Seller concessions for a cash sale?

[Mark K]

but... let's say you have the following scenario:

Comp1: adjusted value is $155k with $0 in concessions.
Comp2: adjusted value is $150k with $10k in concessions.

Do you still adjust the $10k in concessions?

Always. Why wouldn't you.

 

[alebrewer]

Always. Why wouldn't you.

Because - assuming the other adjustments are correct - the goal of SC analysis is to minimize the adjusted sales range. By applying the concessions adjustment, you'd be going from a $5k adjusted range to a $15k adjusted range. The data is telling you that the concession didn't affect the sales price...

 

[Mark K]

Because - assuming the other adjustments are correct - the goal of SC analysis is to minimize the adjusted sales range. By applying the concessions adjustment, you'd be going from a $5k adjusted range to a $15k adjusted range. The data is telling you that the concession didn't affect the sales price...

Telling YOU maybe. It tells me there are likely other things to consider.

I've never been concerned about 'tightening' up the final adjusted value. If its too far out of line then you don't have very good comps. If the ones used are the best available then you discuss and place the value in the adjusted range at an appropriate point. You can reconcile to the high or low end of the range. That's part of an appraiser's job.

 

[alebrewer]

I've never been concerned about 'tightening' up the final adjusted value.

How do you know if you're adjustments have merit if you don't pay attention to whether they tighten or open the adjusted range? That's the entire point of sensitivity analysis, regression, grouped/paired sales - heck any technique...

 

[Mark K]

How do you know if you're adjustments have merit if you don't pay attention to whether they tighten or open the adjusted range? That's the entire point of sensitivity analysis, regression, grouped/paired sales - heck any technique...

Other adjustments don't come with a $ amount already in front of them. If adjusting $4$ widens the gap, so be it.

All buyers and sellers (and most of the world's population) know that a $ is worth a $. The only people that have trouble with this concept is appraisers and that's because they're instructed to ignore reality when necessary to make the deal work.

 

[alebrewer]

All buyers and sellers (and most of the world's population) know that a $ is worth a $. The only people that have trouble with this concept is appraisers and that's because they're instructed to ignore reality when necessary to make the deal work.

Is it possible that getting that $ back is not the only motivation for offering concessions? IOW - what if they offered the concession to get a quicker sale? There is no expectation to get that $ back in sales price - but rather to induce a quicker sale. You're making assumptions about folks' motivations that may, or may not, be true.

Having said that, I have absolutely no desire to change your mind - I'm not signing your reports. I assure you, though, I have no trouble with the concept you're trying to prove.

 

[Elliott]

In case anyone is interested, Fannie's new Appraiser Update discusses concessions.

Appraiser Update | Fannie Mae

Welcome to the Q3 2024 Fannie Mae Appraiser Update.

singlefamily.fanniemae.com

"Our Selling Guide prohibits appraisers from the use of unsupported assumptions and requires appraisers to support their adjustments (see B4-1.1-04, Unacceptable Appraisal Practices). The appraiser should never assume but should always analyze to determine the impact."

"Appraising rural properties gives appraisers an opportunity to shine as a trusted expert in the mortgage lending business by deploying a broader range of skills than what might be necessary for an assignment in a more homogenous, higher-density market."

........................

So the burden of proof, and it is a very high burden, is for the appraiser to support a concession adjustment (read, "You are crazy if you adjust for a concession."). But, an appraiser who can show they are in a market similar to a 'rural' appraiser, or a small market can 'shine' with their local expertise. SSDD.

 

[RCA]

Right but if someone is paying cash, closing costs are not really the issue. Why not negotiate the price down $5k rather than adding a $5k concession? More commision? I've bought multiple properties in cash and never asked for a seller concession. I'm genuinely curious.

When my daughter bought a house in Texas, the owner was moving back to Mexico. He wanted to cover the cost of stucco and foundation repairs with concessions after closing. Of course, - moving back to Mexico - , and what if he didn't pay, then how would she collect? So, she didn't go for the idea. But, maybe some do, there are probably more variations on this theme.

 

[The Bob]

I adjust if its clear they had "an impact on price". If the list price is $200k and the sale price is $210k with 10k in concessions, I adjust $4$. RE isn't fungible so there is always going to be some variance in prices, even for seemingly identical houses. I use data to tell me #1: Should there be an adjustment? and #2: How much. I almost always "tighten up" the adjustment based on the comps I used so it makes sense to the reader.

 

[J Grant]

Maybe a last minute repair item before closing. Lender doesn't want to redo the docks at the last minute.

Most cash offers are to get the sale. They don't have the actual cash. I've done appraisals for cash agreement of sales, especially in a bidding war. It gives the buyer one up with no contingencies.

That is not correct. The buyer should have the cash ( even if they are reluctant to spend it ). The buyer of course, unless it is struck from teh contract, the buyer can still apply for a mortgage, however the buyr in a "cash" deal gets no financing contingency as you note.

Therefore, if the financing falls denied, the buyer must come up with the cash to close - or they forfeit their deposit along with other possible penalties.