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Chuck_Schick

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Reply with quote  #51 
I currently buy properties, both new and used, for a REIT.  We offer full MLS list price, but ask for seller's concessions of whatever percent will work for us. These concessions are listed in the sales contact for closing costs.  The sales contract price and the recorded sale price is the full list price.  These are all cash offers. 

Remember, there are closing costs in all transactions.  I ask the seller to pay for them, since the vast majority of transactions have concessions and sellers know that concessions are typical in most transactions.  That kind of screws up the statement that all investors would pay less.
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Meatloaf

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Reply with quote  #52 
Quote:
Originally Posted by Chuck_Schick
I currently buy properties, both new and used, for a REIT.  We offer full MLS list price, but ask for seller's concessions of whatever percent will work for us. These concessions are listed in the sales contact for closing costs.  The sales contract price and the recorded sale price is the full list price.  These are all cash offers. 

Remember, there are closing costs in all transactions.  I ask the seller to pay for them, since the vast majority of transactions have concessions and sellers know that concessions are typical in most transactions.  That kind of screws up the statement that all investors would pay less.


Enlighten us.... Why?  Why not pay your own closing costs and negotiate the price down?

I think I know the answer, and I think BillDing will be amused to hear it first hand.  But nevertheless, fill us in about your motivations.

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Nomad

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Reply with quote  #53 
Quote:
Originally Posted by BillDing
Yes, it surely does make sense. I've done it that way and did not get flamed.


Yet... 😀
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LOL, it's fire proof ready.
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Chuck_Schick

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Reply with quote  #55 
Quote:
Originally Posted by Meatloaf


Enlighten us.... Why?  Why not pay your own closing costs and negotiate the price down?

I think I know the answer, and I think BillDing will be amused to hear it first hand.  But nevertheless, fill us in about your motivations.


Since most transactions have seller's concessions and seller's expect to give them, I take advantage of that fact. If the list price is reasonable, I ask for a concession and the seller typically gives them.  The sale price is full price, so the seller is happy. If I make an all cash, lower offer, many sellers feel like they are getting less.  Crazy, I know. 

Also, I want the transfer to be at a higher price, so tax records show a higher basis. It helps when going to sell the property in the future.
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Meatloaf

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Reply with quote  #56 
It shows a higher basis for capital gains purposes... It doesn't have a damn thing to do with helping to sell the property in the future.



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Nomad

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Reply with quote  #57 
Quote:
Originally Posted by BillDing
LOL, it's fire proof ready.


Depending on who is doing the reviewing there is no such thing!
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nogava

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Reply with quote  #58 
There really should be some review reform given that one bad review can significantly affect the livelihood of any appraiser doing lending work. Not defending bad work. But some type of checks & balances system for FRTs rather than a knife in the side by a four digit know-it-all would be welcomed.  Carry on with the concession talk.
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BillDing

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Quote:
Originally Posted by Chuck_Schick


Since most transactions have seller's concessions and seller's expect to give them, I take advantage of that fact. If the list price is reasonable, I ask for a concession and the seller typically gives them.  The sale price is full price, so the seller is happy. If I make an all cash, lower offer, many sellers feel like they are getting less.  Crazy, I know. 

Also, I want the transfer to be at a higher price, so tax records show a higher basis. It helps when going to sell the property in the future.

And when your little shenanigans ends up with a dead deal because it won't appraise, you've lost your client and your check.

Stop trying to manipulate the market.


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BillDing

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Reply with quote  #60 
Quote:
Originally Posted by Nomad


Depending on who is doing the reviewing there is no such thing!

I guess we can live in a bubble for fear of some bad judge, but that's not my cup of whiskey.

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Meatloaf

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Reply with quote  #61 
Quote:
Originally Posted by BillDing


And when your little shenanigans ends up with a dead deal because it won't appraise, you've lost your client and your check.

Stop trying to manipulate the market.



It doesn't have to "appraise"... Its a cash deal.

Either way, thats a real incentive for a buyer to have the concessions included.  It wouldn't matter much to the typical purchaser, but for someone who does hundreds of deals annually, the tax savings on that 3% can really add up come disposition time.

