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questions appraisers ask

Why do appraisers ask real estate agents about concessions?

December 1, 2014 By Ryan Lundquist 10 Comments

Being an appraiser is sort of like being Magnum PI. Well, I guess it’s just the same except for the tropical island, mustache, red Ferrari, and short shorts. I’m kidding. On a serious note though, appraisers are vaguely similar in one regard in that they investigate details. This brings us to our topic today. Why are appraisers always asking real estate agents about concessions in the purchase price? And how do appraisers use this information?

magnum PI

What is a concession? “A sales concession is cost or consideration given by a seller to motivate the buyer to complete the purchase” (homewyse.com). In other words, the seller is offering something to the buyer to help get the deal done.

Why do appraisers ask about concessions? There are two reasons why appraisers need to know about concessions. First, there is a place on the appraisal form for appraisers to list any concessions for the comps, so it’s a matter of filling out the form correctly. Secondly and more importantly, appraisers need to understand what impact any concessions might have had on the purchase price of the comps. Would the comps have sold at the same level if there were no concessions? That is essentially what the appraiser is asking so the appraiser can figure out how to make value adjustments to the comps.

sales concessions - sacramento appraisal blog

Common concessions: Some of the most common concessions include the seller offering help with closing costs, paying for HOA fees, including personal property in the sale, or giving credits for repairs. We see this in new construction all the time where a builder will offer $10,000 to help pay for the buyer’s closing costs. While this might be the only listed concession, if a builder has also offered $15,000 in “free” design options (upgrades), that’s also considered a concession. On the financing end there are concessions too such as interest rate buydowns or other below-market rate financing.

Examples of Sales & Financing Concessions Straight from Fannie Mae:

  • loan discount points;
  • loan origination fees;
  • closing costs customarily paid by the buyer;
  • payment of condo, PUD, or co-op fees or assessment charges;
  • refunds of (or credit for) the borrower’s expenses;
  • absorption of monthly payments;
  • assignment of rent payments; and
  • inclusion of non-realty items in the transaction.
  • (Examples taken from page  615 Fannie Mae Selling Guide Nov 2014)

Do appraisers adjust comps when the subject property has concessions? No. Adjustments are NOT made to comps if the subject property has concessions padded into the contract (or outside of the contract). Adjustments are only given to comps if there should be an adjustment given (see below).

credits - sacramento appraisal blog

When are adjustments given to comps? Appraisers will adjust for concessions to a comparable sale when concessions ended up impacting the final sales price of the comp. Would the comp have have sold at that level without the concessions? If an appraiser researches neighborhood sales and notices the sales with credits to buyers are selling at higher levels, then clearly credits are boosting those prices. In this case an adjustment would be made to the comparable sale for whatever amount the concession boosted the sales price to be sure the subject property’s appraised value reflects the market instead of padded prices from the comps with concessions. Keep in mind an appraiser doesn’t have to adjust the full amount of the concessions. It all comes down to how much of an impact, if any, the concessions had on the purchase price. Sometimes an appraiser might not make any adjustment at all.

 Tips for Real Estate Agents:

  • Be Specific in MLS: Disclose any concessions in MLS. Be specific and write a sentence if need be instead of writing “CLA” (Call Listing Agent). You will get less phone calls from appraisers too if you include more specific information.
  • Be Cautious of Padding: Be realistic about padding concessions above market value. If a property listed at the top of the market, and now you are writing or accepting an offer that pads the list price with an extra 3% above that price, realize this may push you into “no man’s land” where the property cannot appraise that high. Sellers always want to net more, but when a market slows down, it’s not always possible to get those higher prices.
  • The Truth: If asked about concessions, please tell the truth so appraisers can consider if there is any adjustment needed to the comps. If appraisers use bad information on the comps, it can lead to the wrong value for the subject property. If there are confidentiality issues about sharing these insider details, just let the appraiser know that.
  • Know How it Works: Remember that appraisers do not make adjustments if there are concessions in your listing they are appraising. They are only making adjustments to the comps if needed. Your seller can offer substantial credits back to the buyer for your listing, and no adjustment will be given because of that. However, the key is that there are comps out there that support your contract price (comps without boosted prices from concessions too). If your contract price reflects market value, that’s good news for your seller.

