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Sellers, whether they are individuals, brokers, or developers, may make sales concessions to induce a sale. When a buyer wants to purchase a house but cannot qualify for a loan because of excess debt or lack of a down payment the seller may offer a method to provide cash for the debt payoff or down payment
In many markets, the lack of needed cash is the biggest obstacle to homeownership. One of the most common tools used by brokers and builders alike is the provision of financial assistance to the buyer. This is a type of sale concession.1 These inducements paid by the sellers or builders cause an additional cost of sale, which is usually compensated for by raising the negotiated sale price. However, the higher price of a comparable sale causes the indicated value of the subject property to be artificially higher unless an adjustment is made, as shown in Example 1.
Example 1
Suppose the subject is in a market where prices are declining, and sellers and builders are offering a variety of incentives. An appraiser researching comparable sales may find the following market information for sales of properties diat have attributes nearly identical to the subject and have closed within the last few months.
* Comparable 1 : A residential property sold for $325,000 with the buyer obtaining a new mortgage of $300,000. The seller paid the real estate brokerage fee, tide preparation fee, tide insurance fee, and 50% of the closing fee.
* Comparable 2: This property sold for $350,000 with the buyer obtaining a new mortgage for $332,500. The seder paid the real estate brokerage fee, title preparation fee, title insurance fee, 50% of the closing fee, and $25,000 in points for the buyer to buy down the interest rate.
* Comparable 3: This residential property recently sold for $375,000 witìi a conventional mortgage of $325,000. The seller paid the real estate brokerage fee, title preparation fee, tide insurance fee, and 50% of the closing fee. Additionally, the seller took back a "forgivable" $50,000 second mortgage from me buyer. The broker reported that the buyer and the seller shredded the second mortgage documents right after closing.
* Comparable 4: This property sold for $400,000. The buyer provided 10% for a...