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RubberStamp

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Reply with quote  #62 
Quote:
Originally Posted by Meatloaf


It doesn't have to "appraise"... Its a cash deal.

Either way, thats a real incentive for a buyer to have the concessions included.  It wouldn't matter much to the typical purchaser, but for someone who does hundreds of deals annually, the tax savings on that 3% can really add up come disposition time.


I would beat them up on the price for a cash deal THEN require a concession.  It is sound negotiation.  You can also get that concession even higher through items found in the inspection report.  I can typically grab another 3k.

And that's another thing FNMA fails to recognize.  Lots of times the seller just throws in more cash rather than have to make repairs.  Not as important on a cash deal but with a loan you can keep that money in your pocket and also fix up the place with the bank's money.

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Meatloaf

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Reply with quote  #63 
Quote:
Originally Posted by RubberStamp


I would beat them up on the price for a cash deal THEN require a concession.  It is sound negotiation.  You can also get that concession even higher through items found in the inspection report.  I can typically grab another 3k.

And that's another thing FNMA fails to recognize.  Lots of times the seller just throws in more cash rather than have to make repairs.  Not as important on a cash deal but with a loan you can keep that money in your pocket and also fix up the place with the bank's money.


Why do they call them LENDER REQUIRED REPAIRS?

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BillDing

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Reply with quote  #64 
Quote:
Originally Posted by Meatloaf
the tax savings on that 3% can really add up come disposition time.
Quote:
Originally Posted by RubberStamp
I would beat them up on the price for a cash deal THEN require a concession. 

I don't really care. I'm not an advocate for the buyer. It's when it's used as a comp that the concessions are subtracted. The buck stops here.

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Meatloaf

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Reply with quote  #65 
Quote:
Originally Posted by BillDing

I don't really care. I'm not an advocate for the buyer. It's when it's used as a comp that the concessions are subtracted. The buck stops here.


So, what you are saying is that all concessions need to be subtracted?

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RubberStamp

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Reply with quote  #66 
Quote:
Originally Posted by Meatloaf


Why do they call them LENDER REQUIRED REPAIRS?


On a cash deal they are never lender required unless I want to speak of myself in the 3rd person.  But even on conventional mortgage deals if the appraiser has not spotted repairs they are rarely lender required.  So sellers would rather just toss in some cash then scramble for a good contractor.  Thus, the aggravating request from your client "please increase concessions from $3500 to $5500". 



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Meatloaf

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Reply with quote  #67 
Cash in lieu of repairs is rarely just added to the CC being paid.  The CC is usually a limited figure.... ie up to $XXX.  Adding to the figure doesn't help the buyer if basically all the costs are already accounted for.

When I sold my house, the buyer wanted $7500 in CC paid.... I thought that was excessive.  But I agreed and on closing day his CC was only about $5000.... The dumbass.  I offered him an additional $2000 off the sale price if he would agree to an as-is sale but he refused to buy unless I had the insulation fluffed and put splash blocks under the down spouts.  So, I paid someone $150 to give me a reciept showing that they "fluffed" the insulation and I drove my happy ass about 12 hours round trip to by $28 worth of plastic things to put under the gutters so I could close because he was too fugging stupid to take the $2000.  It cost me well more than that in lost appraisal time and I really needed to be home with my sick family.... but dude wouldn't budge.

His insulation never got fluffed.  The reciept was complete BS, but I did pay the dude $150 to write it for me.

That being said, cash in lieu of repairs is usually accounted for as a reduction in sale price.

