Forum Header

GA Appraiser Forum

Provided by:   Robert B. Miller Certified Residential Appraiser

Special Thanks to: John M. Bryant

School Calendar | Phone Book | Appraisal Topics | Appraisal Questions | Other Topics

Forum Rules
Online Courses
Appraiser Search
MLS Analyzer


GA Appraiser Forum
Register Latest Topics
 
 
 


Reply
  Author   Comment  
Meatloaf

Avatar / Picture

Platinum Member
Registered:
Posts: 2,617
Reply with quote  #1 
If a seller provides a paint/carpet allowance of $5000... Is that considered a concession?

The money doesn't go to the buyer.  The money doesn't pay for any buyer expense.  The money goes directly to a contractor to make an agreed repair after closing.

So is the money considered a concesson?  or just repair money?

__________________
The AMC is my B!TCH!
0
RubberStamp

Platinum Member
Registered:
Posts: 2,349
Reply with quote  #2 
This is sticky for the appraiser.  If written in the contract and you value it as if the carpet is in place you are then responsible for verifying the work gets done.  If not you need to consider the impact of the soiled carpet.

Most "intelligent" agents anticipate this and will roll the allowance into the concessions and put the onus on the buyer.  Then it is a concession.

They have left you in no mans land.

__________________
We argue this: Meanwhile the agent's assistant just did 5 unofficial appraisal inspections they paired with a Zestimate and granted 90% LTV - all guaranteed no buy back.
0
keith

Platinum Member
Registered:
Posts: 1,332
Reply with quote  #3 
Report it on page 1 but make no adjustment. Comment that the percentage is within typical amounts in the market area.
0
Meatloaf

Avatar / Picture

Platinum Member
Registered:
Posts: 2,617
Reply with quote  #4 
Quote:
Originally Posted by keith
Report it on page 1 but make no adjustment. Comment that the percentage is within typical amounts in the market area.


Seriously?

The percentage is double what is typical if you consider the allowance a concession.  Either way, its on the subject so no adjustment would be needed.

The house is 11 years old and has been well maintained.  No real need for carpet and paint except to freshen it up.  The house is selling about 15G below market and has been on the market for about three times as long as the comps.  No real reason for it... I did see a bong sitting on the water heater so maybe the seller is a crackhead.

Just not sure how to consider the allowance.  If the seller were to put in new carpet and paint for the buyer prior to closing, we wouldn't even mention it... Especially if it was done prior to inspection.  Since the seller is paying for new carpet and paint but it is an allowance I am not sure if it is considered to be paid on "behalf" of the borrower.

__________________
The AMC is my B!TCH!
0
BillDing

Avatar / Picture

Platinum Member
Registered:
Posts: 1,637
Reply with quote  #5 
Treat it as a $ for $ concession if the seller gives them $5k. 
__________________
****I'm sorry, if you were right, I'd agree with you***
0
Meatloaf

Avatar / Picture

Platinum Member
Registered:
Posts: 2,617
Reply with quote  #6 
The seller isn't "giving" the buyer anything.
__________________
The AMC is my B!TCH!
0
BillDing

Avatar / Picture

Platinum Member
Registered:
Posts: 1,637
Reply with quote  #7 
I would make note of that in reconciliation ...esp if it sold higher than market value.

Sellers can be so stupid.  Why not lower the price by $5k and have a better chance of it being appraised.

__________________
****I'm sorry, if you were right, I'd agree with you***
0
BillDing

Avatar / Picture

Platinum Member
Registered:
Posts: 1,637
Reply with quote  #8 
Quote:
Originally Posted by keith
Report it on page 1 but make no adjustment. Comment that the percentage is within typical amounts in the market area.

FNMA has made it clear that "typical" has nothing to do with whether or not you make an adjustment.

__________________
****I'm sorry, if you were right, I'd agree with you***
0
BillDing

Avatar / Picture

Platinum Member
Registered:
Posts: 1,637
Reply with quote  #9 
Quote:
Originally Posted by Meatloaf
If a seller provides a paint/carpet allowance of $5000... Is that considered a concession?

The money doesn't go to the buyer.  The money doesn't pay for any buyer expense.  The money goes directly to a contractor to make an agreed repair after closing.

Another option is to make it subject to completion.  Watch how fast that "allowance" goes away.

__________________
****I'm sorry, if you were right, I'd agree with you***
0
Meatloaf

Avatar / Picture

Platinum Member
Registered:
Posts: 2,617
Reply with quote  #10 
Quote:
Originally Posted by BillDing
I would make note of that in reconciliation ...esp if it sold higher than market value.

