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MEP

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Reply with quote  #1 
What is the rule for making adjustments on seller paid items. I usually do Not make any adjustments for seller paid items that are below 3.5%. Some appraisers are adjusting everything...is that a credible and dependable method?
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Meatloaf

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Reply with quote  #2 
Just do whatever makes you feel good. No one is going to get mad as long as you hit the number.
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MEP

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That is exactly what happened...an agent called me regarding this question...the concession adjustment caused the value to come in low by that amount...approximately $5K...However, he has a report from about one year ago where the same appraiser did not make the adjustments...inconsistency by the appraiser to say the least.
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Meatloaf

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If I have comps with no concessions and there is an obvious reflection in the indication of value, then I will adjust the comps with the concessions.  If I have no comps without concessions then I won't make an adjustment.  And likewise if I have comps with no concession and the comps with a concession are adjusting to the same range, then I won't make an adjustment.

So, I guess it depends on the comps.

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Meatloaf

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Reply with quote  #5 
Ask the agent if the appraiser would have still hit the number would they have cared how the concessions were handled?
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BillDing

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Typically seller paid concessions are adjusted dollar for dollar...and I mean 99.9% of the time. The only time you see it not impact the sale price is when the seller is getting paid back, ie seller financed deal.  Whether or not your comps have concessions have absolutely NOTHING to do with it and we can't not adjust because they are "typical".  

And as far as no adjustments under 3.5%....you don't make any adjustments that are under 3.5% when they are market supported and verified????  Wow! [eek]

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Bobby

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Reply with quote  #7 
Quote:
Originally Posted by MEP
That is exactly what happened...an agent called me regarding this question...the concession adjustment caused the value to come in low by that amount...approximately $5K...However, he has a report from about one year ago where the same appraiser did not make the adjustments...inconsistency by the appraiser to say the least.


I would say you are not considering changes in the market also.  Adjustments are sometimes warranted and sometimes not.  I don't typically adjust for concessions unless it is very obvious.  For example, we both are trying to buy the same property floor plan side by side.  I negotiated harder and with more strategy than you.  I get all my closing cost paid for.  You get none because your a bit more rigid and less willing to negotiate.  We both get the properties for $200K.  Do you adjust for the buyers ability to negotiate?

I would be VERY carful about reviewing information that is not part of the appraisal you are working on.  It's a can of worms that could easily discredit you...   If you think he/she is wrong, prove it.   

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RubberStamp

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Reply with quote  #8 
Didn't FNMA come out with a statement on this and the AMC's were circulating it around?  I don't have time to look for it
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Meatloaf

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Yes, they simply said that concessions can be dollar for dollar.  I have never understood why their previous instructions implied that they wouldn't accept an appraisal with dollar for dollar adjustments.  That was just silly.
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BillDing

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Quote:
Originally Posted by Meatloaf
Yes, they simply said that concessions can be dollar for dollar.  I have never understood why their previous instructions implied that they wouldn't accept an appraisal with dollar for dollar adjustments.  That was just silly.

What instructions were those?  

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nogava

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Not sure how you can make a $/$ concession adjustment when you don’t know what terms the seller has agreed to with the listing brokerage.

I see discounted listings all the time (1%-1.5%, especially when it gets tough to get listings) which enables the seller to take a lower price yet maintain the same net to seller.  Happens most often when the same agent represents them as buyers on a back end transaction.  The co-op fee to the buyer’s agent is typically 3% thru most transactions.  Closing costs are a concession, but the acceptable number depends on net to seller which is a product of the listing agent’s commission.  Case in point, run data comparison on sale prices from full commission brokerages as compared to Duffy Realty or other flat fee listing platforms.  You'll see a difference in sale price.

Said that to say, you're prob 1-3% off anyway bc you’re not privy to the brokerage agreement & what the seller is willing to net based on that agreement. Yes, agent commissions are a cost of doing business, but when those can swing up to 2% on avg & we’re not acknowledging them, then why the hell are we getting worked up about mechanical adjustments for closing costs?  You can prove just about anything in a complex, multi-dynamic market like real estate. 

IMO, we should be provided the Instructions to Closing Attorney/Commission Agreement as that has just as much effect on the bottom line as the closing costs. At least you'd be getting the whole picture then.

Meant to quit getting on here after happy hour.  Could be the barley pops talking.