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treskirkland

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Reply with quote  #68 
Quote:
Originally Posted by Meatloaf
Cash in lieu of repairs is rarely just added to the CC being paid.  The CC is usually a limited figure.... ie up to $XXX.  Adding to the figure doesn't help the buyer if basically all the costs are already accounted for



Actually, this is very common.  When the buyer requests repairs from the home inspection report and the seller doesn't want to bother with them they will offer to pay additional closing costs instead.  So they do an addendum stating "seller to pay $X is closing costs"  They don't say in lieu of repairs, because then the underwriters will freak out and ask to see the inspection report and then require the repairs to be done.
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Meatloaf

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Reply with quote  #69 
I've never seen the closing costs bumped up due to the seller not wanting to do the repairs.  I have seen the sale price reduced, but I don't think I have ever seen additional closing costs offered.  Many times the original agreement includes enough closing costs to cover all of it.  Offering to contribute more would not result in anything... You can't pay more CC than what the actual CC is.
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RubberStamp

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Reply with quote  #70 
Quote:
Originally Posted by Meatloaf
I've never seen the closing costs bumped up due to the seller not wanting to do the repairs.  I have seen the sale price reduced, but I don't think I have ever seen additional closing costs offered.  Many times the original agreement includes enough closing costs to cover all of it.  Offering to contribute more would not result in anything... You can't pay more CC than what the actual CC is.


ML - you are wrong big time wrong on this one..  I'm surprised since you come from a selling family.  I see it all the time.  All the time.  I would go as far to say that underwriters don't even care..   as long as its within FNMA limits and the appraisal supports it.

They used to send them back to the appraiser for revision.  I know that is no longer required but some still do it.  If you have a client who still sends them back you'll see it more often.

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Meatloaf

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Reply with quote  #71 
OK.... So most time the closing costs associated with the transaction are around 3% or there about.  If the seller agrees to pay ALL of the closing costs up to a certain cap of 3%.... So if the closing costs are less than 3%, the seller pays them all but if they exceed 3% the buyer pays the difference.  The vast majority of time, the concession covers all the closing costs or just about all of them.  If the seller agrees to pay MORE that likely doesn't help the buyer at all.

Generally repairs are either completed by the seller or a reduction in sale price is negotiated.... Its very rare that the seller gives MORE towards closing in these circumstances.  Sometimes repairs are handled as an allowance and that puts the buyer in the driver's seat with actually getting the contractor to come over and bid, complete, finish a $100 job.

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RubberStamp

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Reply with quote  #72 
FHA will allow up to 6% I believe. 
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Meatloaf

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Reply with quote  #73 
Quote:
Originally Posted by RubberStamp
FHA will allow up to 6% I believe. 


Thats to allow the CC to be paid on houses that are in the 40-80K range.

There are fixed costs associated with closing and some costs are based on a percentage of the transaction.  IN a low price transaction, the fixed costs tend to contribute to higher percentage closing costs than higher priced transactions.  For this reason HUD allows a higher percentage to be paid.

But that being said, if the original contract was written in a manner to cover all or most of the closing costs regardless of what percentage they are adding more to the agreement doesn't convey anything to the buyer.

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BillDing

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Quote:
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So, what you are saying is that all concessions need to be subtracted?
99.9% of the time, that is the case.  But I don't assume and make a strict mechanical adjustment, I verify whether or not it affected the price if they didn't need or want the seller to pay 3% out of the pocket.

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Meatloaf

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Quote:
Originally Posted by BillDing
99.9% of the time, that is the case.  But I don't assume and make a strict mechanical adjustment, I verify whether or not it affected the price if they didn't need or want the seller to pay 3% out of the pocket.


Then can you give me an example of the .1%?  When is it acceptable to not subtract the concession?

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treskirkland

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Reply with quote  #76 
Maybe the seller's are paying more towards closing costs in your area.  I rarely see the seller paying all of the closing costs.    The amendments are not going to mention any repairs, just a change in closing costs being paid.  
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Meatloaf

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Quote:
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Maybe the seller's are paying more towards closing costs in your area.  I rarely see the seller paying all of the closing costs.    The amendments are not going to mention any repairs, just a change in closing costs being paid.  


Maybe its just my area, but I doubt its unique.  Generally the sellers pay all the closing costs.  Repairs are always mentioned in the counter offer when it happens.  When its just a change in closing costs being paid it is usually due to a change in financing type like from conv to FHA or something.

I cannot recall ever seeing the concessions adjusted in lieu of repairs.  

I guess Bill is still trying to think of the .1% situation.