Sellers can be so stupid.  Why not lower the price by $5k and have a better chance of it being appraised.


Its selling significantly below the market value... And its been on the market longer... And there is no real reason for either.

Generally when you live in a house for 11 years the carpet and paint doesn't look fresh and you have to spend some money before the sign goes in the yard.  The house has nothing wrong with it except that it hasn't been repainted or re-carpeted prior to being listed.  I assume this is what the allowance is for and maybe the seller didn't have the cash on hand to spruce the place up.  

The house looks fine... but its still furnished.



__________________
The AMC is my B!TCH!
0
treskirkland

Platinum Member
Registered:
Posts: 825
Reply with quote  #11 
It's not a concession.     In your situation, I would just mention the allowance and appraise it "as-is".  However, if it was a situation where the carpet or whatever the allowance is for was in bad shape, then I think you do the appraisal "subject to".   I think it depends on whether if after the repairs are made if it will have an impact on the value.  
0
RubberStamp

Platinum Member
Registered:
Posts: 2,349
Reply with quote  #12 
Quote:
Originally Posted by BillDing
I would make note of that in reconciliation ...esp if it sold higher than market value.

Sellers can be so stupid.  Why not lower the price by $5k and have a better chance of it being appraised.


Ding ding ding.  Bingo.  Why are they not taking alternative measures since they want to do this after closing?   Are they already maxed out on concessions?  In that case they may be trying to add more in than is allowed. 

ML how is this not going to the buyer?  That may clarify things..     I've never seen a contract of sale pay out a contractor so typically it has to pass through the hands of the buyer who can in turn spend it on dope or a car or whatever..  or paint and carpet.  There's nothing stopping either.  That sure sounds like a concession.

__________________
We argue this: Meanwhile the agent's assistant just did 5 unofficial appraisal inspections they paired with a Zestimate and granted 90% LTV - all guaranteed no buy back.
0
Meatloaf

Avatar / Picture

Platinum Member
Registered:
Posts: 2,617
Reply with quote  #13 
Quote:
Originally Posted by BillDing
I would make note of that in reconciliation ...esp if it sold higher than market value.

Sellers can be so stupid.  Why not lower the price by $5k and have a better chance of it being appraised.


Because people are stupid and they finance crap they cannot pay cash for.... This is the reason we have a jobby job job.

Seriously... In my market 99% of the people cannot put their hands on $5000 after a closing.  They have to borrow money from relatives to put in the bank just to show that they have a bank account.

If the seller had $5000 then they would have repaired the subject prior to listing.  If the buyer had $5000 then they would have just lowered the offering price and paid for it out of their own funds.  Since neither of them have two nickles to rub together they must do an "allowance" which raises the sale price and makes funds available at closing that are financed.

Financial stupidity is the name of the game... Common sense does not pay my bills.

__________________
The AMC is my B!TCH!
0
Meatloaf

Avatar / Picture

Platinum Member
Registered:
Posts: 2,617
Reply with quote  #14 
Quote:
Originally Posted by RubberStamp


Ding ding ding.  Bingo.  Why are they not taking alternative measures since they want to do this after closing?   Are they already maxed out on concessions?  In that case they may be trying to add more in than is allowed. 

ML how is this not going to the buyer?  That may clarify things..     I've never seen a contract of sale pay out a contractor so typically it has to pass through the hands of the buyer who can in turn spend it on dope or a car or whatever..  or paint and carpet.  There's nothing stopping either.  That sure sounds like a concession.



You have got to be kidding me right????

One word for you bro... ESCROW!!!!!!!!!

And how long have you been in the real estate industry???  

__________________
The AMC is my B!TCH!
0
BillDing

Avatar / Picture

Platinum Member
Registered:
Posts: 1,637
Reply with quote  #15 
They don't have 2 nickels to rub together????  Here's a thought.  Maybe they shouldn't own a house. Of course, Barney Frank's "we will continue to push for home ownership" mentality is still alive and well.  And we wonder why the housing market explodes. 
__________________
****I'm sorry, if you were right, I'd agree with you***
0
MEP

Avatar / Picture

Platinum Member
Registered:
Posts: 2,864
Reply with quote  #16 
This is no different than a seller making repairs but doesn't want to be involved in their time and effort. Also, the new owner gets to select the carpet or paint and upgrade if they desire...don't over think this stuff...
__________________
M. E.

