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johnmbryant

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Reply with quote  #1 
I have an FHA review in my possession that chastises the appraiser for failure to make dollar for dollar concessions adjustments.  Has anybody else experienced this.

If so, I would like to see the source document.
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MAG

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Reply with quote  #2 
Why wouldn't you do dollar for dollar adjustments?  
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Hippie

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Reply with quote  #3 
What is typical of the market.  If every sale or the majority of sales have concessions that are typical then no adjustment for concessions is required.  This is my guildline and if that is not correct then prove me wrong.
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Brian

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Reply with quote  #4 
Hard to justify a dollar for dollar adjustment when the Definition of Market Value states that mechanical adjustments should not be made.
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RubberStamp

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Reply with quote  #5 
Are we going to adjust for commissions as well?  That's also built into the value we conclude.. 
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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.
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MEP

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Reply with quote  #6 
I was called on the carpet by the GREAB for not noting all concessions but they didn't scold me for not making them.  This was an old appraisal, previously, I didn't list all concession below 3%; now I list any thing that is reported by the agent...recently, I reported $1.00. 

Finally, if the concessions are within three percent of the sales price, no adjustments here...they are typical for the market and factored into the sales prices...Like Hippie, prove me wrong...Anything greater than 3% gets a downward adjustment because someone is playing games.

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RubberStamp

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Reply with quote  #7 
What if concessions are typical at 3% and there is a sale used that has no concessions..  could there possibly be a positive adjustment?  This is one heck of a grey area. 
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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.
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Hippie

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Reply with quote  #8 
my comment goes something like this.

Selling concessions have typically been from 5% to %7. Seller concessions for the subject market district for these price homes, when paid, were from $0 to $7,500. The concessions for the subject property are -0-, none at closing. Concessions for the sales comparisons were from$0 to $5,000. These are with-in typical limits. Therefore no deduct for seller paying closing cost has done for the subject property in the direct comparison of the market grid, (market approach)
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Jody

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Reply with quote  #9 
Quote:
Originally Posted by RubberStamp
What if concessions are typical at 3% and there is a sale used that has no concessions..  could there possibly be a positive adjustment?  This is one heck of a grey area. 


I think that there should be.  But the GSE will not accept an appraisal with a positive concession adjustment

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Hippie

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Reply with quote  #10 
Had one last month, FHA, comp was listed for 99,000 sold for 106,000; seller was FANNIE.  Seller paid $7,500 closing cost.  How would you appraisers handle that one
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MAG

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Reply with quote  #11 
Hippie, it depends on the marketing time and circumstances.  Was it bid up because it was under-listed?  

I guess it's easy for us to ignore the concessions because it isn't our $4,000 on the line.  But I feel certain that if anyone here sells his or her house, that concession will become important, just as it will be to the buyer.  Has it become ok to ignore the perceptions of market participants?

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Hippie

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Reply with quote  #12 
No it was just FANNIE was willing to pay closing costs so it was just added to the sales price. 
On the Chattanooga MLS which covers Dade, Chattooga, Catoosa and Walker in northwest GA; they just don't put in concession amounts for this reason then concessions are not an issue.  Realtors do what ever they want because they have a strong RPAC. 
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Nomad

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Reply with quote  #13 
Only time I make a concession adjustment is when the concession is atypical. However, from a strictly logical point of view, it makes sense to do a dollar for dollar adjustment.  But like someone said earlier in the thread, then you'd have to do a commission adjustment as well to be consistent.  From a lenders stand point, they should be very concerned w/ commission and concessions.  If 6% commission and 3% concessions are typical, then anything over 91% financing is already bad money.  They have LTV guidelines for a reason, and part of the reason is likely that the apprasial typically doesn't take all of those shananigans into acount.  The question becomes, is "value" the final price or the final price minus bullsh%t?
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BillDing

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Reply with quote  #14 
Quote:
Originally Posted by Hippie
What is typical of the market.  If every sale or the majority of sales have concessions that are typical then no adjustment for concessions is required.  This is my guideline and if that is not correct then prove me wrong.


Ok, I'll give it a shot.  FNMA's MV states that these concessions would need to be present in virtually all sales transactions.  There is no market like this.  We are to adjust for sales concessions so that the price represents a sale unaffected by sales concessions.  IOW, what would the seller sell for if they didn't have to shell out that $6,000 cash to the buyer?   The answer is really a no brainer.  They would probably reduce the price $6,000...so that net in pocket is the same.  This can't be a mechanical adjustment, because that may not always be the case.  You have to verify, not assume.  I verify the sales concessions with the agents and they've said it would be $4$.  I ran into a case where there was no adjustment.  Reason being was that the concessions were given because they had seller financing.


