Positive Adjustment on Seller Concessions

[residentialguy]

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.

It's not a matter of the "price being raised"... If the buyer turned around and said, you know, I'll pay cash if you subtract the exact amount they you were willing to pay for the seller concessions. 99.9% of the sellers would do it...they aren't getting anything less. They will lower the price to match the concession amount difference.

 

[Mile High Trout]

Doesn't that equate to a constant up to 3% gain in market pricing?

Assume you're the only appraiser out there. Wouldn't such an approach support inflation without substantiated cash contribution?

Where does one draw the line? 1%, 2,%, 3%, 4%, and why?

Cash equivalency is net to seller, not net to all parties.

I don't follow this line of reasoning because it states lenders should loan on total costs, not actual market values. But to think about that, they do that already. The realtors fee is lent in there, why not concessions?

Full separation of fees should be attained. Realtor fees should be run on additional piggy back loans. Clearly separated from the market value package. It's not going to happen, because "creative figuring" seems to be the status quo.

Realtor point discounts do not equate to a bonus figuring, so I'm perplexed why reduced net to seller is figured that way.

 

[residentialguy]

I don't know about anybody else but I HAVE SEEN THE LIGHT!!

As a matter of fact, in the future I'm going to interview every buyer and seller of every comp...

(I cut out the non-sense part of the post)

Well, good luck finding the seller...they've moved and the agent won't give up their number. I do contact the seller's agent and ask them what the seller was willing to sell with the concession difference with a cash deal. They know what their client was willing to do. So far, 99% have said that they would have lowered the price $4$. There is that few 1% where they would not...that's why it can't be mechanical. Those damn 1 percenters....causing problems on wall street and our concessions! I think I'm going pitch a tent. :icon_lol:

 

[residentialguy]

It is common and customary IN MY MARKET for VA buyers to pay nothing down and for the sellers to pay all or part of the buyer's closing costs. Does this inflate values? The market doesn't seem to think so.

I don't agree. Did you ask the agent, "What would the seller have applied that 3% to the price if they paid cash in lieu of taking it out of their pocket to pay the closing cost?" Start asking, the answer may surprise you. I don't think the sellers from CO are that much different from any where else when it comes to money.

 

[Mike Garrett RAA]

It's not a matter of the "price being raised"... If the buyer turned around and said, you know, I'll pay cash if you subtract the exact amount they you were willing to pay for the seller concessions. 99.9% of the sellers would do it...they aren't getting anything less. They will lower the price to match the concession amount difference.

And that has been done for as long as I can remember when it come to the real estate commission or lack there of when the sale is by the owner (FSBO). So, to follow that logic, we as appraisers, should deduct the real estate commission paid to arrive at a strict cash basis. Right? I don't thinks so.

Honestly, how many pure cash sales occur on residential properties IN YOUR MARKET? Because we have 5 active military installations IN MY MARKET, VA loans have the largest market share (about 38%). VA buyers typically pay NOTHING down and, in most cases, have the seller pay part or all of the buyer's closing costs. Using strict cash equivalency would mean no VA purchases and effectively end the housing market as we know it.

Would this be a good thing? You be the judge. Personally, I think I could fix the housing industry very quickly. End all government loans. Go back to only conventional loans with a minimum of 20% down payment. That should stop the foreclosures but, unfortunately, it would end the American dream of home ownership for 90% of the population. Sure would increase the value of rental properties as rents would sky rocket and the filthy rich would be come filthier.

 

[residentialguy]

And that has been done for as long as I can remember when it come to the real estate commission or lack there of when the sale is by the owner (FSBO). So, to follow that logic, we as appraisers, should deduct the real estate commission paid to arrive at a strict cash basis. Right? I don't thinks so.

doesn't' need to be "pure cash"...just a sale where the seller is not paying concessions. Plenty of typical type of financing where the seller is not paying the buyer's closing costs, prepaids, discount points etc.

I'm not arguing what is best....if that were the argument, the UAD and much of USPAP would be thrown out. But we have what we have. If you can't you can't come to an agreement between you and the lender request, you need to not accept the assignment. And as it stands, your EMV is a price that is unaffected by sales concessions, unless those concessions are in virtually all sales transactions.

 

[residentialguy]

VA buyers typically pay NOTHING down and, in most cases, have the seller pay part or all of the buyer's closing costs.

and while VA tends to produce more buyers needing seller paids, it is not all (as you indicated by "most cases").

snipit of VA financing in Hennepin Co showing majority having seller paids, but not all.

...and the "virtually all" is not narrowed down to a particular finance.
It encompasses every transaction - conventional, FHA, VA, and other - virtually ALL.



^^^^^^^^^

 

[Mike Garrett RAA]

And your point is?

If there was strict interpretation then why haven't underwriters, reviewer, VA, and FHA told the appraisers they are doing it wrong? Because it is considered "the market reaction".

Personally, I wish they would say...."deduct all concessions dollar for dollar". It would end the debate. Of course it would have a terrible effect on MY MARKET. Maybe that is what many who post here would like to see...the end of the housing industry...as we know it.

 

[Calvin the Airedale]

I have no doubt that some hold their views on how concessions must be handled as a practical matter of convenience. These folks know from whence their bread is buttered. They believe that adjusting for concessions may disqualify them from future business as they might gain a reputation as a "deal killer".

They might even believe that to do so will collapse the housing market in an ever downward price spiral.

As appraisers, should that be our concern? Cause I'm pretty sure I don't hear that worry voiced by the same folks as to the inflationary effect such an adjustment regimen may have.

Some think that by adjusting in this fashion they are helping vets achieve the American dream in a way that might not happen if they made concession adjustments to strict interpretations of cash equivalence.

Is it helpful to such vets to defer the payment of points and costs over thirty years at interest, thereby multiplying such costs?

I am one who holds to the belief that there is no such thing as a free lunch. Those buyers will end up paying their own freight in one way or another.

 

[CANative]

Making $4$ adjustments for tiny seller concessions (almost always done to help the borrower get loan approval) is no different than half-bath or fireplace adjustments without "paired sales."

It recognizes a value without direct evidence.