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BillDing

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Reply with quote  #12 
Quote:
Originally Posted by Bobby

 Adjustments are sometimes warranted and sometimes not. 

They are almost always warranted.

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BillDing

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Quote:
Originally Posted by nogava

Not sure how you can make a $/$ concession adjustment when you don’t know what terms the seller has agreed to with the listing brokerage.


Easy, you call them and ask them, like we're required to do.  It's call verification

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nogava

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Reply with quote  #14 
I'm not saying CC are not disclosed and/or verified.  But they're only part of the net to seller equation.
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BillDing

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Reply with quote  #15 
Ask the seller's agent; if the buyer went to the seller and told him that he doesn't need them to pull $8k out of his retirement, lets settle on $8k less on the price....same net in your pocket and won't raise the price over the appraised value. Do you really think any seller in their right mind would say no?  That's right, they wouldn't.  Therefore what would the price be on that $208k property if the seller didn't need to pay $8k of the buyer's closing costs?  $200k   Adjustment for concessions: -$8k ...verified by the party of the transaction.
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MEP

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Reply with quote  #16 
In my opinion, you guys are over thinking this...in GA the typical real estate commission is 6%...do you not think the seller has considered that in their listing contract...also, the agent discussed the range of seller paid items....Thus they are both included in the Original List Price...Additionally, if the closing cost is a downward adjustment, why not the 6% agents commission; both are added to what the seller wants to walk away from the closing table with...
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BillDing

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Reply with quote  #17 
Typical has nothing to do with it.  It affected the price.  If the seller didn't have to pay out 6%, he'd lower the price 6%. No seller in his right mind wouldn't.

The following appraisal requirement is from the Selling Guide, Part XI, Section 406.5 (C):

  • “The need to make negative dollar adjustments for sales and financing concessions and the amount of the adjustments to the comparable sales are not based on how typical the concessions might be for a segment of the market area—large sales concessions can be relatively typical in a particular segment of the market and still result in sale prices that reflect more than the value of the real estate.... 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.”

 

As far as commissions, those are fees for a service.  They are not adjusted and not considered a concession.

Seller paid concessions are adjusted dollar for dollar in 99.9% of the cases. But because of that slight .1% chance of it not being $4$, it can't be a strict mechanical adjustment bases on assumption (as stated in the definition of Market Value)... it must be verified with the buyer/seller and/or their agents.  


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MEP

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Reply with quote  #18 
Don't disagree if the concession is a year rental on a vehicle but Closing cost is absorbed...we should discern between the two...five years ago, you could receive up to $15k from some agency to create activity...that is a concession...


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BillDing

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Reply with quote  #19 
No, it's cut and dry. Seller paid concessions impact the price.  The seller would have sold the house what he netted from the buyer with the concessions. You must adjust and the adjustment must reflect the difference between what it actually sold for with the sales concessions and it would have sold for if the seller didn't have to pay the concessions.
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Meatloaf

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Reply with quote  #20 
Quote:
Originally Posted by BillDing
No, it's cut and dry. Seller paid concessions impact the price.  The seller would have sold the house what he netted from the buyer with the concessions. You must adjust and the adjustment must reflect the difference between what it actually sold for with the sales concessions and it would have sold for if the seller didn't have to pay the concessions.


Then so does the commission.

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Bobby

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Reply with quote  #21 
Bill buys a new property for $200k and gets $0 towards his CC.
Bob loves to bargain and buys the identical new property beside Bill for $200k and negotiates that the seller must pay $5k towards his CC.  
This happens on the same day and with the same agent on-sight.
Are the properties worth $200k or $195k?


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BillDing

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Quote:
Originally Posted by Bobby
Bill buys a new property for $200k and gets $0 towards his CC.
Bob loves to bargain and buys the identical new property beside Bill for $200k and negotiates that the seller must pay $5k towards his CC.  
This happens on the same day and with the same agent on-sight.
Are the properties worth $200k or $195k?

What either are worth has nothing to do with adjusting the price. First is not adjusted, the 2nd one is adjusted -5K.  We make an adjustment for what it would have sold for if the buyer didn't need the seller to shell out $5k to the buyer.  RE market isn't a store where every shirt is priced the same.  You can have 2 identical properties that sell with same financing, both no concessions and be 5% apart on price.  


