The Last Concession Poll Ever--Multiple Answers Allowed

[Elliott]

Steve,
I'm glad to see such a high level of consistency and agreement, there are times I
thought appraisers were really split. But the ten or so who checked, "I only adjust
for concessions if the subject included a unusual concession" makes me worry a little.

 

[VolcanoLvr]

Jim K...........

In your example of the $30K adjustment you made 'across the grid' (your words) is exactly what I've been saying.

So I guess I'm confused as to your disagreement with me as to how to account for the concession. (Your post #16)

I'm serious about this.........if I'm doing something incorrectly, I want to know.

However the SRA who did the class showed us the example I use and you apparently do also. Except you go into far more detail (correctly) about evaluating the cash equivalency of a particular concession.

 

[Mztk1]

Jim K...........

In your example of the $30K adjustment you made 'across the grid' (your words) is exactly what I've been saying.

So I guess I'm confused as to your disagreement with me as to how to account for the concession. (Your post #16)

I'm serious about this.........if I'm doing something incorrectly, I want to know.

However the SRA who did the class showed us the example I use and you apparently do also. Except you go into far more detail (correctly) about evaluating the cash equivalency of a particular concession.

Because the way I have understand what you are saying is that the concessions (pretending the subject was a sale in my example) of the subject ($40,000) should be added to the concessions of the comps ($30,000). I believe you said that if the subject sold with $5,000 in concessions that adjustment should be made to each of the comparables, and then any concession made for the comparable should be added to the subject concession.

What I am 100% certain on Dave, and if your SRA instructor says differently I know for a fact he is wrong, is if the subject sold with $X in concessions and the comps sold with $0, no adjustments are made because you do not adjust the comps to the subject, as you do an amenity like a pool or bath. You take the concessions of the comparables (if any) and you find the value of the concession in the market and adjust that value. $0 in concessions has a value of $0. $10,000 cash in concessions has a value of $10,000 cash. A $20,000 sticker priced car in concessions has an unknown value and you have to compare the sale with other sales that do not have the concession and extract the value - if you choose to use it at all. But if your subject is sold with a $20,000 sticker priced car and none of your comps had concessions, an adjustment is not necessary.

 

[Proactive]

Steve,
I'm glad to see such a high level of consistency and agreement, there are times I
thought appraisers were really split. But the ten or so who checked, "I only adjust
for concessions if the subject included a unusual concession" makes me worry a little.

I agree. Sadly, I suspect in my market area your poll would produce much different results...

 

[VolcanoLvr]

Jim.....

I agree your calculation method to establish the cash equivalency of A CONCESSION is what FNMA states. (I'm not certain, however, that there is an exact method to extract the cash equivalency...but let's not go there now. To keep this simple, let's just use the term Concession to mean its Cash Equivalency.)

However, you and I diverge on how A cash equivalency CONCESSION must be annotated in the Grid.

From what I understand, ANY concession (applying to the Subject OR a Comp) must be adjusted negatively in the grid. That's what the FNMA guideline says. In the Comp grid is the only place it can be done.

The guideline does not say "well if this one has a concession, and this one does not, then you DON'T have to make an adjustment." That appears to be your position.

My position is as I have stated before in this and the other thread:
If a Subject has a sale concession, then that concession is entered in the grid as a negative adjustment applying to EACH comp. That's the first adjustment made across the board....which is why it comes first in the series of adjustments we make!

THEN, if a particular comp also has a Sales Concession that applied to ITS transaction, then that concession for that particular comp must also be negatively adjusted in that particular comp grid. (Not for all comps!)

So in this example, the Subject Sale Concession AND the Comp Sale Concession are additive in that singular grid column.

Your last sentence is where I really respectfully diverge from your opinion!

You're saying that the auto concession should not be 'accounted for' .... I'm saying it ABSOLUTELY must be accounted for, by making a Concession adjustment in each comp column. It's the only way we can extract the car value from the sales price of the Subject to arrive at the Subject's Cash Equivalency value.

Not doing so leaves the car value in the resulting adjusted sale prices of the comps, and therefore enables the OMV to be higher than it should be.

If the car value is not accounted for (deducted in the grid), it's value "adds to the sale price" of the property, which increases the cash equivalency value of the Subject (or to any other comp if a similar situation applies).

I think where some appraisers get confused is akin to 'at what point does the Concession actually apply' in terms of the sale price of the property.

