is there a conflict-of-interest situation that can exist when the buyer accepts a seller's concession before property is appraised?

Asked by justb, Wading River, NY Wed Jan 25, 2012

when you look up homes in your area, i wonder if bank real estate appraisers can come to a figure that agrees with any and all researched data on a home so negotiations of the lending bank's bottom line can be available. it would eliminate the concession, which (I'm told by my broker) assists the buyer by boosting the bottom line price in order to "qualify" for some mtg loans to bring money to the table...the buyer gambles with no negotiating power?

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Anna M Brocco, Agent, Williston Park, NY
Wed Jan 25, 2012
Keep in mind that a seller's concession needs to be agreed upon before entering into a contract, therefore not sure any conflicts exist; also keep in mind that your lender will be the one conducting the appraisal; for any necessary legal advice do consult with your attirney.
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Franklin Bla…, Agent, New York, NY
Wed Jan 25, 2012
I appreciate the thought that went into this question. As a buyer, it is your bank's appraisal that will be used to confirm the value needed. It is pretty much a one time static number that may very well be different using different appraisal company's or appraiser's. If you are using the concession to preserve cash, due to low interest rates, the economic validity exists in your decision, in my opinion. Understand clearly, the bank wants to protect its financial interest and at the same time do business with you. I don't see a conflict.
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Lauryn Eadie, Agent, Reston, VA
Wed Jan 25, 2012
Also, The seller subsidy is almost always agreed to before the contract is ratified and the appraisal is ordered. occasionally we see a seller subsidy for home inspection items after ratification, but this is more of a credit than a seller subsidy in my opinion.

And again in my opinion, with the percentage of contracts in my area that have a seller subsidy attached, I don't often think the buyer gambles with their negotiating power. However, sometimes in a multiple offer, competitive situation, it can be better for the buyer if they do not have the seller subsidy.

I hope that helps!
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Lauryn Eadie, Agent, Reston, VA
Wed Jan 25, 2012
I am not sure I understand the first part of your question but I can explain the point of the Seller Subsidy.

In my experience, the existence of the seller subsidy has been around for a long time. In my area, the average price of a home is almost 400K and a single family is upwards of 500-600 average. For first time home buyers to have a down payment of minimum 3.5 % = 14,000 + the average closing costs in our area of 3% = 12,000 for a total of 26,000 can be difficult. Remember, they are not drawing on the equity of a previous home.

A seller concession has been a good option for many buyers because it helps them purchase a home, and still keep some of their cash in the bank for reserves and peace of mind.

In kind, with home prices below what many purchased at in the last 6-7 years, a seller concession is a great option for move up buyers as well. Many may need to pay off their mortgage, which can be higher than the price they are selling their existing house for, and in addition bring a down payment. Again, this could be 30,000+ thousand dollars just to "buy themselves out" of their existing home in addition to a 20,000 down payment for their next home. The seller concession has made it possible for many to sell their homes without assistance from a 3rd party (their mortgage lender.)

Yes the seller subsidy can inflate the purchase price of the home to compensate for the money being "donated" to the purchasers settlement funds, however the home still has to appraise for the sales price. An appraiser looks at the comparable sales in a neighborhood or city to assess the value of a home and if the sales price is over the market value then there can be an issue.

It is important as a seller that you are open to the idea of a seller subsidy when putting your home on the market, I would say about 85% of the sales I did in 2011 (22 total) had some type of Seller Subsidy.
My only suggestion as a seller, (and a buyer), is that you make sure your agent is comfortable with the purchase price you and the buyer agree on to make sure you have your best chances possible when it comes to the appraisal.
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