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BillDing

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Reply with quote  #23 
Quote:
Originally Posted by Meatloaf
Then so does the commission.

No, that's a service.  It pays for itself.

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Meatloaf

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Reply with quote  #24 
I understand the premise, but consider this.

Suppose you have a $100000 house.  Sellers "typically" pay 3% in closing.  Most buyers in this price range MUST have the seller pay for the closing or they cannot buy the house.  Sure, the seller would sell the house for 3% less with no closing paid, but the seller cannot find a buyer that is ABLE to buy it without the seller contributing to the closing amount.

In this scenario, to simply reduce the sale price by the closing costs would be wrong as the only buyers able to buy without seller paid CC are cash investors only willing to pay half of what the sellers are willing to take.

Its not as simple as simply saying that the seller would take less.  The seller may not be able to take less since nearly all buyers will require the seller to pay their closing costs.

Additionally, your argument regarding the seller being willing to take less is contradicted by the fact that you point out about the commission being a service.  You are right, but if the value indication is simply the sale price less the closing costs then you should also back out the comission because the seller would net the same if he simply put a sign in the yard.  I know it doesn't work this way because the comission is a service that allows the house to sell on an open market.  Likewise, the seller paid CC is also a concession that is in most situations required by the market in order to consummate a sale.

Its kinda like a HBU analysis.  The seller can sell at 100K and pay 3K in CC, or the seller can refuse to pay 3K in CC and take 50K for the house.  The seller is wise to offer a concession which opens his buyer pool up to the highest paying buyers.

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BillDing

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Quote:
Originally Posted by Meatloaf

In this scenario, to simply reduce the sale price by the closing costs would be wrong as the only buyers able to buy without seller paid CC are cash investors only willing to pay half of what the sellers are willing to take.

We are not here to make a market work. We are unbiased. If the buyers can't do it without concessions, then so sorry. If the bank wants to finance the extra 3% concessions, they can.  But it's not our job!  They want us...no they REQUIRE us to adjust.  It's out of our hands.  "Typical" has nothing to do with it.  "They can't get the house and the house would sell for 50k less" has nothing to do with it. If the buyer can't come up with $3k, then maybe they have no business making a $100,000 purchase!

[image]   


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Meatloaf

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Reply with quote  #26 
Quote:
Originally Posted by BillDing


We are not here to make a market work. We are unbiased. If the buyers can't do it without concessions, then so sorry. If the bank wants to finance the extra 3% concessions, they can.  But it's not our job!  They want us...no they REQUIRE us to adjust.  It's out of our hands.  "Typical" has nothing to do with it.  "They can't get the house and the house would sell for 50k less" has nothing to do with it. If the buyer can't come up with $3k, then maybe they have no business making a $100,000 purchase!

[image]   



You may be right... If the buyer can't come up with $3000, then maybe they don't have any business buying a $100000 house.  Truth is, most buyers in this price range do struggle with an extra 3 grand.  Truth is, they struggle with the down payment.

If you were a seller, would you rather sell your house for 97K net with a 3K concession, or sell for 50K with no concession?  The market says that the house should sell for 100K but more than 90% of the purchasers at that price require a concession.

You are right to assume that the seller would be just as happy with 97K and no concession, but that is likely not possible in many situations.  So, you cannot simply make a reduction of the CC when it is the CC that allows the house to actually sell.

This is the difference in knowing the market and being bull headed and making statements like "the seller would just sell for 3% less".

A friend of mine just put his house up for sale.  Buyer made an offer with seller paying up to 9G in closing.  Seller refused and reduced the price by 9G on the counter offer.  Buyer walked.  Seller is now kicking himself in the rear for not paying the 9G at a higher price.

See... Would the seller accept 9G less?  Yep.  But the buyer won't buy without the concession so the seller isn't able to simply take 9G less.

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BillDing

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Reply with quote  #27 

Quote:
Originally Posted by Meatloaf
If you were a seller, would you rather sell your house for 97K net with a 3K concession, or sell for 50K with no concession?  The market says that the house should sell for 100K but more than 90% of the purchasers at that price require a concession.

It's still a 97k house. Even though 90% of the purchasers need $3k. The market says that it is a $97k house.  If the bank chooses to give them an additional $3k and add it to the mortgage, that's fine.  But we can't raise the value of the house to cover their needs.

