Concessions listed on comparable sales are an important factor that an appraiser needs to weigh when performing an appraisal. Most appraisal forms, including the government standard 1004 URAR, has a section in the sales comparison grid to list, and adjust for, any concessions made on the sale of that property. Depending on the amount of the concession, and what is typical within the market area, they can have a drastic impact on the adjusted value of a comparable property sale.
Simply put, an appraiser must consider if the property would sell for the same price if there were no concessions involved. Often times concessions allow for a slightly higher sales price in order to “pad” the concessions amounts into the sale.
What Are Sales Concessions:
Any money given BACK to the buyer as a means to motivate them into completing the purchase of the home is considered a sale concession. These can come in many forms but are almost always done to make the buyer feel good about completing the deal at the price that the seller is asking.
Some Common Concessions:
There are certain concessions that are commonly used by sellers to help influence the closing of a sale at listing price.
A few examples could be helping out with the mortgage closing costs, paying for HOA fees, adding personal property in the sale, repair or material allowances, home warranties, etc. This is extremely common with new construction where the builder will offer to either pay a certain amount for the closing costs or in some cases state: No Closing Costs. The builder might add to that with X number of dollars in upgrades i.e. design options.
There are also financial concessions that are common including interest rate buy downs or below market rate financing.
- loan origination fees
- loan discount points
- closing costs
- co-op fees or assessment charges
- credit for the borrower’s expenses
- inclusion of non-realty items within the transaction
- absorption of monthly payments
Appraisers are required to make adjustments for the concessions when they feel they have impacted the final sale price of the comp. Would a property sell for the same price without added concessions? Appraisers will research neighborhood sales, paying attention to sales with various credits to the buyer and are selling at a higher level. This is obviously bringing up the price tag.
Keep in mind, the property’s appraised value reflects the market value instead of the comps with concessions. The appraiser does not have to adjust the full amount of the concessions. In the final analysis, how much of an impact do the concessions have on the purchase price of the home. It’s up to the individual appraiser as whether he or she makes any adjustments or not when it comes to concessions.