"Don't call him a cowboy until you see him ride'
0
Meatloaf

Avatar / Picture

Platinum Member
Registered:
Posts: 2,617
Reply with quote  #17 
Quote:
Originally Posted by BillDing
They don't have 2 nickels to rub together????  Here's a thought.  Maybe they shouldn't own a house. Of course, Barney Frank's "we will continue to push for home ownership" mentality is still alive and well.  And we wonder why the housing market explodes. 


There was a time when I didn't have two nickles to rub together.  Fortunately HUD allowed me to buy a house.  Now I live in a fuggin mansion that is paid for.  Those policies don't work for everyone... But it does for some of us.  I am glad I had the opportunity to buy a house with nothing down.

__________________
The AMC is my B!TCH!
0
Meatloaf

Avatar / Picture

Platinum Member
Registered:
Posts: 2,617
Reply with quote  #18 
allowances are always held in escrow.
__________________
The AMC is my B!TCH!
0
RubberStamp

Platinum Member
Registered:
Posts: 2,349
Reply with quote  #19 
Quote:
Originally Posted by Meatloaf
If a seller provides a paint/carpet allowance of $5000... Is that considered a concession?

The money doesn't go to the buyer.  The money doesn't pay for any buyer expense.  The money goes directly to a contractor to make an agreed repair after closing.

So is the money considered a concesson?  or just repair money?


Well I just re-read your original statement that got lost in the wash...   Sure is a weird way to do it but I guess you are right you could create an escrow account for that. 

My original comments were based upon the money going to the buyer to pay the contractor.  No way around concession under that scenario.

Just don't know why anyone would do it this way.. there are better ways providing more freedom for the buyers.

__________________
We argue this: Meanwhile the agent's assistant just did 5 unofficial appraisal inspections they paired with a Zestimate and granted 90% LTV - all guaranteed no buy back.
0
Meatloaf

Avatar / Picture

Platinum Member
Registered:
Posts: 2,617
Reply with quote  #20 
Quote:
Originally Posted by RubberStamp


Well I just re-read your original statement that got lost in the wash...   Sure is a weird way to do it but I guess you are right you could create an escrow account for that. 

My original comments were based upon the money going to the buyer to pay the contractor.  No way around concession under that scenario.

Just don't know why anyone would do it this way.. there are better ways providing more freedom for the buyers.


They do it that way because of RESPA and because neither the buyer or seller have any money.  They need the bank's money to make it all happen.

__________________
The AMC is my B!TCH!
0
RubberStamp

Platinum Member
Registered:
Posts: 2,349
Reply with quote  #21 
Quote:
Originally Posted by Meatloaf


They do it that way because of RESPA and because neither the buyer or seller have any money.  They need the bank's money to make it all happen.


But then why not a concession?  Are they maxed out?  If so.. then I applaud the creativity..

__________________
We argue this: Meanwhile the agent's assistant just did 5 unofficial appraisal inspections they paired with a Zestimate and granted 90% LTV - all guaranteed no buy back.
0
Meatloaf

Avatar / Picture

Platinum Member
Registered:
Posts: 2,617
Reply with quote  #22 
Thats what I am trying to figure out.... Is this allowance a concession?
__________________
The AMC is my B!TCH!
0
BillDing

Avatar / Picture

Platinum Member
Registered:
Posts: 1,637
Reply with quote  #23 
I would really vet both the listing agent and the selling agent (and check other local agents that may have seen it) as to why the property took so long to sell when other similar homes are selling much quicker for more money. 

As the old Chinese proverb says:  Sum Tin Wong

__________________
****I'm sorry, if you were right, I'd agree with you***
0
Meatloaf

Avatar / Picture

Platinum Member
Registered:
Posts: 2,617
Reply with quote  #24 
I bet its got something to do with the bong on the water heater.

Nothing says buy my house quite like a bong on the water heater.



__________________
The AMC is my B!TCH!
0
BillDing

Avatar / Picture

Platinum Member
Registered:
Posts: 1,637
Reply with quote  #25 

This would still be considered a concession.  It's done to sweeten the deal.

I talked to another peer/friend about this and he has the same take on this as I do.

Basically the buyer is financing new floor covering and paint. In the big scheme of things, no big deal. Especially since the contract price with that work is below market value.