 

Quote:
Originally Posted by Meatloaf
You are right to assume that the seller would be just as happy with 97K and no concession, but that is likely not possible in many situations.  So, you cannot simply make a reduction of the CC when it is the CC that allows the house to actually sell.

Ah, but you can and are required to do so. Seller concessions are a hypothetical scenario that allows that.

 

Quote:
Originally Posted by Meatloaf
See... Would the seller accept 9G less?  Yep.  But the buyer won't buy without the concession so the seller isn't able to simply take 9G less.

And the house may not appraise because it is $9K over market value.   And what happens when an appraiser like you ignores that $9k and makes value?  Now the next appraiser uses that $9k over market value comp and needs another $9k on top of that for his subject...and the next appraiser needs another $9k on that....Now we're $27k over market value.  See a problem here?  

You can feel bad for the market all you want....bottom line is that you have to adjust for seller paid concessions, even if 90% of the buyers need it. If the banks want to cover their expense, that is their business decision, not ours.


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MEP

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Reply with quote  #28 
Bill, you cannot believe most of what you say...but you do stir the shirt...now I cannot us S H I T in this post...!
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BillDing

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Reply with quote  #29 
MEP, Real easy to say things without support like you posted, but the fact is that I'm 100% correct, as I supported. Feel free to prove me wrong with facts or links pasted that support what you say; I'm willing to learn.  [smile]
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Reply with quote  #30 
Each market may approach this issue differently. In the Savannah market 3% seller paid closing costs is typical. Since this is accepted by the market, I use that figure. I adjust sales concessions over 3% as being excessive for the market. I also check to see if a sales price has been negotiated higher due to closing costs paid by the seller. That may also warrant adjustments. Appraisers make market based adjustments, however, I do recall FNMA saying seller concession may be a dollar for dollar adjustment. Just be consistent, disclose and comment.
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Reply with quote  #31 
Quote:
Originally Posted by BillDing
MEP, Real easy to say things without support like you posted, but the fact is that I'm 100% correct, as I supported. Feel free to prove me wrong with facts or links pasted that support what you say; I'm willing to learn.  [smile]


Looks like you're 100% alone.[wink]

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Meatloaf

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Question for Bill

Suppose a person makes an offer on a house of $100000.  Gets a home inspection and it says it needs a repair to the heat pump.  Seller puts in a new heat pump that cost $5000.  The heat pump could have been repaired for less than $250, but the buyer said he wanted a new heat pump or he was going to walk.

Is this a seller concession and do you think it should be adjusted for?

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BillDing

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Reply with quote  #33 
No, that's just a dumbass seller that paid to much for a repair.  Now if the heat pump added value, feel free to reconcile that in your quality adjustments.
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Reply with quote  #34 
Quote:
Originally Posted by Bobby


Looks like you're 100% alone.[wink]


Like the scientist/philosopher that said the earth is round.  He's still 100% correct and all the rest were 100% wrong. [wink]


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Quote:
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No, that's just a dumbass seller that paid to much for a repair.  Now if the heat pump added value, feel free to reconcile that in your quality adjustments.


So you are saying that the amount the seller paid for the heat pump would not be considered a concession and shouldn't be reduced from the sale price?

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BillDing

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Reply with quote  #36 
That is correct.  It is not a concession.  It is a quality adjustment, just as if he added a deck for $5,000.
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Reply with quote  #37 
Quote:
Originally Posted by BillDing


Like the scientist/philosopher that said the earth is round.  He's still 100% correct and all the rest were 100% wrong. [wink]



Not 100% at all....


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[crazy]
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[rofl]
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Reply with quote  #40 
Adjusting for such small amounts implies an accuracy that does not exists.
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Adjusting for such small amounts implies an accuracy that does not exists.


3% is hardly "small". You don't make under 3% adjustments???? Sf variances, baths, bedrooms, decks.....???

And it isn't like adjusting for something where worth is unclear or varied like a deck.  A dollar is typically worth a dollar.


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Reply with quote  #42 
Quote:
Originally Posted by BillDing



3% is hardly "small". You don't make under 3% adjustments???? Sf variances, baths, bedrooms, decks.....???

And it isn't like adjusting for something where worth is unclear or varied like a deck.  A dollar is worth a dollar.