Most inducements sellers make are INCLUDED in the Sales Price of the Property, i.e., buy my house for "X$$" and I'll INCLUDE the car. Since a car is not Real Property, its Concession value must be deducted from the Property Sale Price to arrive at the Cash Equivalency Value. Sellers add concessions to fool the public into believing that the value of the Property is its stated sales price. It's really not! It's the sales price, less the value of the concession.

 

[Tim Hicks (Texas)]

Dave Towne, I applaud you for having such convictions toward your interpretation of the subject concessions. However, I seriously suggest you re-take your class because you must have misunderstood. You do not adjust the subject's sales concessions in the market grid. You adjust the comparable sales concessions.

As a result of your convictions that may lead to convictions of another kind, you are helping spread misinformation on this forum and further lowering the integrity of the information available on this forum.

Now, I am not totally unreasonable. If you can get your instructor to come on this forum and publicly state and defend that is the correct way to do it, then I will apologize for calling you out on this.

However, what you are touting is completely opposite of what 90% of the appraisers on this forum are saying and what Fannie Mae guidelines state. Keep in mind that if you Fannie forms you use Fannie guidelines.

The way you describe it would basically contradict every appraisal method we rely on. Here is the perfect example. Dave Towne appraises a home for pre-sale for a home owner for $105,000 and properly deducts for seller concessions on the comparable sales. The next month in a stable market the same owner sells the same home for $105,000, but agrees to $7,500 in seller concessions to the buyer. So using the appraisal logic you applied, you would appraise the home for $7,500 less the next month (or $97,500) and kill the sale with no change in the market or comparable sales simply because there are concessions 30 days later on the subject. How do you explain to the home owner it is worth less than 30 days ago when the same sales and no changes in the market. What would your state board say when he sent the two appraisals to them?

Does this example fit what you say?

 

[NC Appraising]

If the list price or sales price was raised to cover SC: the amount of the negative dollar adjustment for each comparable with sales or financing concessions should be equal to any increase in the purchase price of the comparable that the appraiser determines to be attributable to the concessions. Fannie Mae

and

The adjustments must reflect the difference between what the comparables actually sold for with the sales concessions and what they would have sold for without the concessions so that the dollar amount of the adjustments will approximate the reaction of the market to the concessions. Fannie Mae

and

o Sales or Financing Concessions. Account for and adjust for any special sale or financing terms, including sales concessions, non-market financing terms, points, buy downs, closing terms and swaps/exchanges. The most common scenario involves the seller paying points in the form of settlement help to the buyer. To reflect the amount, adjust the sales price of the comparable sale downwards. Typically this amount will not exceed six percent of the sales price for typical transactions. FHA

FHA Press Release


RELS on the issue:

Sales Concessions
Owing to the concerns on a national basis over declining markets and an over supply of listings, the following considerations must be noted and should be addressed in every appraisal report.
First and foremost, it is essential that the appraiser consider and utilize the most recent and similar sales data possible. The appraiser must consider any and all sales concessions and adjust as necessary for sales concessions. If an adjustment is not warranted the appraiser must address the reasoning behind the lack of adjustment and provide any support available.
The following is a client specific requirement:

• For an existing property sale, the appraiser must provide the listing price and the days on market (DOM) as part of the sales price analysis.
• For sales of new houses (new construction or never been occupied), all appraisal reports must provide the BASE PRICE for new construction, the PRICE OF ALL OPTIONS (as a single entry and separate from the base price), the LOT PREMIUM (as a single entry and separate from the base price), the dollar amount of all BUILDER CONCESSIONS and the dollar amount of all BUILDER CREDITS (again as separate entries). Concessions and credits have become a huge concern due to the creativity of these entries.

For example, concessions or credits may take the form of "X months" of principal and interest payments paid by the seller, "X months" of PMI or HOA fees paid by the seller, cars included in the purchase price, furnishings being included in the purchase price, trips included in the purchase price, etc.
It is very important to research and uncover these. Many of these credits and concessions have become commonplace in the current economy, but all credits must be deducted from the sales price. These credit and concessions are not considered to be typical and normal to the market and would not exist if the current residential real estate economy was not in its present state.

 

[NC Appraising]

Advice from MB on the issue

http://www.myfha.net/FHAassistance/closingcosts.html A must read!!!!

 

[Jeff Horton]

I was one of those confussed about concessions till I read the article in The Oregon Appraiser Summer 2005

I suggest everyone read it. It's toward the back.

 

[Mike Garrett RAA]

First thing I would want to know is the sales price of comparable. Then I would want to know what the market is typically doing specific to the location. Then I would want to know why you think I might be your peer?