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Sales concession adjustments

Elliott

Elite Member
Joined
Apr 23, 2002
Professional Status
Certified General Appraiser
State
Oregon
$500,00 x 0.03 = $4,000?
 

Overimprovement

Senior Member
Joined
May 31, 2017
Professional Status
Certified Residential Appraiser
State
Kentucky
There seems to be confusion on what an adjustment is. It is NOT what that ONE particular buyer considers a feature to be worth, but what the market in general has considered that feature to be worth. Someone looking for a pool may well consider the value of that pool to be $25,000, and be willing to pay that much more for a home with one. But the market, across the board for that style/size/quality home, may have determined overall the value is $10,000. Which adjustment would go in the report?

Apply that to a sales concession. Buyer A may very well need 4% concessions to make that deal work because they are so short on cash. But how about the market in general? If nearly every deal has/needs such a concession, that is quite different from a market where many sales are for cash.

Some seem to be saying that on a particular investment property (similar to ones which mostly sell for cash in that market) that has $5,000 in seller paid concessions, that $5,000 is thus the appropriate adjustment? How about if that same investment property flips 6 months later for cash? Same house, one with concessions, one without. Clearly the market is not demanding concessions on every sale.

Our adjustments are market-driven, not specific deal/buyer driven.

That is why we go through such trouble DERIVING our adjustments for a feature by analyzing the market in general, not simply letting the buyer tell us what something is worth.
 

Overimprovement

Senior Member
Joined
May 31, 2017
Professional Status
Certified Residential Appraiser
State
Kentucky
Using the same dollar per dollar thought process, shouldn't every purchase assignment be appraised at the contract price?
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
There seems to be confusion on what an adjustment is. It is NOT what that ONE particular buyer considers a feature to be worth, but what the market in general has considered that feature to be worth. Someone looking for a pool may well consider the value of that pool to be $25,000, and be willing to pay that much more for a home with one. But the market, across the board for that style/size/quality home, may have determined overall the value is $10,000. Which adjustment would go in the report?

Apply that to a sales concession. Buyer A may very well need 4% concessions to make that deal work because they are so short on cash. But how about the market in general? If nearly every deal has/needs such a concession, that is quite different from a market where many sales are for cash.

Some seem to be saying that on a particular investment property (similar to ones which mostly sell for cash in that market) that has $5,000 in seller paid concessions, that $5,000 is thus the appropriate adjustment? How about if that same investment property flips 6 months later for cash? Same house, one with concessions, one without. Clearly the market is not demanding concessions on every sale.

Our adjustments are market-driven, not specific deal/buyer driven.

That is why we go through such trouble DERIVING our adjustments for a feature by analyzing the market in general, not simply letting the buyer tell us what something is worth.
Great post ! And illustrates why the fannie guideline is confusing and if taken the wrong way contradicts the URAR mandate about adjust for affect on price rather than mechanically $ 4 $. Because the fannie lingo is what THEY would have sold for without the concession, ( should have simply re iterated the URAR directive, wtf is it with fannie lately one weird thing after another)

For fannie to advise what they would have sold for without the concession makes some appraisers think they have to interview the buyer/seller, what are they gonna say doh - but the truth is, for that particular transaction a cash strapped buyer would not have purchased it all if a concession was not offered so what is the answer, fannie, it would have sold for $ ZERO without the concession since that buyer would not even purchase it DOH DOH DOH

The URAR over rides the idiocrat fannie guidance on how to do it, since the URAR directive about concessions is what we sign / certify we did. And it also makes sense as a MV evaluation tool - we adjust for concessions or special financing to bring prices in line with what they might get in the market without those perks - and if those perks did not affect price above market levels then no adjustment is made.

If appraiser believes a comp $ 4 $ concession adjustment is same affect on MV as a price, then state it that way "Analysis showed the $ 4 $ concession of $3,000 is found to be equivalent to the market reaction in appraiser's judgement., therefore the adjustment applied is $3000. ( see below post )
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
*Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable since the seller pays these costs in virtually all sales transactions. Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third party institutional lender that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical dollar for dollar cost of the financing or concession but the dollar amount of any adjustment should approximate the market’s reaction to the financing or concessions based on the appraiser’s judgment.

From the URAR people, market reaction, and based on the appraiser's judgment, not literally $ for $ what seller Bob and buyer Nancy did on comp 1 with their concession /price.
 

cstu11

Sophomore Member
Joined
May 4, 2013
Professional Status
Certified Residential Appraiser
State
California
Analyze the sale means to analyze the sale, even if takes another 20 minutes to complete the assignment and move on to the next fee.

How many days on market? What is the typical time to sell a property like the subject and the comparable? How much was the sale vs. the original list price and last list price? What about when the credit is for repairs or changes? Is this a market where concessions, credits and buy downs are needed to secure q sale? etc., etc.

Sometimes $4$ is appropriate and other times it is not. This is an opinion. There is no right or wrong. Explain yourself and who can criticize you?

This is how I view it.

It takes extra time to call the agent to verify why the concession was made, but it's the correct way to do it.
 

TMG

Member
Joined
Jul 28, 2007
Professional Status
Certified Residential Appraiser
State
California
I read the MLS concession comments. They are often revealing. A recent one said "the $5k concession was contingent on a full price offer". So the seller was anticipating selling 5k below list price.

Often I adjust dollar for dollar, unless its getting like over 6% then possibly a 50% adjustment.
 

Mejappz

Senior Member
Joined
Dec 16, 2005
Professional Status
Certified Residential Appraiser
State
Florida
I have started to include concessions as an independent variable in a Multiple regression analysis. I have yet to find that the concession amount explains a significant amount of the variation in the sale prices of the comparable sales. I find that properties financed through FHA sell for a slight premium, at least in my market.
 

sputnam

Senior Member
Joined
Apr 24, 2012
Professional Status
Certified General Appraiser
State
North Carolina
It's going to depend on the specific sub-market of the subject. As always, it's data that you have to derive from the market.
 
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