Positive Adjustment on Seller Concessions

[CANative]

Come on guys....

Adjustments should not be mechanical $4$.

Fannie Mae says...no positive adjustments.

End of discussion.

No adjustment should be mechanical. So what's the point of this discussion.

 

[Calvin the Airedale]

This just in:

https://appraisalfoundation.sharefile.com/d/sd1b99dce42c4553a

from the Appraisal Foundation.

 

[J Grant]

Thank you, Calvin! Terrific information in what he posted.

 

[residentialguy]

This just in:

https://appraisalfoundation.sharefile.com/d/sd1b99dce42c4553a

from the Appraisal Foundation.

Here ya go


107....... If an appraiser has determined and verified that the seller paid $5,000 in concessionary
108....... items, the appraiser would measure the impact of this concession on the sale price and make
109....... an appropriate adjustment to the comparable sale’s contract price to reflect a price
110....... “unaffected” by the concessions. The adjustment may be more than, less than, or the same
111....... amount as the actual dollar amount of the concession.

 

[Elliott]

Looks like AF totally missed the boat. They give 3 examples based on
financing terms and trying to develop the concession amount. One
wonders what they are trying to do, other than imposing more unreasonable
requirements on the appraiser that are meaningless to the market.

 

[Lee Lansford]

"Mechanical" adjustment (as from my personal dictionary): Done without thought; knee-jerk reaction; an adjustment not based upon analysis but based upon a pre-conceived notion.

 

[Calvin the Airedale]

Those who insist on $4$ adjustments do so on the premise that a dollar is always worth a dollar.

They might readily admit (I would hope) that the value of any other asset can change and does change depending upon a variety of circumstances.

The question to be answered then is, "when is a dollar worth more than its nominal amount, and when is it worth less?"

The fact that the value of a dollar constantly changes should not be in question. It is reported daily in the WSJ. But such changes are reported on a macro basis.

The dynamics of real estate transfer bring the question down to a micro level. The situations which make it more or less valuable than its nominal amount have to do with the seller's capacity to provide it, and the buyer's need for it. The more dire the need, the more valuable it becomes.

 

[J Grant]

In this market, is often the buyer that is in the driver's seat, re, more sellers than buyers. Thus, you will see seller concessions that did not really affect price...re, the seller did not raise the price in exchange for paying 3% closing costs, the buyer said, here is my price, I know it is low but I have a bunch of other homes I can buy, and I want the seller to pay 3% closing costs, take it or leave it. The seller takes it, knowing it might be months before another buyer comes along.

Question...was the price "raised" to inlcude the concession, or was it just part of the negotiation, the cost of doing the deal, and the seller "eats" the cost.

In a seller's market, we see either fewer concessions, or when we see them, prices clearly marked up to include the concession. In this market, we see prices no different with concessions than without...it meant doing the deal, not raising the price to accomodate the $ amount.

Question: If the price is not raised due to a concession, but the buyer makes it clear they won't buy unless there is a seller paid concession, is an adjustment warranted? (re the seller eats the loss of $ for concession)

 

[Calvin the Airedale]

In this market, is often the buyer that is in the driver's seat, re, more sellers than buyers. Thus, you will see seller concessions that did not really affect price...re, the seller did not raise the price in exchange for paying 3% closing costs, the buyer said, here is my price, I know it is low but I have a bunch of other homes I can buy, and I want the seller to pay 3% closing costs, take it or leave it. The seller takes it, knowing it might be months before another buyer comes along.

Question...was the price "raised" to include the concession, or was it just part of the negotiation, the cost of doing the deal, and the seller "eats" the cost.

In a seller's market, we see either fewer concessions, or when we see them, prices clearly marked up to include the concession. In this market, we see prices no different with concessions than without...it meant doing the deal, not raising the price to accommodate the $ amount.

Question: If the price is not raised due to a concession, but the buyer makes it clear they won't buy unless there is a seller paid concession, is an adjustment warranted? (re the seller eats the loss of $ for concession)

Good luck with that argument.

I've been able to prove the exact opposite in some markets. That is, in buyer's markets, the concession actually has a greater affect on the sale price than it might otherwise have in a balanced market, which is to say that the concession increases the sale price at some multiple of its nominal amount.

 

[Calvin the Airedale]

Question: If the price is not raised due to a concession, but the buyer makes it clear they won't buy unless there is a seller paid concession, is an adjustment warranted? (re the seller eats the loss of $ for concession)

It's almost never a question of the price being raised. In most markets (buyer's or seller's), the asking price is typically set higher than the value of the asset. The difference leaves room for negotiation and compromise on terms and price.