How do appraisers handle buyer concessions? Can a seller’s credit affect the possibility of appraisal in the purchase contract? These questions weren’t asked a year ago, but welcome to the real estate market of 2023.

11505632 – some miniature houses with one in different color (3d render)

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Buyers are getting more from sellers lately. Last month, 51.5% of all sales in Sacramento County had some form of concession. Sellers tend to give things like closing cost credits, repair credits, fee reductions, etc. Sellers, be ready to negotiate with buyers and offer more if necessary. And buyers, get whatever the market gives you.

A line chart to show the percentage of properties with concessions in Sacramento County.  There was a dip during the pandemic, and we have seen more concessions of late as the market temperature has changed.


Question: When a buyer enters above list price and asks the seller for a concession, what does that look like from an appraiser’s mindset?


1) No effect on value: The appraiser needs to look at the comps to establish the value. Bottom line. The seller can give 3% or more if the lender allows it, but this should theoretically have nothing to do with the appraised value because the proof of value is in the drafts, not the terms of the contract. In other words, if the comps suggest a value of $500,000, it doesn’t matter if the subject has a $500,000 contract with the seller paying back 3% for closing costs. However, if the only offsets at $500,000 are those with large credits, and the non-allowance offsets are approaching $485,000, then that tells us that the allowance offsets may be closing high because of the allowances.. This is where an appraiser might adjust the offsets in the appraisal report if it appears the market isn’t willing to pay $500,000 without the added sweetener to close the deal. And this is where agents setting a list price really want to pay close attention to what is happening with the concessions in the drafts. Don’t just look at the final sale price.

2) Inflated contract price: All of that said, when a property has been on the market for a long time and is contracted to a higher level with massive credit, it’s human to wonder if it’s really worth that amount. Sounds a bit suspicious, right? In other words, would buyers really pay the contract price if the seller did not make a large concession? This is a viable question, and the appraiser will record the full listing history of the property in question and review the terms of the contract in the appraisal report. This means that the subscriber will also see everything. But still, comparisons should be given the greatest weight, so even if the contract price initially appears dubious based on listing history alone, appraisers should be careful to be objective when looking for value from comparisons rather than of the listing history. only. However, listing history cannot be ignored because it could be a clue to value. But then again, maybe there was a problematic tenant not allowing access, a lack of open houses, or some other reason the property was on the market longer than expected.

A meme featuring an actor leaning over a grave and showing a peace sign (this is the actor from the show, The Flash).  the tombstone says "sellers market" and says "buyers" by the actor

3) But the seller wants a higher price: One strategy I sometimes see today is to raise the price and give the buyer a credit back for the amount the price was raised. The idea is to help the seller get more and keep the buyer happy with credit. Look, it’s okay if the market allows the seller to do this, but sometimes properties are offset beyond what the appraiser can support. Remember, the appraiser is looking at all of the compensation details, not just the closing price. Sometimes I hear people say, “Brother, the property closed on $500,000, so that’s a nice trade-off.” Okay, but if this unit also had a 3% credit for closing costs, the appraiser must consider whether that credit also inflated the price. My advice? Beware of setting off too high beyond what the comps suggest is reasonable, and remember that the appraiser’s job is NOT to ratify the contract price.

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Questions: What kind of concessions do you see being offered right now? Anything else to add? I’d love to hear your opinion.

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