake and despite presenting the logic of $4$ to the realtors they pretty much shake their head and see it as a 'cost of selling' in a down market. In other words, "Mr. Seller is told that the way to sell your home is to pick up the buyers closing costs."

I've always treated concessions as $4$, looking to the net of the seller. So I guess the question becomes, so what is the Market Value of a cash transaction? Should there be a positive adjustment? Would it typically be what the seller would have typically eaten had he sold it with conventional financing?

 

[CANative]

Buyer: I see the property is offered at $150,000..

Seller: Yes. Yes it is indeed.

Buyer: Well I don't need any financing today but I understand that seller concessions for financing are baked right in to that price. Does that mean you only expect to get $145,000 for it?

Seller: Huh?

 

[Lee Lansford]

Since the AF Draft, I had a conversation with a couple of realtors and asked them how they see concessions and value (which is what the draft is asking us to do). Surprising enough they said that the 'buyer paid closing costs' in some segments of the market have become baked into the cake and despite presenting the logic of $4$ to the realtors they pretty much shake their head and see it as a 'cost of selling' in a down market. In other words, "Mr. Seller is told that the way to sell your home is to pick up the buyers closing costs."

I've always treated concessions as $4$, looking to the net of the seller. So I guess the question becomes, so what is the Market Value of a cash transaction? Should there be a positive adjustment? Would it typically be what the seller would have typically eaten had he sold it with conventional financing?

So if the seller is unwilling to pay a concession, how much is the buyer willing to pay?

Well, yeah, we would expect to see concessions to buyers more prevalent during a "buyers' market" and not so common during a "sellers' market".

In my 36 years of working in some element associated with residential properties, virtually never have I seen a buyer or a seller neutral when it comes to the size of a concession as it relates to the price paid for the property.

 

[Elliott]

If you read the AF Draft on concessions it is advocating that we pose the question to the 'interested parties' to the transaction and axt questions like, "So how did the seller paid concession affect sales price." I imagine given that survey question, the answer will be a discounted amount. So what do you do if the buyer says, "Well I would have reduced my price $3000 if the seller wouldn't have paid." While the seller says, "I still would have asked the same price, but the realtor said this was as good a deal as I was going to get." Hence, one says it affects price $3K and the other says $0, so adjustment $1500?

When AF reduces the parameters to a game of Family Feud, I expect seller paid concessions to get washed out. I still believe in the logic of $4$, but I can see a trend pushing the appraiser to accept the cost to sell a house as 10% and its all included in the concept of Market Value. Maybe it should be called Suggested Retail Price.

 

[gregb]

Just curious, anyone ever hear of a FSBO willing to sell for 6% less than "market value.?

 

[residentialguy]

So what do you do if the buyer says, "Well I would have reduced my price $3000 if the seller wouldn't have paid." While the seller says, "I still would have asked the same price, but the Realtor said this was as good a deal as I was going to get." Hence, one says it affects price $3K and the other says $0, so adjustment $1500?

Unrealistic, Elliot. That agent would explain to the seller that the money is the same. It the same good as you'll get deal. In fact, sellers are more apt to reducing the price further in a cash sale than the seller paids in finance. Cash is king. No financing to fall apart with cash.

 

[Elliott]

RG,
So should Cash get a positive adjustment of 3% if its King when comparing it to financed transactions?

 

[Mile High Trout]

Just curious, anyone ever hear of a FSBO willing to sell for 6% less than "market value.?

Yes, handled one like that some time ago for a semi-custom. Not sure of exact % but it was the cost of Realtors.

Owner yielded a net take which was better in non represented state. However due to inadequate market guidance her opinion of market value was lower than appropriate. Ultimately she took a few additional k loss and a whole lot more headache than she needed. But if she would have just hit that target better, it may have paid off.

Res Guy, to clarify - I agree with you, but defer winning status to Mike because "that's just the way it is." Being less capable and well established to defend myself in court, I'm certainly not reducing from dollar for dollar analysis, under all resale circumstances. But if it's practically allowable, I guess the lesson is why not. When the premier VA appraisers are all doing it - I just throw in the towel rather than fight that fight.

I can't wait to see how the industry handles value relationships to total home cost sales tax. It's right around the corner next to the elimination of mortgage insurance writeoffs for taxes. Don't count your chickens just yet. But if you're not doing dollar for dollar, you can go ahead and run a victory lap I guess.