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RubberStamp

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Reply with quote  #78 
Quote:
Originally Posted by treskirkland
Maybe the seller's are paying more towards closing costs in your area.  I rarely see the seller paying all of the closing costs.    The amendments are not going to mention any repairs, just a change in closing costs being paid.  


Yes.  If it is a full ask offer they increase the sale price to include the max concessions.  Why waste an ATM opportunity. 

It does make things very tricky. 

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Meatloaf

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Reply with quote  #79 
The only time I see sale prices over list is when it is a bidding war and in those cases, there is usually no seller's concessions.
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BillDing

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Reply with quote  #80 
Quote:
Originally Posted by Meatloaf


Then can you give me an example of the .1%?  When is it acceptable to not subtract the concession?

Seller offers to pay concessions if they finance through them.  If the buyer says; "No, I have my own financing...just lower the price by 3%"  and the seller responds; "nope, that's just a bene we offer if you finance through us. The price is what it is.

The concessions did not affect the price.
Adjustment - nada

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RubberStamp

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Reply with quote  #81 
How did concessions not affect the price when strong arming a buyer into using one option for financing affected concessions?  They are fluid and related in this instance.  We are working off of the substitution principle and a more buyer friendly agreement could be reached if the buyer substituted this home for another home where they would not be strong armed. 

It most certainly is affecting several aspects of this deal.

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BillDing

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Reply with quote  #82 
Quote:
Originally Posted by RubberStamp
How did concessions not affect the price when strong arming a buyer into using one option for financing affected concessions?  They are fluid and related in this instance.  We are working off of the substitution principle and a more buyer friendly agreement could be reached if the buyer substituted this home for another home where they would not be strong armed. 

It most certainly is affecting several aspects of this deal.

Nope. MV simply asks what would that property have sold for without the seller having to pay the concessions. In this case, the seller would not sell the house at any different price without concessions. They could buy it with cash and the seller would not change the price.

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Meatloaf

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Reply with quote  #83 
Bill ding only likes to think about a sale from the seller's persepective.  The buyer is the most important part of the sale.  There is always an unlimited number of sellers, but the buyers are the ones that call the shots.

Sellers offer concessions to attract buyers.  If there is no concession, then there may be NO buyer.

BillDings example is a poor example.  The "concession" the "seller" is offering is hidden in the financing.  This isn't a real concession.  A concession is when you offer something of value to entice a buyer.  Trying to force a buyer to pay more isn't a concession.


Still looking for a realistic .1%.



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RubberStamp

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Reply with quote  #84 
Quote:
Originally Posted by Meatloaf
Bill ding only likes to think about a sale from the seller's persepective.  The buyer is the most important part of the sale.  There is always an unlimited number of sellers, but the buyers are the ones that call the shots.

Sellers offer concessions to attract buyers.  If there is no concession, then there may be NO buyer.

BillDings example is a poor example.  The "concession" the "seller" is offering is hidden in the financing.  This isn't a real concession.  A concession is when you offer something of value to entice a buyer.  Trying to force a buyer to pay more isn't a concession.


Still looking for a realistic .1%.




You make a good point.  It does fluctuate who has the power but in most markets, most of the time, the buyer is less desperate than the seller. 

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Nomad

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Reply with quote  #85 
Quote:
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I guess we can live in a bubble for fear of some bad judge, but that's not my cup of whiskey

I don't fear it but I do expect it.  I aint no spring chicken Bill.
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BillDing

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Reply with quote  #86 
Quote:
Originally Posted by Meatloaf
Bill ding only likes to think about a sale from the seller's persepective.  The buyer is the most important part of the sale.  There is always an unlimited number of sellers, but the buyers are the ones that call the shots.

Sellers offer concessions to attract buyers.  If there is no concession, then there may be NO buyer.