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Hippie

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Reply with quote  #15 
What ever is typical for the market.  I don't think it's dollar for dollar.  I depends on the price range of the market district.

Yours is $4k typical, $6k paid, -$2k concession adjustment.  No brainier
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BillDing

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Reply with quote  #16 
Quote:
Originally Posted by moneyman
I think you need to adjust for concessions seen ABOVE what is typical for the market....


Quote:
Originally Posted by Hippie
What ever is typical for the market.  I don't think it's dollar for dollar.  I depends on the price range of the market district. 


It has NOTHING to do with "typical".  It has to do with what it would sell for without the concessions.

Are you telling me that your sellers wouldn't adjust the price $4$????   You seriously can't mean that.

The seller would sell it $4$ less the consessions ...that is the "no brainer"


Don't believe me...ask.  You should be doing that anyway.

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MAG

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Reply with quote  #17 
BillDing hit it on the head. Everyone ignores these concessions, unless they are actually a buyer or seller. We should be reflecting the attitudes of the market participants in our reports.
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Hippie

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Reply with quote  #18 
Are you expecting to get HUD ones on every sale.  Like the Chattanooga MLS (which covers four of the northwest GA counties) which doesn't even post concessions paid, then what are you going do? Get real.
The sales which post $0's in concessions paid are most likely not correct anyway.  How would you verify that?
What would make a HUD one public?
  
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Hippie

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Reply with quote  #19 
This is a perfect example of the need to work with state law makes.  If the PT-61 has a place for concessions and "lying ass" lawyers had to put in the concession amount then OK.  Just like this one I'm working on.  It was a foreclosure and transfer tax is not paid the with out looking at the GSCCA I would not know the foreclosure $'s received by the foreclosing entity.  The PT-61 is not public record on the local record search.  However it is public on GSCCA.  I look at all these.  Same with government purchases I have to call the title attorney.  Some times they give it to me some times I have to call the county manager or the county commissioner.    The info is not easy to find. You are saying do a $1 for $1 discount with now way to find accurate data. 

Make concessions a required item on the PT-61 then OK .  Might go for the seller would not have to pay transfer tax on concessions paid?? 

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Hippie

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Reply with quote  #20 
When I do an appraisal for a divorce I discount concessions, if known, as well as typical sales commissions.  That is the $'s the seller really gets. Maybe even a time adjustment for marketing. 
I disclose that I'm an advocate for the client/"lying ass" lawyer. (If I'm on the side that wants to buy out the other side). Tell them what the sales price should be, less concession for the market place; less sales commissions; less marketing time.  Works good for tax appeals also. 
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LEF

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Reply with quote  #21 
Read the statement of limiting conditions revised 2012 below definiton of market value even the old one has it regarding concessions.
Who doesn't include this in their report?
*Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those cost which are normally paid by the seller as a result of tradition or law in a market area; these cost are readily identifiable since the seller pays these cost in nearly all sales transactions. Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third party instituional lender that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical dollar for doar cost of the financing or concession but the dollar amount of any adjustment should aproximate the market's reaction to the financing or concession based on the appraisers judgement.
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RubberStamp

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Reply with quote  #22 
I agree with LEF.  We are not trying to calculate what the seller will walk away with from the transaction.  Market Value needs to include typical fees b/c these will be the responsibility of the byer/seller and the value must include them so they can be met.  Anything less and I believe the borrower has a gripe.

Imagine if your client estimated the market value of an appraisal was $400.  Then based on the ovehead costs of 3 of your competitors determined that the true value to you was only $250 b/c of overhead you must pay.   That is incorrect.  The overhead is left for us to bargain.  We can drive more fuel efficent cars, do our own accounting, work out of the home.   The market value of the appraisal must be $400 in which we pay any overhead which differs from business to business.  Just another way of looking at it.  Now if our overhead was $250 due to poor bargaining we cannot then say the market value of an appraisal is $500.  Our extra cost is atypical and the market will root it out.

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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.
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BillDing

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Reply with quote  #23 

EVERYONE  - PLEASE READ


Let's look at the definition of MV, as defined.

Market value is the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he considers his own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (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

*Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable since the seller pays these costs in virtually all sales transactions. Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third party institutional lender that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical dollar for dollar cost of the financing or concession but the dollar amount of any adjustment should approximate the market’s reaction to the financing or concessions based on the appraiser’s judgment.

