Yet Another Seller Concession Question

[J Grant]

Exactamondo. If "Cash" is the MV standard, then any concession is by its very nature, a non-cash distortion of the market. If List to Sales ratio is 97% and sale is 1:1 the list price, but with 3% concessions??? Net to seller is still 97%.

No, "cash" is not the MV standard (see above post 30) the MV standard in the MV definition is cash or terms of financial arrangements comparable there to. In other words, the MV standard is cash or terms unaffected by concessions or special or creative financing.

 

[J Grant]

Since the data would almost always be inconclusive, particularly in areas where cash was used commonly, then the adjustment could be done with a dart board and be no more or no less than any other drunken guess.

This kind of statement, while entertaining, is ridiculous....appraisers over the years get to know their market and get a baseline , from looking at lots of data. analyzing transactions and speaking to market participants) of knowledge they can draw on to see if a sale price has been impacted by terms or concessions...of course the appraiser would verify terms of concession or special financing when present if they use such a sale as a comp, but it is not a drunken or random guess when they look at prices to see if they were impacted ( unless the appraiser is a clueless dolt , but that's not most of us aspire to )

 

[Peter LeQuire]

IF there is a record, such as multiple addenda negotiating different sales prices and seller concessions (closing costs), with the net sales price (net of concessions, not of typically allocated transaction costs) of each addendum being the same, what is the actual price for the property? The proper methodology- IMO - would have the sales price - the gross price net of the amount of the concessions -, be the price upon which adjustments to the comparables should be based: it is the only price that indicates what the property would have sold without the concession. The second circumstance in which the price a property would have sold for without concessions is that in which the contract price is the list price to which X number of dollars seller paid closing costs is added (or X percentage is added).

Wadda you do if you seen a significant number of sales that appear to indicate that sellers require higher prices to take their properties off the market for transactions requiring secondary mortgage market financing than they do for properties paid for by cash?

(Edited for clarity)

 

[J Grant]

MV purpose for appraisals it's whether the price was impacted above/below prevailing for special terms/financing/concessions...not about net to seller. Some sellers want to recoup the concession back as their net and we see that in an inflated price to cover the concession, other sellers just want it gone and won't negotiate the concession back to them at closing in the form of a higher sale price (price not affected)..

If a mix of cash and financing is present and you see lower prices paid for cash sales ( and perhaps shorter marketing times aka exposure), you have to figure it out...where does subject fit in this, is it a property that might appeal more to a cash buyer or financed etc...

The term properties is too vague, what kind of properties and what kind of market is it?

I find buyers pay less for all cash if the property needs work/they are flipping, whereas if it's a nice condition property, they pay (typically) about the same, and for a very high end property one might even see people paying more in a cash sale...depends on the market too and inventory etc , in a slow market with lots of inventory sellers will sell less for cash to move the property , in a better market they won't...it's all cash to seller at closing so for a nice property in an active market, a seller is foolish to take significantly less for cash sale ( actually the contract lacks a financing contingency, some "cash" buyers end up getting a mortgage )

 

[Peter LeQuire]

The market value definition for GSE-related transactions clearly states "....(5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale."

If the record of the negotiation of a property clearly shows that the contract price was inflated to account for (some of) the buyer's closing expense, pray tell what other measure of the influence on price might there be than the amount of the concession? I can imagine a transaction in which the buyer wants a piece of lawn equipment, the seller wants his list price for the real property, and the contract price for the house and the equipment is the list price plus some number for the equipment.

(All this relates to the analysis of the comparables NOT to the price/concessions of the property being appraised.)

As to the kind of properties - I thought we were talking about residential properties and GSE-related appraisals of them.

 

[J Grant]

You lost me on this last post, what is the question? Are concessions $ for $ when a price is inflated the exact $ amount of a seller paid closing cost that buyer normally pays? ( in such a case yes it would be $ for $, we just are
not supposed to arrive at $ for $ rote/mechanically)

Properites yes res/GSE appraisals, I meant saying properties selling for lower prices for cash, be more specific...what kind of properties, what condition, what is the inventory/market cycle, how long in days on market for cash vs financed, who is the buyer of the property for cash vs a financed buyer ( are the both buyers owner occupants, or is the cash buyer a property flipper )...these sorts of questions helps us analyze when we see a situation such as you put forth when cash sale prices are less than financed (I've seen the reverse btw, with some cash sales selling for more... )

 

[Terrel L. Shields]

in terms of cash in U. S. dollars

The statements conflict. Financing is NEVER equivalent to cash by definition. Without financing sale prices fall.

not your edited version

It is a direct quote from the oxymoronic definition of MV we live under. A concession only reinforces the fact that financing never equals cash.

 

[J Grant]

I understand your point and probably everybody gets it too...if financing were for some reason not allowed and everybody had to pay cash, housing prices would be lower. (much lower). But the fact remains financing IS allowed, and is very much a part of market activity. Yes, the very fact that financing is an option affects prices upward...that is the reality of the market. Stop trying to make appraisals into something other than it is not.

Appraisals are not about what prices would be/should be, if only everyone had to pay cash.

Appraisals for MV purposes are about analyzing what prices ARE, in the market that exists where cash and or financing might be used.

If one sees a price pattern /DOM difference between cash and financed sales , analyze it as part of assignment.

If one sees concessions or special/creative financing impacting prices/DOM, analyze it as part of assignment.

 

[Terrel L. Shields]

appraisers over the years get to know their market and get a baseline ,

horse pucky. These vary from lender to lender, despite 2ndäry mkt and here is nigh totally absent from non-secondary market.

the fact remains financing IS allowed, and is very much a part of market activity.

So what? It still doesn't make them equal. Only easy financing fuels bubbles and allows speculation. When this Deus ex Machina is only accomplished with a concession, whether 'typical' or not, it distorts any semblance to a cash market. Further most contracts give an out, even to refunding down payment when financing cannot close for some reason.

 

[Mike Garrett RAA]

So, does cash to seller equate to cash purchase? I still believe if that were the case then we should also consider the amount the seller paid in commissions...which we don't do. Net to seller is really a poor indicator of market value. And the beat goes on, and on, and on.