Whether the buyer could afford it or could not afford it without the concessions is not part of market value. It is simply a hypothetical question how much would that house sold for if they didn't need the seller to pay that cash. If you adjusted for what the buyer could afford, that might be $50...so that $100k house with a $3k concession would have to have an adjustment of -$99,950 to reflect a purchase price of $50.  Or maybe you want to project the price a cash investor would pay for it....$70K???  Either way, doing it your way of thinking, you're going to have a lot of splainin to do, Lucy.  I'll stick to the hypothetical what would it sell for if they didn't need that $3k  out of the seller's pocket. [wink] 


Quote:
Originally Posted by Meatloaf
BillDings example is a poor example.  The "concession" the "seller" is offering is hidden in the financing.  This isn't a real concession.  A concession is when you offer something of value to entice a buyer.  Trying to force a buyer to pay more isn't a concession.
Still looking for a realistic .1%.

It's not hiding anywhere. It listed right there in the open and they didn't try to hide anything. They're not trying to make the buyer pay more for the house. They're paying the same for the property as anyone else would. Their financing was competitive to lender's. They're saying, I'll front you $5,000 if you pay me back by financing with us. It didn't affect the price of the house.  So yes, it is very real and very realistic.

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Reply with quote  #87 
If you are selling a house and you can only get 65K from the 5 purchasers with cash money but you can offer a 3% concession and attract thousands of buyers at the $100000 level then why would anyone refuse to offer a concession?

Concessions are there to attract buyers.  If you don't have buyers, then you don't have sellers.

The cash buyers will only pay $65000 because they are looking for a "deal" that they can turn around and sell with a small concession for a profit.

you have to consider the motivations of both the buyer and seller.  

Sure, the seller would always sell for less.  The reason YOUR seller in YOUR example is unwilling to take less is because he is able to fluff the sale prices with HIS financing which may not require an appraisal... He is rolling part of the sale price into the rate.



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MEP

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Reply with quote  #88 
That is why you cannot allow one buyer or seller to set the value...if the market was made up of cash buyers...the prices would be cheaper; it is mental...the seller always gets all cash, at the table. Of course, I am  not including Owner financing which is Always priced higher than the market. Owner financing mucks up the market prices...Owner financing is for weak buyers.
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If you are selling a house and you can only get 65K from the 5 purchasers with cash money but you can offer a 3% concession and attract thousands of buyers at the $100000 level then why would anyone refuse to offer a concession?

Concessions are there to attract buyers.  If you don't have buyers, then you don't have sellers.

The cash buyers will only pay $65000 because they are looking for a "deal" that they can turn around and sell with a small concession for a profit.

I don't disagree with any of that. However, you have to answer the hypothetical question and you're convoluting it with abilities of that particular buyer...and if you do that, then to answer the question, you're adjustment will be much greater, like your example, a $45k adjustment instead of $3k adjustment on that $3k concession.

They are asking a hypothetical scenario...if that buyer didn't need that $3k gift from the seller, what price would they settle on.  K.I.S.S.


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Sure, the seller would always sell for less.  The reason YOUR seller in YOUR example is unwilling to take less is because he is able to fluff the sale prices with HIS financing which may not require an appraisal... He is rolling part of the sale price into the rate.

Neither here nor there. It did not affect the price of the house.


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Quote:
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I don't disagree with any of that. However, you have to answer the hypothetical question and you're convoluting it with abilities of that particular buyer...and if you do that, then to answer the question, you're adjustment will be much greater, like your example, a $45k adjustment instead of $3k adjustment on that $3k concession.

They are asking a hypothetical scenario...if that buyer didn't need that $3k gift from the seller, what price would they settle on.  K.I.S.S.



The seller wouldn't sell it for $65000 when he can offer $3000 and get buyers to pay $100000.

The $65000 buyer has different motivations than the $100000 buyer.  

Its like wholesale versus retail.  Market value reflects the same as "retail" value.  Its the same concept.  Sure, you could save money buying your milk right out of the cows ass, but you pay more for it because the retail store offers you a coupon.  

Concessions are like a coupon.  Wholesalers do not offer coupons, yet retailers do.  REO properties are like wholesale... no coupons, no exchanges.  



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Quote:
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The seller wouldn't sell it for $65000 when he can offer $3000 and get buyers to pay $100000.

I agree...but he would sell it for $97,000 if he didn't have to pay $3,000 towards the buyer's closing costs.  So, if that is the case, then instead of adjusting $35k, I suggest that you only adjust $3k.

