Update on Financing Concessions for Comparables

Financing Concessions for ComparablesAppraisers,

The GSE’s have issued a UAD newsletter on Sept. 18, 2012. Mostly it has ‘stuff’ in it that appraisers should be doing, i.e., checking for proper UAD compliance prior to report submittal by using your report software on-board reviewer.

However, this little gem is the last item on page 2:

Update on Financing Concessions for Comparables

The GSEs expect appraisers to determine the financing concessions, if any, for all settled sales used as comparables in appraisal reports. Appraisers are expected to do what is necessary to determine concession amounts through the normal course of business and not automatically default to entering “0” (zero). If the concession amounts cannot be clearly determined, the appraiser should disclose this information in the sales comparison approach comment space or in an addendum. This field may not be left blank.

I found a good explanation of a ‘concession’ on BrokerOutpost.com.

Keep in mind that a concession may not just be a “financing concession” as mentioned by the GSE’s. It could also include the Rolls Royce in the driveway, if the sale is made with that included as an inducement. It could include other personal property provided by the seller to the buyer used as an incentive.

A seller concession reduces the net price of the home to the seller. Thus the resulting net income. However, if not caught by the lender and deducted from the loan amount, the full price of the home, including the concession, may be mortgaged.

The point of adjusting (deducting) the sales concession from the comps is to reduce their selling price to a net value. Which in turn lowers the adjusted value of the comps with a concession. This is one reason many builders and RE agents don’t like to reveal concessions. Actually, it’s probably the primary reason!

Dave Towne
Dave Towne

Dave Towne

AGA, MNAA, Accredited Green Appraiser - Licensed in WA State since 2003. Dave Towne on e-AppraisersDirectory.com

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2 Responses

  1. Avatar Matt Gloege, (Cer Res.) says:

    I’m appalled at your last statement!! ” ….Actually, it’s probably the primary reason!”

    This statement can be taken by many professional Realtors as inflammatory. I know, I’m one. 39+ years as an active Realtor combining the last 25 as a Certified Residential appraiser (OR CR00353). Perhaps you may be correct a small percentage of the time.

    However, there are many other legitimate reasons that a Broker can and should hold that information as confidential. The best is that most states have laws that prevent licensees from divulging information about their client’s business even after closing. I’m sure you don’t want someone running down the road blabbing the contents of you files either. I know my attorney and my doctor share similar feelings about my files.

    Additionally, sellers with more than one property to sell may wish to keep their concessions track records private in the immediate term. Easy access to that information allows Buyer Brokers, whose ethics require them to get the best possible deal for their buyers, to give their buyers an edge that, arguably, tips the playing field and violates free market concepts. Not just builders but estate managers, Personal Representatives, investors etc.

    On the other hand I know many (MANY) Realtors that readily volunteer concessions. The very first few word of the Realtor’s Code of Ethics includes the words “Under all is the land …and the wise utilization thereof…”. Myself and many other Realtor/Appraisers are aware that concealing concessions contributes to an artificial exponential increase in values. Well, lets all jump on the band wagon and do our small part in contributing to the next bubble. The whole country loved the last one and just can’t wait for us to produce the next one!!

    Hardly “… the wise utilization thereof..”

    Its time our two professions stopped the silly inflammatory rhetoric and got together like adults and figure a cooperative solution.

    The issue is more of issue of risk management for Realtors, the generators and custodians of concession information.

    Ohio passed an amendment to their RE admin law that relieves Realtors from risk in the specific area of revealing concessions to appraisers and those with similar legitimate needs. Oregon, for example, is considering incorporating concessions as part of the full disclosure provisions.

    There are other efforts afoot. Time to start having a little respect for each others respective professions. And, I do mean “Professions” — I know Oregon has a law that specifically, by name, defines appraisers as “Professionals” and puts Realtors, by virtue of the State Licensing requirements, in the same category.

    Lets get real, cooperate, and join forces as professionals to find an amenable solution — its time.


  2. Easy Matt!

    I don’t think he meant it to be inflammatory at all.

    I’ve run into three categories of concessions:

    (1) those that are flat illegal [cash kickbacks from loan proceeds based on an overstated sale price]
    (2) concessions to offset a needed repair or property deficiency
    (3) a necessary or convenience concession such as seller payment of points when typical; or voluntary payment of buyer closing costs by a motivated seller.

    Usually, only number 1 would be an obviously concealed concession. The others are routine. The doctor scenario you pointed out would be exceptionally rare, but some people don’t like info of any kind divulged-period. I get that. Small mindedness-withholding the same info that THEIR appraiser needed when THEY bought. Anyway, that wasn’t your main point.

    Down in California agents are getting MUCH better about reporting these; and it only helps the market. Appraisal turn time is faster. Data is more accurate, and oddly enough, I have MORE respect for agents that take the time to fill out this part of the mls form-just as I do for those that accurately report operating expense information for income property.

    When I see PROPERLY completed entries on the mls form it makes me trust that agents word so much more than the lazy asses that cant be bothered to fill THEIR boards form out properly.

    You know which ones I mean. The NON professionals.


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Update on Financing Concessions for Comparables

by Dave Towne time to read: 1 min