I hope this was helpful.

Questions: What type of concessions do you see most commonly in purchase contracts? How have you seen concessions impact the price on a property?

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Filed Under: Appraisal Stuff, Resources Tagged With: communicating with appraisers, concessions, credits, Fannie Mae, financing concessions, Home Appraiser, House Appraiser, Magnum PI, questions appraisers ask, sacramento appraisers, seller concessions, talking to appraisers

Agents, be ready to answers these questions from appraisers

May 6, 2012 By Ryan Lundquist Leave a Comment

There is so much talk about low appraisals, especially as the market has been heating up in the Sacramento area. The dramatic decrease in inventory over the past few months has really changed the market into a seller’s market with many scenarios of multiple offers and offers over asking price too. In light of limited recent sales, this means it’s all the more important for appraisers to get very specific information from real estate agents for their sales and listings. If you are a listing agent, be prepared to be able to answer the following questions when appraisers email or call you.

Photo of obtaining market insight (no, this isn't really the phone I use)

Questions to be prepared to answer for one of your listings:
– How many offers did you have on the property? Don’t just say “multiple”.
– What price levels were the other offers? Be specific if possible.
– Why was there a change in listing price? (if the price was lowered or raised)
– What attracted the buyer (and others) to the property?
– Why did you accept the particular offer instead of others?
– What have you noticed happening in the neighborhood market?
– What sales did you use to market the property? (opportunity to provide potential comps to the appraiser if he/she is appraising your listing)
– Were there any concessions in the purchase price? (money or anything provided to the buyer to help get the deal done).

Example information when an appraiser calls: “I had four offers on this one. 2 were over asking at $245,000 and the others were at $240,000. I stopped accepting back-up offers. The seller accepted the offer because the buyer seemed committed and able to perform. The seller also liked the buyer as a first-time buyer. The listing price was lowered 15K to get into contract immediately. I had about 50 calls on this property and probably 100 showings, so I know the price was really attractive. The bank was about to foreclose, so we needed an offer immediately. Buyers really liked the cul-de-sac, great room concept and “move-in” condition. The REOs in the neighborhood tend to sell for less since they often need new carpet and paint. Also, the school district boundaries change two streets over, so that was a selling point. Inventory is really low in the neighborhood, so this one really stood out – even as a short sale. All buyers asked for 3% in closing costs back, which is common.”

Inventory in Sacramento Placer Yolo El Dorado Counties - Sacramento Appraisal Blog

Does it bug you to talk to appraisers? This list might sound overwhelming or even annoying, but the questions are really aimed at understanding the way the market responded to your particular sale or listing. Most agents get this and do a great job, but sometimes a few agents give off a bothered vibe. Ultimately, keep in mind appraisers are simply trying to do their job, and talking to appraisers is a normative part of the real estate business. Specific information on current listings and pendings in particular helps appraisers gauge the current market – especially since there are sometimes few recent sales to use as comps. This means current listings are an important window into the market. Thankfully it’s easy to unpack answers to these types of questions in just a few sentences. Appraisers of course need to be the ones to ask the right questions, but if agents already generally know what appraisers might ask, that can only help.

We’re in this together. Thank you real estate agents for talking with appraisers. Thank you for returning phone calls and emails. Your insight is often valuable and it’s an essential step for appraisers to do their job (verify data and analyze the market).

I hope this was helpful. Let me know if you have any questions, stories or insight.

If you have any questions or Sacramento area real estate appraisal or property tax appeal needs, contact me by phone 916-595-3735, email, Twitter, subscribe to posts by email or “like” my page on Facebook

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Filed Under: Appraisal Stuff, Resources Tagged With: appraiser in Sacramento, how to talk to appraisers, questions appraiser will ask agents, questions appraisers ask, resource for agents, Sacramento Home Appraiser, talking to appraisers HVCC, tips for real estate agents, what information to share to appraisers, why do appraisers call real estate agents

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