Positive Adjustment on Seller Concessions

[residentialguy]

So are you trying to say that, for example, a $5,000 concession can be worth $7,000 to a buyer, and, if someone accepts this notion, is the adjustment on the grid $5K, $7K or something else?

Cash sale: $100K

Concessions sale: $107K with the seller paying $5K concessions? No, I don't buy it.

This might happen in some theoretical mental exercise but not in the real world. The vast majority of buyers just aren't that desperate.

Could easily happen. Buyer wants a house but doesn't have a pot to pi** in for a down. Buyer says I need 10k to make the deal happen. Seller says ok, I'll front you the cash, but instead of 300k sale price for cash that I'd sell, I'll front you 10k but the price is raised to $315k. You get the house that you can't afford otherwise. Your payments for the addtional 5k price hike from cash exchanged are wrapped in your mortgage which is stretched out over 30 years... only be about $24/mo. Win/Win for both of us.

Buyer says sure! Not like I have a choice and beats renting!

Adjustment for the 10K seller concession: -$15k to reflect the cash equivalancy of $300k, which is what the seller the seller would sell for without additional money paid.

 

[J Grant]

Good example, Res Guy!

 

[Eric C]

ResGuy is right on that example but that would probably happen on only one sale at any given time so it would never be enough to require a positive adjustment. AND...chances are that you wont get that much info out of the listing or selling agent especially if the sale is months old.

You can't go wrong with $4$ adjustments. When youre stuck just ask yourself "what would my peers do?"..... based on this forum it seems like 99% of your peers adjust $4$.

 

[residentialguy]

ResGuy is right on that example but that would probably happen on only one sale at any given time so it would never be enough to require a positive adjustment. AND...chances are that you wont get that much info out of the listing or selling agent especially if the sale is months old.

You can't go wrong with $4$ adjustments. When youre stuck just ask yourself "what would my peers do?"..... based on this forum it seems like 99% of your peers adjust $4$.

Agreed. There's a lot to be said by going down the path of least resistance.

 

[Calvin the Airedale]

ResGuy is right on that example but that would probably happen on only one sale at any given time so it would never be enough to require a positive adjustment. AND...chances are that you wont get that much info out of the listing or selling agent especially if the sale is months old.

You can't go wrong with $4$ adjustments. When you're stuck just ask yourself "what would my peers do?"..... based on this forum it seems like 99% of your peers adjust $4$.

No need to guess, there have been polls taken on this question. Actually, a third of the people responding agreed that one should adjust at the contributory value and not necessarily at $4$.

The "what would my peers" do basis for selecting a course of action only works when your peers are correct. In this instance, you're signing a certification with a definition of value which clearly defines how one is to adjust such concessions.

There are plenty of examples in the history of this profession when the consensus of peers on a given topic was dead wrong.

 

[residentialguy]

I'm in the 1/3 that says one should adjust at the contributory value and not necessarily at $4$. I have had cases where there was no adjustment...but usually the contributory value is $4$.

 

[Mark K]

...should not be mechanical $ 4 $, but based on market reaction. Since you are signing off on that certification, might be beneficial to read it for content.

I've read it many times and have read numerous discussions regarding this topic. Nobody has changed my mind yet and I don't expect to change anyone else's.

Prior to my appraisal career I owned a real estate brokerage that had about 15 agents. Every seller in all of the transactions that passed thru the office, roughly 300 closings a year, knew that a $ = a $. If a buyer wanted concessions, the price was adjusted accordingly. Typical concessions were met with typical price adjustments. In this area the market reaction for seller concessions is mechanical; the sellers are generally smart enough to know that a dollar is a dollar.

The idea of using a multiplier times the concessions based on a buyer's perception is one that I don't agree with and while there seem to be some on this forum that support this thinking, I wonder how many appraisers have actually made this type of adjustment on a F/F report, the type the OP was asking about. I suspect very, very few. I don't care how much tapdancing someone does I doubt that many reviewers would swallow this line.

ResGuy's example is just that. I doubt that it happens enough to claim any basis for supporting a multiple. Has it happened? Maybe. There are some real desperate people in this world, anything's possible. However, a rare occasion does not equal market reaction.

FWIW, in this state, using anything other than $4$ is usually one of the "Counts" in the complaints filed by the AG. Such as: Count 2: MLS reported $1,300 in concessions and appraiser reported only $1,000 in the sales grid. I'm not a huge fan of the Professional Lic. Board but this is one area where we agree completely. Trying to convince the AG that sometimes, $2,000 = $4,000 or $0 is an argument an appraiser is not likely to win.

 

[J Grant]

Mark...You, I , anyone on this board can think whatever we want on the topic, but the fact is, we when we do lender FIRREA work, we are signing off on the certification that states that concessions and financing adjustments ARE NOT to be made $ 4 $. And we are not allowed to alter the certification.

