Yet Another Seller Concession Question

[residentialguy]

"BUT, even if they say that, that STILL does not answer the question, did concession affect market reaction to price?

Of course it did.

 

[Peter LeQuire]

Substitute "New Harley Davidson Fat Boy Softail" for "seller paid closing costs and prepaids".

 

[J Grant]

When verification interviews say dollar for dollar 99.9% of the time, guess what? That is the market's reaction. That is the prudent and knowledgeable reaction of the market.

What kind of Moron would reject it when it's the same money in his pocket?

The point is, in theory he would not reject it since its same money in his pocket, BUT, his own actions showed he did not have enough confidence in the market to wait for such an offer/or that within the X days he had it on the market, he did not get such an offer, thus what he DID do, is arrive at a price of X$ with the concession...which is why the question is did the concession affect price...price is a fact, what he actually did was a fact ( sell with a concession..) to be analyzed against other facts...how many sales with/without concessions, what are their prices, is his price affected compared to them etc.

I agree $ for $ is often the same as market reaction...but market reaction is seen in the market beyond what this one seller nets .

 

[timd354]

Of course, an agent, or seller will say if asked would the seller have accepted lower price without a concession , most of them would respond yes, what do we think they would say? BUT, even if they say that, it STILL does not answer the question, did concession affect market reaction to price? That is why the question is market reaction to price, not what the seller net is , or what seller said they would have accepted without a concession.
You are asking the wrong question. The question is not weather the concession affected the market reaction to price, the question is weather the price represents the normal consideration for the property sold unaffected by the concession.

Sure, a seller can say I would have accepted a price of 160k without offering the 5k concession...but what did the action of the seller tell us? The seller DID offer the concession in order to sell within a reasonable market exposure of X days. (assuming he sold within that time)
No, the seller did not offer the concession....the buyer wrote an offer with the concession built into the offer
So the reality is,the seller did not have enough confidence in the market to reject this offer and wait for a price of 160k without the concession. Which is fine, seller understands the reality of his market, even though the appraiser may not.
This statement makes absolutely no sense. Why would a seller reject an offer of $165,000 with a $5K seller concession in order to hold out for a an offer of $160,000 with no concession when the net to the seller is the same?

All the appraiser needs to do is see if his price of 165k with a 5k concession impacted the price. If appraiser develops from SOW a MV range for subject of 160-165k, no the 5 k concession did not impact price, or impacted it moderately toward the higher end. But, if the price was 170k one could clearly see the 5k concession affected price and adjust $ for $ in this case as indicated by a price of 170k

The fact that we keep on having issues with this is that the GSE definition of value uses a fake definition of consideration paid. It is absolutely an absurd fiction from an economic standpoint that a $170,000 sale price with a $5,000 seller concession (rebate) somehow means that the consideration paid by the buyer and received by the seller for the property is anything other than $165,000

 

[timd354]

So the reality is,the seller did not have enough confidence in the market to reject this offer and wait for a price of 160k without the concession. Which is fine, seller understands the reality of his market, even though the appraiser may not.

That is an absurdly stupid argument...of course the seller did not reject an offer of $165,000 with a $5k concession in order to hold out for an offer of $160,000 with no concession...he already had an offer in hand that was paying him a net of $160,000 so why in the heck would he reject that offer in hopes of receiving an offer with the same exact net to the seller?

 

[J Grant]

That is an absurdly stupid argument...of course the seller did not reject an offer of $165,000 with a $5k concession in order to hold out for an offer of $160,000 with no concession...he already had an offer in hand that was paying him a net of $160,000 so why in the heck would he reject that offer in hopes of receiving an offer with the same exact net to the seller?

That's exactly what I am saying...which reinforces that the price of what actually happens, is what we adjust for, not some theoretical what seller would have done otherwise (since they did what they did to get it sold in a reasonable time frame)

 

[timd354]

Question, I assume mortgage loan officers quality a buyer, even the buyer with very low cash reserves...

How much they quality them in terms of cash/assets since I'm not a loan officer is the question...let's say a borrower with acceptable income and credit for a low $ down or FHA loan...they qualify buyer for the cash down buyer needs, do they also qualify the buyer to see if buyer has enough funds to close on top of the small downpayment?

What does the loan officer qualifying the borrower have to do with the topic at hand? But, to answer your question, any loan officer who knows what he is doing looks at the available cash to close when qualifying potential borrowers.

 

[J Grant]

The fact that we keep on having issues with this is that the GSE definition of value uses a fake definition of consideration paid. It is absolutely an absurd fiction from an economic standpoint that a $170,000 sale price with a $5,000 seller concession (rebate) somehow means that the consideration paid by the buyer and received by the seller for the property is anything other than $165,000

I agree with you on this...personally, I wish either concessions were not allowed from lender side to take place, or we were mandated to adjust for them $ for $ every time they do occur.

But, that is not reality, reality is the messy market and conflicting set of regulations around financing we find ourselves in (which is why appraisers are needed, if markets were neat and tidy we would not be needed, they are still trying to get rid of us despite the fact that buyers and sellers do not act like robots and buy per a data point on a grid....)

 

[Mr Rex]

in case you wondered what Fannie looks like:

 

[J Grant]

What does the loan officer qualifying the borrower have to do with the topic at hand? But, to answer your question, any loan officer who knows what he is doing looks at the available cash to close when qualifying potential borrowers.

To be more specific, when they qualify a buyer, that means the total cash to close includes down payment and buyer having enough cash for closing costs?

I am asking it for a reason...the fact that many people here say sales to a cash strapped buyer would not/could not occur without the seller offering a concession...if even a cash strapped buyer has to qualify with enough cash to close above a low down payment, then the concession offers the buyer some relief, some wiggle room (moving costs, bank account not totally depleted, a bit of money for upgrade etc, but technically, the sale could occur without seller offering a concession.