 

What does the adjusted price supposed to reflect?
A.  "(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 that price would have sold differently without the concessions, you MUST make appropriate adjustments so that the price represents a price that would be equal to a concession less price.

Now let's look at the asterisk to see if there is a "sales concessions are typical" loop hole for all of you "0-3% concessions are typical, thus no adjustment's necessary" crowd.
"Adjustments to the comparables must be made for special or creative financing or sales concessions."

Oh oh..not looking good.   Let's continue.... 

"No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area"

Ok...now I bet you're getting a tingle going up your leg and ready to shout "See, I told ya".     BUT, how would one identify this?   Good news, it tells you.  "these costs are readily identifiable since the seller pays these costs in virtually all sales transactions"

Oh oh....bummer.  Sellers pay these costs in virtually all sales transactions...this is not a market segment, nor is it a limited to type of financing, such as VA or FHA.  This means virtually all transactions in the housing market, high end and low...and conventional and cash transactions.  IOW, typical is NOT a qualifier.  The only real way for this to happen is if there were a law saying they had to pay seller concessions.


OK. Hopefully it is clear to you that they want the price the house would have sold for if you took away those concessions.  Obviously, the logical answer is $4$...who wouldn't sell for the same price?    BUT...you can't make that assumption.  It can't be mechanical....you need to verify!   So, who else knows the seller better than their agent.  Give them a call and ask them.  "Hello Mr Listing Agent, If the buyer said that he didn't need to have the seller take $7,500 out of his pocket, would that affect the sale price?   Would he lower the price $7,500 resulting in the same net?" 


99.5% of the time it is yes, of course.  It's the same to him.  However, I have run into a couple situations where it is not $4$...which is why it can't be mechanical dollar for dollar adjustment - you need to call and verify. 
Here's a couple examples.

1.  Builder offered 3% seller concessions if they finance through them (equal to conventional terms).   The seller would not lower the price if they went with cash or their own financing.   Therefore, the contributory value of the 3% equaled 0 adjustments.  Sale without seller paids would not result in a different price.  $7,500 concession; adjustment: $0

2.  Seller is financing the deal and getting more than $4$ return.  "Ok Mr Buyer....you don't have a pot to pee in and need money or you don't get a house.  Here's what I'll do for you.  I'll give you the necessary $7,500 of closing costs but the price of the house will be $10,000 higher.  You get your house for a few more dollars a month and I get paid for my fiance.   Therefore, the $7,500 seller concession would result as a -$10,000 adjustment.


Some appraisers believe that because many (or, even most) recent and current sales have concessions to the buyer, such is common or typical of the market and that no adjustment for the concession need be considered. Such thinking is erroneous.  If this applies to you, then you need to stop with the 0-3% is typical, therefore no adjustments.  It's wrong and you will get in trouble for it.


...and never try to justify it because the subject has seller paids.  Subject concessions have nothing to do with adjusting your comps.


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BillDing

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Reply with quote  #24 
Quote:
Originally Posted by johnmbryant
I have an FHA review in my possession that chastises the appraiser for failure to make dollar for dollar concessions adjustments.  Has anybody else experienced this.

If so, I would like to see the source document.


So, to sum up my post above, the source document is the form the appraiser used and a bit of common sense.  You want to test if the chastisement for lack of dollar for dollar concessions adjustments was warranted, call the listing agents of the comps on that report and see if the seller would have sold $4$ less instead of paying the concessions out of his pocket.


FNMA Selling Guide, Part XI, Section 406.5 (C) states; 
"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.....
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"

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Phil

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Reply with quote  #25 

Bill, I disagree with most of your statements

1st use % not $, so what % of the sales price is your $6,000?
2nd the Atlanta Market is NOT a segment it it overall...so, what % of the residential sales have seller paid concessions for "seller paid closing cost and prepaid items".
3rd Creative financing is not seller paid CC or prepaid items, it is owner financing, lease purchase, free car for one year with purchase, etc.
4th how do you decide who is correct and who is wrong with your statements "common sense", is a matter of personal experience and environment not intellect.

This is why we have courts, to decide things like this...yours is an opinion not a fact...finally, seller paid items don't really matter, what matters is comps selection, application of adjustments like folks that give $1,500 for a full bathroom and $250 for a stoop...we need to be spending our time trying to fix the real problems in this business...

Math is a constant, appraisals are not, they are subjective.