It is true, that a majority of the time, the market reaction to seller concession and the affect of the concession on price is the same ( $ 4 $, ), then we just explain that..

Part of the problem, imo, is separating what is a concession and what is really a financing perk.....re, if a seller kicks in more $ than closing costs /r points and we suspect the excess cash $ is functioning as the down payment, then at least part of what is listed as a concession, may belong in financing instead?

 

[residentialguy]

I've read it many times and have read numerous discussions regarding this topic. Nobody has changed my mind yet and I don't expect to change anyone else's.

Prior to my appraisal career I owned a real estate brokerage that had about 15 agents. Every seller in all of the transactions that passed thru the office, roughly 300 closings a year, knew that a $ = a $. If a buyer wanted concessions, the price was adjusted accordingly. Typical concessions were met with typical price adjustments. In this area the market reaction for seller concessions is mechanical; the sellers are generally smart enough to know that a dollar is a dollar.

The idea of using a multiplier times the concessions based on a buyer's perception is one that I don't agree with and while there seem to be some on this forum that support this thinking, I wonder how many appraisers have actually made this type of adjustment on a F/F report, the type the OP was asking about. I suspect very, very few. I don't care how much tapdancing someone does I doubt that many reviewers would swallow this line.

ResGuy's example is just that. I doubt that it happens enough to claim any basis for supporting a multiple. Has it happened? Maybe. There are some real desperate people in this world, anything's possible. However, a rare occasion does not equal market reaction.

FWIW, in this state, using anything other than $4$ is usually one of the "Counts" in the complaints filed by the AG. Such as: Count 2: MLS reported $1,300 in concessions and appraiser reported only $1,000 in the sales grid. I'm not a huge fan of the Professional Lic. Board but this is one area where we agree completely. Trying to convince the AG that sometimes, $2,000 = $4,000 or $0 is an argument an appraiser is not likely to win.

Mark,

It's one this to make a generalized mechanical adjustment when it is called for. But concessions are not like a deck. I've had occasion when I didn't make a $4$ adjustment for a specific comp. The seller offered seller paids if they wanted to finance through them. They would not reduce their selling price for cash. Contributory value of the 3% seller concessions: $0

We are instructed not to make a mechanical adjustment. If you can't abide by this, then it is an unacceptable assignment and you need to turn down all assignments where the lender wants you to appraise to FNMA's MV definition.

 

[Calvin the Airedale]

I've read it many times and have read numerous discussions regarding this topic. Nobody has changed my mind yet and I don't expect to change anyone else's.

Prior to my appraisal career I owned a real estate brokerage that had about 15 agents. Every seller in all of the transactions that passed thru the office, roughly 300 closings a year, knew that a $ = a $. If a buyer wanted concessions, the price was adjusted accordingly. Typical concessions were met with typical price adjustments. In this area the market reaction for seller concessions is mechanical; the sellers are generally smart enough to know that a dollar is a dollar.

The idea of using a multiplier times the concessions based on a buyer's perception is one that I don't agree with and while there seem to be some on this forum that support this thinking, I wonder how many appraisers have actually made this type of adjustment on a F/F report, the type the OP was asking about. I suspect very, very few. I don't care how much tapdancing someone does I doubt that many reviewers would swallow this line.

ResGuy's example is just that. I doubt that it happens enough to claim any basis for supporting a multiple. Has it happened? Maybe. There are some real desperate people in this world, anything's possible. However, a rare occasion does not equal market reaction.

FWIW, in this state, using anything other than $4$ is usually one of the "Counts" in the complaints filed by the AG. Such as: Count 2: MLS reported $1,300 in concessions and appraiser reported only $1,000 in the sales grid. I'm not a huge fan of the Professional Lic. Board but this is one area where we agree completely. Trying to convince the AG that sometimes, $2,000 = $4,000 or $0 is an argument an appraiser is not likely to win.

When one believes he will see market reactions at a $4$ contribution, he will generally see that in every transaction he looks at.

It's called bias. Again, what I believe is beside the point. I have actually seen markets in which this could be demonstrated more often than not. I've also seen situations and markets in which the contributory value of concessions was nil. And again, I've observed many markets in which the contribution was $4$.

And FTR, asking a buyer or seller what he believes to be the value of the concession is not necessarily a potent indicator of contributory value. Why? Because what we're supposed to measure is behavior, not buyer or seller opinions. The consequences and results of buyer and seller actions is better proof than opinion surveys. The two can and often do differ.

PS. My reports explain the basis for my adjustments, including those for the contributory value of finance concessions. I have never been challenged by a client or a reviewer for adjusting concessions at either a mulitple (or a fraction) of the nominal amount.