Redfin Agent Commission Credit

[eld2310]

An appraisal was kicked back to me today from mortgage underwriting - they want me to add the "Redfin buyer's agent credit" into the seller concession area of the URAR. I was unaware of the credit as it didn't appear on the PSA and the listing agent (whom I met at the property) didn't mention it when I asked. She just said that she was reducing her commission by $1,000 because that was the difference between the buyer's and seller's final offer and counteroffer. Redfin is the selling (buyer's) agent.

The sale price of the property is $568k, no seller concessions, the buyers are paying $133k cash down and since they executed the PSA there have been several backup offers ranging up to $585k per the listing agent (the property was listed for less than a week). The Redfin credit being given to the buyers is $8,250. I have yet to determine if it's a check that will be sent to the buyers from Redfin after closing, or if it will be applied to closing costs and/or dispersed in escrow. Apparently Redfin does both ways depending on what the buyer wants. I'll find out from the Redfin agent tomorrow.

I really don't want to adjust for this, particularly after the fact. To me it's an inducement for the buyers to use Redfin, not "financial assistance" in the purchase of the property. None of my comps have seller concessions. They're not common in this market segment.

I've already looked for comps with Redfin buyers but only 2 out my 10 possible comps even show who the selling agent was. The listing agents are supposed to enter that info when they update the MLS with the sale data, but they don't (probably don't want to give "free advertising" to their competition). I guess it's another question I'm going to have to start asking when I confirm the sale, but in this particular sale, based on all the facts, I'm still confident in my appraised value of $575k.

Thoughts? Anyone seen this before?

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[hastalavista]

This is an item that affects the subject?

If so, there isn't any "adjustment", no?

I'd amend my report to add this information where I discuss the subject's contract and leave it at that.

 

[Michigan CG]

We do not adjust for the subject's concessions or special financing; you are estimating the subject's value based on comparable sales.

Mention the situation and move on.

 

[eld2310]

Thanks for the feedback. They also want me to put in 2 more comps within a mile even though I already went into a lengthy explanation in the OA as to my comparable selection process, why two of the four sales are slightly over a mile away (my comps range from 0.35 to 1.19 miles from the subject)...this is the level of reasonableness I'm dealing with.

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[hastalavista]

Thanks for the feedback.

Your welcome (and, didn't mean to be picky! :icon_wink

They also want me to put in 2 more comps within a mile even though I already went into a lengthy explanation in the OA as to my comparable selection process, why two of the four sales are slightly over a mile away (my comps range from 0.35 to 1.19 miles from the subject)...this is the level of reasonableness I'm dealing with.

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I feel for you! :new_smile-l:

 

[smackodu]

You don't have to adjust for the Redfin credit unless it is warranted. But you do have to mention the Redfin "gift". The gift reduces the cash amount needed for the buyer to close on the property.

Read the last lines of the contract section of the 1004 again. There may be a difference between what it actually says and what you believe it says. I have run into this before and I disclosed it. For what it is worth I even mention if someone other than the buyer is paying for home warranty.

 

[Michigan CG]

You don't have to adjust for the Redfin credit unless it is warranted......

There can not be a warranted adjustment as the credit is to the subject property. We adjust comparable properties, the subject concessions, creative financing and credits are not a basis for adjustment.

 

[eld2310]

Y
Read the last lines of the contract section of the 1004 again. There may be a difference between what it actually says and what you believe it says.

It says: "Is there any financial assistance (loan charges, sale concessions, gift or downpayment assistance, etc.) to be paid by any party on behalf of the borrower?"

(My bold)

I'm just wondering if anyone thinks that it's a reasonable theory that a cash bonus paid to the borrower as an inducement to select a particular agent to represent them in a sale could be considered a separate transaction from the actual purchase of the house. It's not necessarily "financial assistance" as it's yet to be determined if it's being paid to someone else "on behalf of" the buyer.

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[hastalavista]

I'm just wondering if anyone thinks that it's a reasonable theory that a cash bonus paid to the borrower as an inducement to select a particular agent to represent them in a sale could be considered a separate transaction from the actual purchase of the house. It's not necessarily "financial assistance" as it's yet to be determined if it's being paid to someone else "on behalf of" the buyer.

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Ahh... I get it now. Your question was too nuanced for me to pick-up in your original post!

This is a really good question.
So, does a rebate on the buyer's commission constitute "financial assistance"?
Well, it doesn't change the price received by the seller, that's for sure.
But does it represent a change in the price paid by the buyer? I'd say if it were known that it was going to be paid prior to the transaction (which, it sounds like it does), then it does represent a change in the price paid by the buyer. It reduces the the buyer's expense.
Is a reduction in the buyer's purchase expense "financial assistance"? Technically, I'd say yes... although I'm not sure it fits with what typical financial assistance represents (i.e., without this assistance, the buyer wouldn't have purchased the property for the price paid).

On the other hand, had the buyer negotiated a lower agent commission rather than the rebate, we (or, I) wouldn't consider that to be financial assistance.

After giving this some thought, I think it is technically "financial assistance". But financial assistance which has no bearing on the price/transaction value.

I also think that the "financial assistance" question of the subject is more important to the lender (our intended user) vs. our market value opinion. So the lender may have a legitimate reason (and warranted reason) to report this as "financial assistance".