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Reply with quote  #93 
Of course he would sell it for 97K.  Why wouldn't he?

But that option is generally no on the table because buyer's demand the concession in the vast majority of cases.  Remember, you cannot look at an outlier and determine the market.  The market dictates the concession.

Its not always the case, but you cannot blindly state that in 99.9% of the cases you must just subtract the $/$ concession.

What about this scenario... Contract says seller to pay up to $7500 in concessions.  No one really knows how much the actual closing costs are going to be until the HUD-1 is presented.  The actual closing costs are $5200.

What is the value indicator if the contract price was $100000? and it was re-negotiated because the appraisal came in at $98000?  Is it 92500? or 94,800? or what?

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BillDing

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Originally Posted by Meatloaf

What about this scenario... Contract says seller to pay up to $7500 in concessions.  No one really knows how much the actual closing costs are going to be until the HUD-1 is presented.  The actual closing costs are $5200.

What is the value indicator if the contract price was $100000? and it was re-negotiated because the appraisal came in at $98000?  Is it 92500? or 94,800? or what?


That all depends. That's something you need to look into, hence why it can't be a strict mechanical adjustment. It could be that the $100k is more representative of the sale, unless concessions were involved that affected the price.


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Of course he would sell it for 97K.  Why wouldn't he? But that option is generally no on the table because buyer's demand the concession in the vast majority of cases.  Remember, you cannot look at an outlier and determine the market.  The market dictates the concession.

MV never says that it was on the table. Get that out of your head. They present that hypothetical option as if it was on the table.

btw, why is it that none of your buyers have $3k to pay their concessions and all the sellers have cash laying around???  Do all the sellers not buy a house again?

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Reply with quote  #96 
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Originally Posted by BillDing


That all depends. That's something you need to look into, hence why it can't be a strict mechanical adjustment. It could be that the $100k is more representative of the sale, unless concessions were involved that affected the price.



It is not something to look into if you look at it the way they want you to look at it:  As data.  As a factor of negotiation. The answers are in the data.  It is not your job to determine if a specific concession was allowable or not when you have no rights to examine the documents and are going off of hearsay.   In fact, it is misleading and easy for you to be mislead.

I'll take it one step further.  If you see it was a conventional loan and they have a certain amount of concessions and the home closed.  Guess what?  It's allowable.  Determined by someone more worthy of making that determination than an appraiser working off of hearsay. 

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It is not something to look into if you look at it the way they want you to look at it:  As data.  As a factor of negotiation. The answers are in the data.  It is not your job to determine if a specific concession was allowable or not when you have no rights to examine the documents and are going off of hearsay.   In fact, it is misleading.

Not doing what is required = misleading.

If you think that the requirements produce a misleading report, then turn your 2nd mtg orders down. That's a USPAP requirement.


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MV never says that it was on the table. Get that out of your head. They present that hypothetical option as if it was on the table.

btw, why is it that none of your buyers have $3k to pay their concessions and all the sellers have cash laying around???  Do all the sellers not buy a house again?


Because they all work for the gov't and the millitary and those people finance everything and have very little cash on hand.  

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Not doing what is required = misleading.

If you think that the requirements produce a misleading report, then turn your 2nd mtg orders down. That's a USPAP requirement.



Relying on hearsay to make actual adjustments on your report is misleading and unreliable when you have closed facts to contemplate.  For an underwriter to approve $10,000 in closing costs and for you to somehow say only $3000 were relevant is completely inexcusable.  Times that type of rogue behavior by 5000 appraisers all stepping way beyond their expertise and you get AVM replacing you.

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BillDing

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Relying on hearsay to make actual adjustments on your report is misleading and unreliable when you have closed facts to contemplate.

No, it is not hearsay when you verify from the original party of the transaction.

Quote:
Originally Posted by RubberStamp
For an underwriter to approve $10,000 in closing costs and for you to somehow say only $3000 were relevant is completely inexcusable. 

Where did I say only $3k were relevant?  I was talking about $3k in concessions and adjusting $3k.

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