Why should some be enslaved by the subjective definitions of others? Investors Business Daily-Sep 13, 2012

MEP

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BillDing

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Reply with quote  #26 
Bill, I disagree with most of your statements

Good, now let's talk about the "why"




1st use % not $, so what % of the sales price is your $6,000
?

Not sure what you are talking about.  You adjust in dollars.  If the house is $300,000 and there is a 2% seller concession, that's $6,000.   Call the agent and find out if the seller would have sold it for $294,000 if he didn't have to pay 2% in seller concessions.   If it was 3%, we'd be talking about $9,000.




2nd the Atlanta Market is NOT a segment it it overall...so, what % of the residential sales have seller paid concessions for "seller paid closing cost and prepaid items". 

Regardless, does every transaction have seller concessions?  I think not.  Maybe you have an Atlanta law or tradition that has pasted down through the ages saying that buyers have to pay seller concessions that you'd like to share with us.




3rd Creative financing is not seller paid CC or prepaid items, it is owner financing, lease purchase, free car for one year with purchase, etc.

But it also identifies sales concessions.   "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"..."Adjustments to the comparables must be made for special or creative financing or sales concessions."




4th how do you decide who is correct and who is wrong with your statements "common sense", is a matter of personal experience and environment not intellect.

If I said something contrary to any environment, show me.

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LEF

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Reply with quote  #27 
The verbiage I copied is located in the Statement of limiting conditions revised 2012 and in the old as well. What I meant was who doesn't include the statement of limiting conditions.
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BillDing

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Reply with quote  #28 
Quote:
Originally Posted by LEF
The verbiage I copied is located in the Statement of limiting conditions revised 2012 and in the old as well. What I meant was who doesn't include the statement of limiting conditions.


I'm talking about what is preprinted on FNMA reports (URAR, 2055, etc). I don't know what you are talking about and where you are getting this statement above in post 22.   You must be writing it yourself because it was riddled with spelling errors and is not what the FNMA reports have printed.

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LEF

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Reply with quote  #29 
The old form is Freddie Mac Form 439 6-93
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BillDing

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Sorry...I see what you did.  You just posted the asterisks portion.  I saw the spelling errors and it threw me off.  It was late.  OK...then we're on the same page, no pun intended. 

Edit:  I don't mean this as a slam against your spelling.  I just saw errors and thought you were changing the pre-printed definition.


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MEP

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Reply with quote  #31 
Bill, I don't have time to debate with you on all issues but you are to legalistic in your approach to appraising, maybe you should be an attorney, they are pros at distorting the facts and debating what does "is" mean...

Not, every sale has a seller concession, I have sold a few houses without paying concession but the price was rock bottom for a savvy buyer.  Does that mean I should have gotten an upward adjustment...also, don't play stupid, you know exactly what I mean regarding the % adjustments vs $s.  I adjust for anything above 3%, if you don't so what.

Maybe, one day we can have lunch and we can discuss some important issues.

MEP

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BillDing

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Reply with quote  #32 
You're flat out wrong, MEP.  You better be legalistic because that's where you'll end up.  "You're too legalistic" probabably isn't goint to work out well for you as a defense in court of LAW.  Def of MV doesn't say adjust for anything above 3%, it says that if the price is affected by the concessions and would have sold for a different price without the concessions, then you MUST adjust.
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BillDing

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Reply with quote  #33 
Quote:
Originally Posted by MEP
Not, every sale has a seller concession, I have sold a few houses without paying concession but the price was rock bottom for a savvy buyer.  Does that mean I should have gotten an upward adjustment


Ok...what does MV say about concessions in that situation?  It says that if it's not in virtually all sales transactions, you must adjust for the concessions.  Your adusted price should reflect what that would have sold without those seller paid concessions.  

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Hippie

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Reply with quote  #34 
here we go with the spelling and grammar again. I'm not an English teacher.
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MEP

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Reply with quote  #35 

So what % of sales have a concession...I say over 90%, that is the market...you cannot make a market with 10% activity...there is always 10% that will or will not do something. 

I hope your work reflects the diligence that you project...I have read hundreds of appraisals and never seen one that didn't have some adjustments that  I questioned or missed data...if the image that you project on this board represents your work...you must be prefect...

MEP


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Hippie

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Reply with quote  #36 
yes and his spelling and grammar is prefect also. 
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BillDing

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Reply with quote  #37 
Quote:
Originally Posted by MEP

So what % of sales have a concession...I say over 90%, that is the market...you cannot make a market with 10% activity...there is always 10% that will or will not do something. 



If it said 90%, you'd be right.  But it doesn't say that.  It says the only time you don't adjust is when sale concessions are in virtually ALL sale transactions...as if there was a law.


