Concessions – When & How Much to Adjust

Concessions - when & how much to adjust

There is a lack of consensus or understanding among appraisers regarding concessions paid to a buyer in a sales transaction.

The focus here is on appraisals communicated via a current Fannie Mae/Freddie Mac form. The intent of this article is to bring some clarity to this topic, whether you’re appraising the property as a purchase transaction or using it as a comparable sale after it has closed.

First, in your appraisal due to purchase, a concession to the buyer of the subject of your appraisal must be reported in the contract section of the appraisal report. However, you must remember this concession is not relevant in the sales comparison analysis. This is the reason why the “sales or financing concession” field for the subject property on a Fannie Mae form is “shaded out” in the sales comparison analysis section. That is, any concession found in your subject’s transaction is not relevant in your analysis of the sales comparisons. The sales comparisons will reflect an adjusted sales price range for the subject property regardless of what the buyer and seller of the subject have negotiated in the contract. Remember: You are appraising the subject property, you are not appraising the subject’s contract of sale.

That’s the easy part.

Now, let’s discuss what appears to be the area of disagreement, or misunderstanding, among many appraisers.

In what follows, we assume that the appraisal is being communicated using one of the current Fannie Mae/Freddie Mac forms. An integral part of these forms is Fannie’s definition of Market Value. In one part of the definition, Fannie provides a directive to the appraiser as to how “sales concessions* granted by anyone associated with the sale” are to be considered and analyzed.

It’s the asterisk (see sales concessions* above) section of the definition that requires our attention when concessions are present in the sales comparisons.

Quoting from a current (March 2005) Fannie Mae form:

*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 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 concession based on the appraiser’s judgment.”

So, then, what would not constitute a seller paid item that would be understood as a “concession” (and thus NOT requiring adjustment)?

Consider this:

In some market areas, it is customary for sellers to pay for, and provide to the buyer at closing, a current plat of survey. This seller paid item is present in the market as a “result of tradition or law” and is found in “virtually all sales transactions”: yesterday, today, and, most likely, tomorrow.

The seller paying for the plat of survey and giving it to the buyer at the closing is typical in a “seller’s market” and a “buyer’s market”. The fact that this seller-paid item is present under all market conditions is very important. It is obvious that such a seller paid (as found in the sold comparisons) item is not something that is considered as a “seller concession” requiring adjustment in the sales comparison analysis.

From the above, it is apparent that many, or most concessions to buyers present in a “buyer’s markets” do not meet the test of having been present in “Virtually all sales transactions” as a “result of tradition or law”. Thus, “adjustments must be made…”

The above is where many appraisers make an error in judgment in their analysis of sales comparisons.

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.

Now let’s take a peek at a couple of illustrations of how some appraisers today —in market’s characterized as a buyer’s market— incorrectly consider concessions to the buyer:

#1: The sold comparison had a concession to the buyer in the amount of $7,500, but many —or even most— sales transactions today have a seller concession. Thus, such concessions are typical of today’s market and there is no need to consider an adjustment for the concession —even though such a concession was not typical a few short years ago.

Wrong answer.

#2: The subject has a seller concession of $10,000 and the sold comparison has a seller concession of $10,000. Hey, no adjustment is necessary because the concessions are equal.


The thinking of these two appraisers indicates that they are not incorporating the previously cited directive from Fannie Mae into their approach!

Keep in mind:

a) Any concession to the buyer in the sales contract for the subject of your appraisal is irrelevant when it comes to the analysis in the Sales Comparison Approach. You are appraising the Subject for its Market Value —you are not appraising its contract of sale.

b) Any pay-back (concession) to the buyer —granted by anyone associated with the sale— or cost paid on the buyer’s behalf must be considered as a concession unless such is found in the market as a result of tradition or law in virtually all sales transactions (virtually all as in yesterday, today, and, likely tomorrow and under all market conditions).

c) Don’t confuse what is typical today with what is typical (by custom or law) all of the time.

