Seller Concessions Changed After Appraisal

[AZguy33]

Okay here goes -

Appraisal is for a new build.

My original appraisal is shy of the purchase price by a couple grand.

The UW came back and provided me with a statement showing that the builder has now increased the dollar amount being paid towards the buyer's closing costs. So it went from $5,000 to $7,800. UW is asking that this "correction" be made to the report and comps be adjusted.

The comps are a combination of both same and other builders. Regarding the comps from the same builder - all comparables have similar builder contributions to closing - $6,500, $7,290 and $5,000. I have no evidence to suggest that the asking price/sale price was influenced by the concession. The change in the contribution towards the subject's closing cost did not alter the contract sale price.

Thoughts? Advice? Thank you kindly.

 

[Couch Potato]

You might want to explain to the underwriter the change in concessions on the subject property has no effect the concessions made on the comparable sales, and would not warrant any change in adjustments to anything.

 

[residentialguy]

Yup, what couch said...tell them that you adjust comps, not the subject. The most probable price is the most probable price.

Little concerned with this statement, though. "all comparables have similar builder contributions to closing - $6,500, $7,290 and $5,000 I have no evidence to suggest that the asking price/sale price was influenced by the concession."

Did you ask the agents if the seller would sell for $6,500 less if they didn't pay $6,500 in concessions? You don't think they would sell the property for that much less if they didn't have to contribute to the closing??? It is the same net. Now it is possible...but you better have a good reason.

 

[RSW]

Once again, I have to agree with Residentialguy. This does not happen very often. Just tell the underwriter that you adjust the comps to the subject and not the subject to the comps. The subject's concessions will have no effect on the appraised value.

 

[AZguy33]

Here is what the builder said regarding the concession to closing cost.

I quote "No, the sales price was not inflated because of the seller contribution. It was part of our incentive that we offered if they used Maracay Home Loans. If they did not use MHL, then we did not contribute to cc."

 

[residentialguy]

Once again, I have to agree with Residentialguy. This does not happen very often.

We gotta stop doing this...people are going to talk :Emoticon_hug:

 

[RSW]

We gotta stop doing this...people are going to talk :Emoticon_hug:

:new_multi:woohoo

 

[CANative]

Often a seller may give some sort of financial incentive to induce a buyer to make an offer on the seller’s property rather than on a competitor’s property. Some appraisers will identify this sort of financial “concession” offered by the seller as an adjustment to be made under the “conditions of sale” element of comparison, but other appraisers will label concessions as “financing terms.” The label itself is less important than recognizing the effect of concessions on the sale price of a comparable sale, compensating for that effect, and not double counting the effect of the concession.

A concession is a financial payment, special benefit, or non-realty item included in the sale contract or rental agreement as an incentive to the sale or lease. Concessions occur when the seller or lessor agrees to pay an inducement or to give some credit or property to a buyer or lessee, who agrees to pay a higher price than the seller or lessor would normally pay in return for the inducement or credit. Concessions usually result in artificially inflated sale prices or lease rates. Often concessions allow financing that would otherwise not be possible. Concessions may be disclosed as part of the sale or lease, but often they are not. Examples include

• A sale that includes personal property such as automobiles, motorcycles, cruise tickets or furnishings.
• A sale in which the seller contributes to the buyer’s portion of the closing costs. This lowers the amount of money a buyer needs at closing. The seller usually raises the selling price by the amount of the extra costs.
• A transaction in which the seller of the real property purchases a piece of personal property from the buyer at an inflated price. For example, the buyer has a car worth$2,000, but the seller buys it for $20,000 (as part of the real property transaction), in effect giving the buyer a down payment. The price (but not the value) of the real property is increased by $18,000.
• A sale in which the seller subsidizes the buyer’s mortgage, e.g., buys down the interest rate, pays the buyer’s mortgage payments for a stated number of months, or provides some other arrangement. If the interest rate of the new loan is lower, some lenders will underwrite the loan at the discount rate, which allows the buyer to take out a larger loan.
• A seller-financed sale in which the seller takes back the mortgage at a below-market rate, which will give the buyer lower payments unless the seller raises the sale price to compensate.
• A free month’s rent as part of a one-year apartment lease.
• A new lease in which the landlord pays the tenant’s moving costs.
• Points paid by the seller.
• Personal property, furniture, and equipment (FF&E), or other non-realty items included in the sale.
• Payment of past due taxes. Delinquent taxes can impact not only the sale price due to added payments but can also be a motivating factor in the sale.

Verification is key to assessing the impact of concessions. Appraisers should adjust for these items because concessions are usually not in compliance with commonly used definitions of MARKET VALUE.

 

[Mile High Trout]

Although the subjects concessions have changed, that will bear influence when the subject is used as a comp later, but does not effect the cash equivalent analysis performed for the comparable sales against the subject.

They could bounce the concessions to $20k, it won't change anything to do with the cash equivalent analysis of the sold comparables, except indicate that your subject had to provide a bigger concession, in order to move in this instance.

I would assume that because the seller is upping the dp assist or whatever, that the deal works with your original value opinion, as they appropriately adjusted to match. The appraisal should reflect the updated contract, imho, that's a freebie correction because they seem to have respected your value opinion and negotiated with each other, rather than pressuring the appraiser.

The change in the contribution towards the subject's closing cost did not alter the contract sale price.
But they had options. Rather than bring the price down with an amended contract, they upped the concessions. They want to keep the higher price trends going, regardless of concessions.

 

[CANative]

I think everyone misunderstands. The developer's explanation was not intended to influence the OP to consider the subject's concessions in developing the value opinion. Their explanation was intended to influence the OP to change the adjustments to the comps which would change the value indications for the subject.