Podcast: Play in new window | Download (Duration: 6:11 — 8.5MB)
Sales and financing concessions!? What’s the problem? If the house sold for $100,000, its worth $100,000, right? This is what our broker friends try to tell us. But we appraisers have a higher calling than brokers. We can’t use puffery! We have to tell the truth (even if it kills a deal)! So, what’s so special about these concessions? Why do we as appraisers need to be aware of them? How does humanity suffer if we don’t account for these properly? Read on, please!
Sometimes, buyers won’t buy if the seller does not give them a reason to buy. Mostly, this takes the form of the buyer bargaining for a lower price. True, that is not a sales or financing concession. But sometimes neither of the parties will budge. They are at an impasse. That deal is looking dead. But, at the last minute, the broker proposes the seller pay the buyer’s real estate taxes for two years. This way, the seller get the sales price they want and the buyer gets a reason to pay that full price. What a way to save the deal, right!? That broker is a hero!
But we appraisers do not look at individual transactions. We look at, and then interpret, entire markets. When it comes to sales and financing concessions, we also adhere to the definition of market value. We don’t merely report to our clients that Smith paid Jones $100,000 for the property. We also interpret to the client why Smith paid Jones $100,000. The public record tells the client (for free!) the property sold. We get paid to tell the client why it sold for $100,000. So, part of our job is to verify the sale, and its numerous details, until we understand what happened and why it happened. No AVM can do that! This verification and interpretation process is why clients are willing to pay us. That a property sold is both obvious and free. Why it sold is not obvious – clients pay us to tell them the answer to that question.
Is the world going to end if we don’t adjust the subject and the comparables for sales and financing concessions? Well, the jury is still out on that. But remember this fact, please. That sale above sold for $100,000. But the seller paid two years taxes for the buyer to induce the buyer to pay that price. $100,000 is the price with the financing concession still present. But Fannie Mae and her investors want the cash-equivalent price – the market value. We have an ethical responsibility to give it to her.
Thanks for reading! And THANKS for listening, too! All my Best to you and yours!
Pingback: Is This Discrimination? – Cleveland Appraisal Blog
Pingback: The Housing Market Has Become Like the Pymatuning Spillway – Cleveland Appraisal Blog