Others have offered their thoughts on the topic of concessions to the buyer:

A chief appraiser with a major national bank offered this regarding concessions in the sold comparisons:

“I have long believed that concessions simply reduce the effective net to the seller so all ought to be discounted to find the true MV. While it may be prevalent in a specific market, I’ve never ever seen a market in which they virtually all get the concession.” (My note: the comment is specific to the concessions as found in the sold comparisons)

And, a former chief appraiser with a large national investor:

“It is my belief that discount points should be adjusted for.” (My note: the comment is specific to the concessions as found in the sold comparisons)

Also, a prominent HUD employee, posting in a discussion on this topic at the AppraisersForum website:

“We are finding appraisers who are failing to adjust/report concessions in the range of $10K-$100K, new automobiles etc. Their reasoning is currently typical for the market.”


Typical/customary…fees (seller-paid items) are found in either a seller or buyer market. (My note: the comment is specific to the concessions as found in the sold comparisons)

Finally, how much to adjust when a seller concession is present in a sales comparison?

From Fannie Mae (definition of MV—the asterisk section):

“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.”

By Lee Lansford – Illinois Appraiser Newsletters – Volume 2, Issue 12

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Provided as a service to licensed and registered Illinois appraisal professionals as well as Illinois course providers and users of appraisals. Illinois Appraiser Newsletters promote a greater understanding of USPAP, the Act, and the Administrative Rules of the State of Illinois. promote a greater understanding of USPAP, the Act, and the Administrative Rules of the State of Illinois.

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8 Responses

  1. Avatar William says:

    I want to know do you make a grid adjustment for concession for the comparables and if so is that a negative adjustment on the sales grid for the comparables. Please advise

  2. Mike Ford Mike Ford says:

    Its not that complicated people! Read the old R41B and R41C regulations on cash equivalence. Net to seller.

  3. Avatar Jman says:

    Sales concessions should be adjusted like all other grid adjustments – based on a pairing of the sales used. Dont forget when you remove a sales concession from a comp you are making an extraordinary assumption that the sale would have sold for less than sales price, which you will probably have virtually no data to prove or support that. In addition are you ready to say that the lender’s and investor’s LTV is not correct and that the appraisal on the sale is incorrect and inflated? Is there some mortgage fraud involved?

  4. Avatar Marty says:

    Hi Lee Lansford, your article on seller concessions is very good, however its missing one very important bullet. And that is (The purpose of adjusting comparable sales for concessions is to provide an indication of value of the subject property based on the definition of value. Even though the sales concession might be “typical” of the market and paid by the seller in virtually all transactions, the sale price is impacted by the concession. Furthermore, if the concessions are related to financing, the properties purchased with cash are atypical of the market and must be adjusted accordingly. Not adjusting for sales or financing concessions, even though seller paid concessions might be prevalent in the market, is not proper guidance when the definition of value includes a price unaffected by sales or financing concessions.) In addition, this is easily proven. In my 18 years of appraising, and interviewing other real estate professionals. Never have I seen one instance where a seller would not reduce the sale price by the amount of any seller concessions offered if the buyer decided not to take the concessions. Why? Simple, the seller now pays less commission on a lower sale price, & both the seller & buyer pay less in closing on a lower price. Seller concessions are only given to help the buyer afford the house without having to come out of pocket to pay closing, but in turn raises the home price for which the buyer is now financing… No Smart!

  5. Avatar Jman says:

    Marty. If it was as simple as you say, then there would be no need to discuss seller concessions and all concessions would be removed. Being typical has nothing to do with adjustment but appraisers should be analyzing the affect if any on the sales price and since you are part of the negotiation of that sale then it must be extracted from the market based on paired sales. You make the assumption that market value is only one number. If you trade repairs for concessions it blows your theory about seller taking less – that’s not an option. Your analysis suffers from what many do – using portions of the definition of value instead of using it in its entirety. A concession can be paid without affecting final sales price.