Not always true.  If 90% of the sales occur with 3% concessions at $100000, and 10% of the sales occur with no concessions at $60000.... Then a dollar is worth much more than a dollar.

Based on your assumption, the seller would always just sell for the same price without concessions... But based on the market concessions generally result in a sale price the seller would really prefer versus what he could expect to get without concessions.

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Not always true.  If 90% of the sales occur with 3% concessions at $100000, and 10% of the sales occur with no concessions at $60000.... Then a dollar is worth much more than a dollar.

I agree that it can be worth more...but not less, unless the seller is financing, etc.

Quote:
Originally Posted by Meatloaf
Based on your assumption, the seller would always just sell for the same price without concessions... But based on the market concessions generally result in a sale price the seller would really prefer versus what he could expect to get without concessions.

That's just plain false. If you were to ask any of those sellers if they'd sell for 10k lower in lieu of shelling out 10k from his savings, they would.  Esp in light of the fact that it would have a better chance appraising at the sale price.  Remember, what would it sell for if the seller didn't have to pay the concessions.


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Reply with quote  #44 
If your argument is that the seller would always agree to take less, then what difference does it make to the buyer?  If the buyer could pay less to the seller and pay their own closing costs it would mean nothing to the buyer... And if the seller is always willing to take less then why do we see so many concessions being paid?  Why is this even an issue?

I can tell you why it is an issue, but your argument ignores the market circumstances that make paying concessions commonplace.

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Quote:
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If your argument is that the seller would always agree to take less, then what difference does it make to the buyer?  If the buyer could pay less to the seller and pay their own closing costs it would mean nothing to the buyer... And if the seller is always willing to take less then why do we see so many concessions being paid?  Why is this even an issue?

I can tell you why it is an issue, but your argument ignores the market circumstances that make paying concessions commonplace.
Back to saving the market again, huh.  If the bank wants to tack on the fees, they can do that and save the market.  But, there is no getting around the facts.  The concessions affected the price and we are required to adjust for that.  That is the hypothetical we are given to work with.

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Meatloaf

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Reply with quote  #46 
Dude.

The concessions "can" affect price, but they do not "always" affect the price.  You have to determine that.

If you have a bunch of sales that sold for $100000 with no concessions and similar homes sold for $100000 with a 3% concession, then the price wasn't affected was it?

But if the market yields a significantly higher price with a small concession than what could be without the small concession, then the concession is the norm as no "knowledgeable" seller would offer a home with NO concessions.

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BillDing

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Reply with quote  #47 
Quote:
Originally Posted by Meatloaf

If you have a bunch of sales that sold for $100000 with no concessions and similar homes sold for $100000 with a 3% concession, then the price wasn't affected was it?

Yes, most likely was affected. Those sellers would have sold for $97k without paying the concessions.  Don't believe me, call them an find out.  That's called verification.

It's not about "being the same"....The market is not a fixed price and will have a natural +/-3% variance for the very same house with different buyers and sellers all using similar means of finance.  You could easily have a bunch of sales that sold for $100000 cash and similar homes that also sold for $97,000 in cash.

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Meatloaf

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Reply with quote  #48 
COULD the seller have sold for $97000 if he said "I AINT PAYING NO DAMN CONCESSIONS!!!!!!!!!!"?

Who would be his buyer?  An investor willing to pay 65% of the market value?  Seriously... 

If you were selling your home would you offer a small concession in order to be open to the largest percentage of available buyers?  or would you simply lower your price by the common concession?

Of course, the seller could reduce the price by the concession amount and net the same.  But if the asking price was set without offering concessions the pool of buyers would be so limited that the seller would be a dufus not to offer the concession.

Ever wonder why those REO's sell for so cheap when they only need a minor repair?  Because that minor repair limits the pool of buyers to only cash purchasers.  When you refuse to offer a concession, you are doing the same thing.  Prudent sellers don't do this.  Which makes the MARKET VALUE inclusive of the MARKET CONCESSIONS.

Lets not forget that you come from a market where its acceptable to have a sliding glass door on a second floor with no deck and only a temporary nail holding the door closed.

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BillDing

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Reply with quote  #49 
That's not what they are asking.  They are asking a hypothetical scenario.  What would it sell for if those concessions weren't needed to be paid by the seller.
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Meatloaf

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Reply with quote  #50 
No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area....



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