If it is in the contract, then presumably it will be done.
If it made a difference for the loan transaction, I could see the lender maybe wanting a 442....But if I'm a lender and my appraiser tells me the contract price is fully supported (or lower) than the market value without the additional work, I'm going to tell the appraiser to note the terms of the contract but appraise the property as-is as-of the date of the inspection.
As a lender, they're going with the lower of the two (contract price or appraised value) so they're fine.
As an appraiser, you've disclosed the terms/conditions of the contract and have appraised the property as-is. In this case, the seller-after-closing work has no impact on as-is market value and the contract price is still below my as-is market value price.

So, my advice would be to call my client, explain what you're looking at and what you think it means, and ask them if they want you to value the property as-is o
r use an HC with a 442.

Where it would make a difference is if the after-closing work is significant, the as-is value without the work is below the contract price, and to get to the market value to equal the contract price, the work needs to be done. That's when I think the lender might require the work to be done prior to, and nix the deal if no one has the pocket change to do it.  But that's not the case here.


__________________
****I'm sorry, if you were right, I'd agree with you***
0
RubberStamp

Platinum Member
Registered:
Posts: 2,349
Reply with quote  #26 
Quote:
Originally Posted by Meatloaf
Thats what I am trying to figure out.... Is this allowance a concession?


If their concessions are not already maxed out then I see no harm in calling it a concession as it covers your rump more and forces the underwriter to scrutinize it for you. 

Then, if they want it off..  then they have to request it off in writing which you can cut and paste it - stating that you originally had it on there as a concession and they removed it at their discretion.

If they want to play the hide and go seek concession game make them do it on their liability watch.  You hide it for them without them asking and then its on you.

__________________
We argue this: Meanwhile the agent's assistant just did 5 unofficial appraisal inspections they paired with a Zestimate and granted 90% LTV - all guaranteed no buy back.
0
treskirkland

Platinum Member
Registered:
Posts: 825
Reply with quote  #27 
I don't see it as a concession as the money is not going to the buyer, but is going to improve the house, which may increase the value of the real estate.  A concession such as dollars for closing cost does nothing to increase or decrease the value of the house, or if the seller was offering some personal property such as a tv or furniture or back in the day I even saw builders give away a car, or country club memberships.
0
BillDing

Avatar / Picture

Platinum Member
Registered:
Posts: 1,637
Reply with quote  #28 
Concessions do not have to be cash...they are things that sweeten the deal.  While the money is going to the contractor, it is still for the buyer.  Again, not a big deal in this case, since the house is selling below market value.  But if it was selling at MV or higher, the lender would probably want a 442 and appraise the house with subject to completion so that it captures that updating that affected the price by $5k
__________________
****I'm sorry, if you were right, I'd agree with you***
0
Meatloaf

Avatar / Picture

Platinum Member
Registered:
Posts: 2,617
Reply with quote  #29 
OK... I have been thinking about this.

If the "5000" is to be considered a concession... Then the entire purchase price of a custom home should be considered a concession.  The construction loan funds are dispersed after closing.... so whats the difference?

Another example... When you do an appraisal subject to repairs.  The seller now has to pay for said repairs... Is this a concession?

__________________
The AMC is my B!TCH!
0
BillDing

Avatar / Picture

Platinum Member
Registered:
Posts: 1,637
Reply with quote  #30 
Doesn't really matter...you don't need to label it, just explain it...after you talk to the lender to make sure that they don't want to include the updating in your condition and make it subject to completion.
__________________
****I'm sorry, if you were right, I'd agree with you***
0
RubberStamp

Platinum Member
Registered:
Posts: 2,349
Reply with quote  #31 
Quote:
Originally Posted by BillDing
Doesn't really matter...you don't need to label it, just explain it...after you talk to the lender to make sure that they don't want to include the updating in your condition and make it subject to completion.


Right.  Labeling it is just pointing out (hey, this is to be scrutinized).  

__________________
We argue this: Meanwhile the agent's assistant just did 5 unofficial appraisal inspections they paired with a Zestimate and granted 90% LTV - all guaranteed no buy back.
0
RubberStamp

Platinum Member
Registered:
Posts: 2,349
Reply with quote  #32 
Quote:
Originally Posted by Meatloaf
OK... I have been thinking about this.

If the "5000" is to be considered a concession... Then the entire purchase price of a custom home should be considered a concession.  The construction loan funds are dispersed after closing.... so whats the difference?

Another example... When you do an appraisal subject to repairs.  The seller now has to pay for said repairs... Is this a concession?


Construction loan funds are typically distributed as draws.   The difference in both scenarios is that they will require either you or a bank representative to verify the work is complete.  When you do a concession, there is no verification..  funds are distributed and they wash their hands of it. 