    • Avatar Marty says:

      Sorry Jman, your are completely wrong. 1st, Seller concessions are widely discussed because no authority has put in writing what we all already know. 2nd market value is the only number you should be concerned with when appraising for a normal FDIC bank loan. Never will you see any other type of value wanted on an engagement letter when someone is either purchasing or re-financing. 3rd, we’re not talking about repairs here, if we were, then we would also discuss condition etc. So my theory is sound..4th, a seller concessions in the form of cash to the buyer can NEVER be paid without affecting the sales price. Hey but don’t take my word here’s what Fannie Mae says (Fannie Mae on Seller Concessions (FAQ) How should the appraiser determine appropriate adjustments for sales concessions on the comparables?

      The appraiser must consider the impact a sales concession had on the transaction. The adjustments must reflect the difference between what the comparables actually sold for with the sales concessions and what they would have sold for without the concessions, so that the dollar amount of the adjustments approximates the reaction of the market to the concessions.

      (Fannie Mae Update SEL Announcement 2017-01, January 31, 2017.)

      With this update, we have clarified that appraisers may use dollar for dollar adjustments for financing or sales concessions when such an adjustment approximates the local market’s response to these types of concessions. This clarification is effective immediately.

      If you don’t want to believe Fannie, Here’s what the The Appraisal Foundation say in a letter to congress: ( on Seller Concessions In developing an opinion of market value, an appraiser must take into consideration the effect of any sales concessions on the market value of the real property.  Therefore, it was determined that seller concessions are typical in the area, but differ greatly in amounts depending on the buying power of the buyer(s) and the price of the home being sold. It was also discovered by personal interviews with sales agents, builders and sales staff, that the price of a new purchase and or resale home could be lowered by the exact amount of seller concessions offered instead of giving the seller concessions, thereby having a direct effect on the sales price and therefore adjusted out.

      And, my words initially were taken from a letter drafted by the Appraisal Institute. So friends, I say again. Any seller concessions given in cash has a clear and direct affect on the sales price and must be adjusted out dollar for dollar.

  6. Avatar Jman says:

    Previous post should have said – the appraiser is NOT part of the negotiation of that sale. Text would not scroll to edit text.

    Its simple – if the concession caused the sales price to increase to above market value (which will be seen when analyzing on a grid) then make an adjustment to bring that sale back in line with a zero concession sale or sales. Without a zero concession sale (either naturally or one that you adjusted to zero) then the appraiser has no market support for an adjustment or lack of one.

    There are too many assumptions by the mortgage industry about how any concession (and I’m not talking about a title policy or such things typically paid by seller or buyer, but money paid by seller towards buyer’s closing costs) influences or doesn’t influence a sales price.

    The authors comment about cars as seller concessions from HUD is exactly the type of stuff I heard from HUD in a conference call several years back. They said big screen TV’s – I said there were no big screen TV’s being giving away in the sales that I used and I had zero concession sales to provide support for my concession adjustments or lack thereof. By the way, mortgage lenders can only accept 6 points as a concession- so this talk of 10-100K concession is just that.

    I managed the regional appraisal dept for the mortgage company of the nation’s 2nd largest builder for 16 years and that is the way we handled seller concessions – by pairing with a zero concession sale and HUD nor anyone else had an issue with that. It just basic appraising.

  7. Avatar Small town Guy says:

    Utter and complete BS. Common sense- a house is listed for $400,000. On the market a normal DOM. Goes under contract for $400,000 with no concessions. Two weeks later, $3500 in concessions made to keep the deal going. No change in sale price. It does NOT require adjustment. All these “national experts” see are stats and not real life. I refuse to make an adjustment based on a GSE “policy” instead of real life.


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Concessions – When & How Much to Adjust

by IDFPR Board time to read: 5 min