Positive Adjustment on Seller Concessions

[Calvin the Airedale]

Thank you all for your contributions. They are very helpful.

I was just thinking that you should be looking for what is customary in your area (say 3%) and then adjusting (deducting) for anything after that. How about that?

Wow, it's customary in your market for sellers to pay 3% points or costs for even cash buyer's?!

Cause that's what customary means. It means you'll find it in every transaction and in every circumstance: in buyer's markets; in seller's markets, and everything in between.

Mr. Lansford has given you the best advice so far. Please ask him for the suggested article.

 

[J Grant]

This topic was posted in other threads...re, concessions, read the cert form, if not present in virtually all transactions then they are not customary, re, the 3% is not customary unless it is present in virtally all transactions

 

[Lee Lansford]

Thank you all for your contributions. They are very helpful.

I was just thinking that you should be looking for what is customary in your area (say 3%) and then adjusting (deducting) for anything after that. How about that?

No, no, no!

By "customary", do you mean that the (i.e.) 3% was present when the market was a seller's market as well as a buyer's market (and all points in-between)? And, that the 3% was present in "virtually ALL" transactions? My guess that the answers to both questions is NO.

Many confuse "customary" with "Gee, a whole lot of transactions today have a concession, so, such must be 'customary'!" Nope.

 

[residentialguy]

Customary has nothing to do with it...unless it is in virtually ALL sales transactions.

 

[incognito]

Simply stated, FNMA does not allow positive conditions of sale adjustments. Period.

 

[NorthTexValuation]

I was just thinking that you should be looking for what is customary in your area (say 3%) and then adjusting (deducting) for anything after that.

NOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO.

"Customary" does not mean jack.

99% of the time you adjust DOLLAR for DOLLAR the amount of seller concessions on comparables.

 

[DWiley]

From the Fannie Mae Selling Guide:

“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. Adjustments based on dollar-for-dollar deductions that are equal to the cost of the concessions to the seller (as a strict cash equivalency approach would dictate) are not appropriate. We recognize that the effect of the sales concessions on sales prices can vary with the amount of the concessions and differences in various markets. 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.”

 

[Mark K]

You can either adjust the comps $ 4 $ or you can try to explain why many of the sellers in your area are too stupid to know what a $ is worth.

$ 4 $ adjustments always "reflect the difference between what a property would have sold for...etc.".

Pretending that sellers don't know the value of a $ in concessions and adjust the selling price accordingly is naive, bordering on incompetent.

To the OP, IGNORE your subject's concessions except where you have to disclose them on your form. The real estate is worth what its worth, with or without concessions. Appraise it accordingly.

 

[J Grant]

“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. Adjustments based on dollar-for-dollar deductions that are equal to the cost of the concessions to the seller (as a strict cash equivalency approach would dictate) are not appropriate. We recognize that the effect of the sales concessions on sales prices can vary with the amount of the concessions and differences in various markets. 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.”
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The above is correct. However, with concessions, often the market reaction comes out to be the exact $ amount of the concessions.

This is less the case with financing or other options/perks to make a deal happen.

 

[Calvin the Airedale]

You can either adjust the comps $ 4 $ or you can try to explain why many of the sellers in your area are too stupid to know what a $ is worth.

$ 4 $ adjustments always "reflect the difference between what a property would have sold for...etc.".

Pretending that sellers don't know the value of a $ in concessions and adjust the selling price accordingly is naive, bordering on incompetent.

To the OP, IGNORE your subject's concessions except where you have to disclose them on your form. The real estate is worth what its worth, with or without concessions. Appraise it accordingly.

Pardon me but I couldn't resist. I'm sure your comments were directed at those who believe that concessions don't always contribute to the SP on $4$ basis, and thus can be adjusted at a lower amount, if at all.

But you are being naive (and bordering on incompetence) if you cannot accept the premise that sometimes concessions contribute to the sale price at an amount greater than the nominal amount of the concession.

There are some markets where the buyers are so cash starved that a sale won't take place without the seller paying points and costs. In such situations, the seller can earn back the opportunity cost of the concessions in addition to the nominal amount of the concessions in the sale price.

The fact that concessions can and do contribute more or less than their nominal amount is precisely the reason that the GSE's provide such guidance when describing how to treat concessions.