credit for repairs – Sacramento Appraisal Blog

How do appraisers deal with concessions to the buyer? Can a seller credit affect the chance of appreciation in the purchase contract? These questions weren’t asked a year ago, but welcome to the 2023 housing market.

A 3D sketch of houses.  All the houses are gray except for one blue house.  The font on the image is the same blue which reads: "How do appraisers deal with concessions?"

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Buyers are getting more from sellers lately. Last month, 51.5% of all sales in Sacramento County had some type of concession. Sellers tend to give things like closing cost credits, repair credits, discounts, etc. Sellers, be ready to negotiate with buyers and offer more if needed. And buyers, grab whatever the market has to offer.

A line chart showing the percentage of properties with concessions in Sacramento County.  There has been a dip during the pandemic and we have seen more concessions lately as the market temperature has changed.


Question: When a buyer comes up above list price and asks the seller for a concession, how is that viewed from an appraiser’s perspective?


1) No value impact: The appraiser must look at the comps to determine the value. bottom line. The seller can give 3% or more if the lender allows it, but theoretically this shouldn’t affect the appraised value as the proof of value is found in the comps – 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 and the seller reimburses 3% for closing costs. However, if the only comps at $500,000 are those with big credits, and comps without concessions get closer to $485,000, then that tells us that the comps with concessions may close high because of the concessions. Here, a reviewer might adjust the comps down in the valuation report if it appeared the market wasn’t willing to pay $500,000 without the additional sweetener to close the deal. And this is where agents really want to set a listing price Pay close attention to what happens to concessions in the comps. Don’t just look at the retail price.

2) Excessive contract price: However, when a property has been on the market for a long time and is being contracted at a higher level with a huge loan, it is only human to wonder if it is really worth that amount. Sounds a bit suspicious, doesn’t it? In other words, would buyers really pay the contract price if the seller didn’t make a fat concession? This is a useful question and the appraiser will record the full listing history of the property in question and examine the contract terms in the appraisal report. This means that the underwriter will also see everything. Still, most of the weight has to be given to the comps. Even if the contract price initially looks dubious based on listing history alone, appraisers must be careful to be objective when considering the value of the comps and not listing history alone. However, the listing history cannot be ignored as it may give an indication of the value. But then again, maybe there was a problem tenant refusing entry, a lack of open houses, or some other reason the property was on the market longer than expected.

A meme featuring an actor leaning towards a grave and showing a peace sign (this is the actor from The Flash show).  The tombstone says "seller market" and it says "buyer" from the actor.

3) But the seller wants a higher price: One strategy I sometimes see today is to increase the price and give the buyer credit for the amount the price was increased. The idea is to help the seller get more net and keep the buyer happy with a loan. See, it’s fine when the market allows the seller to do this, but sometimes properties are fought beyond what the appraiser can support. Remember that the appraiser looks at all the details of the comps – not just the closing price. Sometimes I hear people say, “Bro, the property closed at $500,000, so it’s a good comparison.” Okay, but if that unit also had a 3% credit for closing expenses, the appraiser needs to see if that credit does the price too high. My advice? Be aware that the counter is too high, which the comps deem reasonable, and remember that the appraiser’s job is NOT to confirm the contract price.

Thanks for being there.

MARKET STATISTICS: I’ll be posting a lot of market stats on my social channels this week, so keep an eye out TwitterInstagram, LinkedIn and Facebook.

Questions: What kind of concessions do you currently see on offer? Anything else to add? I would like to hear your opinion.

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