Is it going to be an appraisal problem if the buyer asks for a 3% credit back? Well, let me back up. Let’s imagine the original offer was $300,000, but through written negotiation the price has now increased to $310,000 with a $10,000 credit back to the buyer. Is that an issue? Here’s some quick thoughts.
1) Yeah, it looks bad: In some senses I think many of us would subjectively look at a situation like this and think, “Yeah, it looks bad. It seems like the price was just inflated so the seller can net more money.”
2) Contract vs market: While it’s easy to judge situations like this, we have to remember value is not found in the contact. It’s found in the market. Thus as an appraiser I need to be objective about contract negotiations. Even if I think the contract price was inflated to help the seller net more money, I still need to objectively look to the market for the proof of value. In other words, are similar properties selling around $310,000 without credits and concessions? If so, then value looks strong at $310,000. Maybe the buyer and seller were originally in contract too low, so it would be a shame for me to have put more weight on the contract than looking to the market for the answers. Yet if all the comps and pendings are at $300,000 or less, then value isn’t really supported at $310,000. Thus just because it would be convenient for a buyer or seller to negotiate the price up does not mean value is there.
3) After the contract: Sometimes a buyer and seller will negotiate a contract price up after the appraisal is already finished. Then the appraiser is asked to consider changing the appraised value. My advice? Do your price negotiations up before the appraiser gets involved. I think most appraisers are not going to amend the value to “hit” the new contract price after post-appraisal negotiations.
I hope that was interesting or helpful.
Questions: Anything else to add to the conversation? Did I miss something? I’d love to hear your take.