Quote:
Originally Posted by MEP

I hope your work reflects the diligence that you project...I have read hundreds of appraisals and never seen one that didn't have some adjustments that  I questioned or missed data...if the image that you project on this board represents your work...you must be prefect...


So know we're jumping to some fallacy to support not doing something correctly?  I learn all the time from posters and constantly try to better myself.  I might be prefect, but I'm not perfect.  I pointed out our requirements and supported my stance.  We're in a legal hot tub and being thrown under the bus by everyone on every side.  You can do what you want this information, MEP.  No skin off my nose either way.


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Reply with quote  #38 
*Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable since the seller pays these costs in virtually all sales transactions. Special or creative 

Looks like it may be tradition if 90% of the market pay closing cost. 
It is not readily identifiable because the Realtor don't want the price reduced by a dollar for dollar adjustment for concessions paid. 
I agree the above normal market should be adjusted. 
What about for sale by owner, most appraiser do't even look for those sales in the market district because they are not listed in MLS
Don't forget Chattanooga don't report any. 

Don't forget to check spelling and grammar 
  
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BillDing

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Reply with quote  #39 
Looks like it may be tradition if 90% of the market pay closing cost.

No it doesn't.  Looks nothing of the sort when using FNMA's measure, which must be our measure.  A tradition is something passed from generation to generation and FNMA says it is recognized because it's in ALL sales transactions...it will have a similar effect as if a law required seller concessions.  Typical has nothing to do with it.


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Reply with quote  #40 
Bill, you are not going to convince anyone here, I guess.  No one is suggesting that adjusting for concessions is a bad idea (because it isn't), they are only making the point that one doesn't have to do it, because it isn't required.   

Those types of arguments are very telling.

It's odd that appraisers will agree to any inane scope creep that comes across the wire, but will fight tooth and nail against meaningful analysis.
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I have no problem with "0-3% is typical, so no adjustment was made"...if that was what is written.   But it is not. 

As far as convincing goes, the evidence is there in black and white and no one has produced evidence otherwise - that's what the court will look at.   If someone here refuses to look at and consider the evidence, they're not going to be convinced.




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Reply with quote  #42 
This is a meaningful analysis.  What should we do is the question.  How is sells concessions readily available if we don't have access to the HUD one on every sale.  The sales commission maybe a typical. Publish the HUD one along with PT-61 and make the sales transaction more transparent.  
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Hippie

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Reply with quote  #43 
Ass in the air and head in the sand
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Jman

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Reply with quote  #44 
Any adjustment should not be calculated on a mechanical dollar for dollar cost of the financing or concession but the dollar amount of any adjustment should approximate the market’s reaction to the financing or concessions based on the appraiser’s judgment.

Market reaction to $4=0.
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BillDing

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Reply with quote  #45 
Quote:
Originally Posted by Hippie
How is sells concessions readily available if we don't have access to the HUD one on every sale.  


Doesn't your MLS state the seller paids?  Got a phone...call the listing and selling agent.




Quote:
Originally Posted by Jman
Market reaction to $4=0.


Really..   If the buyer told the seller that he decided to pay cash, and asked the seller, "could you reduce the price to $192k instead of paying $8,000 out of your pocket with a $200,000 price?"...the seller would say "No, I'd rather take $8,000 out of my savings account and pray the financing works out for no good reason"


Some things are just too unbelievable.

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Jman

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Reply with quote  #46 
So, you're saying market reaction IS dollar for dollar? OK, that's cool with me, maybe that is the case, that's the appraiser's judgement.

However, four dollars will not motivate any typical market participant I've noted.
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BillDing

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Reply with quote  #47 
Ok...I didn't realize you were getting ridiculous with an actual four dollar concession example.  And I'm not saying that market reaction IS dollar for dollar.   It probably is, but you need to verify to be sure.  Can't be mechanical.
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MAG

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Reply with quote  #48 
Jman - will you forward me the information for your mortgage person?  I am refinancing and would really like to get it done for $4!  
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Brian

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Reply with quote  #49 
BillDing,

You are assuming that there would even deal if it weren't for seller paid concessions. Most of these sales wouldn't even take place if the seller didn't pay closing costs. So to say that the property would have sold for less if the seller concessions was zero is not accurate. It is likely that the property wouldn't have sold at all.
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BillDing

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Reply with quote  #50 
Hi Brian,

It's not asking if it would have sold.  MV is a hypothetical sale. If there were no concessions involved, what's the probable price?

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