This whole thing is stickiest if you consider the value as if the carpet and paint are newly completed.  That would make it subject to and enforce the work to happen before closing.

That is why this is so weird.  They are purchasing the property and priced the property as if the work is completed yet it will not be enforceable unless you condition it.  That does not mean escrow could not work - just that the appraiser/lender relationship has no way to manage that.  The attorney will be responsible for delivering the funds, and they may do that on behalf of the lender, but then that is just a condition - a final will be needed. 

As it stands, you are being forced to ignore the carpet and paint all together and the price cannot reflect that it is complete. Do that and call it what you wish.  The more I thought about this the more I applaud the creativity.  They basically are putting it all on the appraiser to come in at or above contract price even though the work cannot be considered "as-is".   They are trying to score a trick 2 point conversion for the win.  The seller may be stupid/lazy.  Or, they are trying to trick the system by $5000. 

From a reviewer perspective you may be over appraising the home by incorrectly raising the condition to reflect non-existent repairs.  That is what they are hoping for.  Few would admit that the buyer may be taken to the wood shed.  Our expectation is always that everyone is smart and represented.  There may be other factors why such an amount is surrendered and it may be personal or be a problem with the property, surrounding market, etc. that you are not disclosing. Red flags abound. 

That is why most of us call it a concession and make the underwriter work through all of that mess.  I would not bridge that $5000 unless it is obviously baked into the price.  If you come in under they will find a way to close.  Maybe the seller gets a pay day loan.  Most likely they just lower the sale price. 

__________________
We argue this: Meanwhile the agent's assistant just did 5 unofficial appraisal inspections they paired with a Zestimate and granted 90% LTV - all guaranteed no buy back.
0
BillDing

Avatar / Picture

Platinum Member
Registered:
Posts: 1,637
Reply with quote  #33 
concession.jpg 

__________________
****I'm sorry, if you were right, I'd agree with you***
0
Meatloaf

Avatar / Picture

Platinum Member
Registered:
Posts: 2,617
Reply with quote  #34 
This brings up another question


Many contracts have an allowance for FHA required repairs.  Such as Seller agrees to pay up to $1000 towards lender required repairs.  Is this a concession?

__________________
The AMC is my B!TCH!
0
BillDing

Avatar / Picture

Platinum Member
Registered:
Posts: 1,637
Reply with quote  #35 

Seller agrees to pay up to $1000 towards lender required repairs.  Is this a concession?

Moot issue when you account for the updates in your report.


__________________
****I'm sorry, if you were right, I'd agree with you***
0
RubberStamp

Platinum Member
Registered:
Posts: 2,349
Reply with quote  #36 
Quote:
Originally Posted by BillDing

Seller agrees to pay up to $1000 towards lender required repairs.  Is this a concession?

Moot issue when you account for the updates in your report.



Difference is completed before closing or after. Before closing = repair.  After closing = concession.   But some FHA products allow for escrow.  But they still want it conditioned.

__________________
We argue this: Meanwhile the agent's assistant just did 5 unofficial appraisal inspections they paired with a Zestimate and granted 90% LTV - all guaranteed no buy back.
0
Meatloaf

Avatar / Picture

Platinum Member
Registered:
Posts: 2,617
Reply with quote  #37 
Quote:
Originally Posted by RubberStamp


Difference is completed before closing or after. Before closing = repair.  After closing = concession.   But some FHA products allow for escrow.  But they still want it conditioned.


Thats not necessarily correct.  

The concession question is in regards to the contract agreement and is not connected to the appraisal.

When you do the appraisal, you have no idea if they are going to pay the "concession" before or after closing.  

__________________
The AMC is my B!TCH!
0
RubberStamp

Platinum Member
Registered:
Posts: 2,349
Reply with quote  #38 
Quote:
Originally Posted by Meatloaf


Thats not necessarily correct.  

The concession question is in regards to the contract agreement and is not connected to the appraisal.

When you do the appraisal, you have no idea if they are going to pay the "concession" before or after closing.  


My point is if there is a deal sweetener (which new items are) that has yet to be completed and it is not to be completed before closing it is a concession.  Even if you escrow, if there is no check up on the work, that money may just be passed on and never go to improvements.



__________________
We argue this: Meanwhile the agent's assistant just did 5 unofficial appraisal inspections they paired with a Zestimate and granted 90% LTV - all guaranteed no buy back.
0
Previous Topic | Next Topic
Print
Reply

Quick Navigation:

Easily create a Forum Website with Website Toolbox.

Appraisal Topics | Appraisal Questions | Other Topics