Real estate is really quite complex. Especially when it comes to concessions. And the cash equivalency price of your property. Exactly how much are you REALLY buying or REALLY selling your property for?

You’re buying a property. Or buying a new home from a builder. Your contract price is $300,000. Seller says s/he will pay $10,000 towards closing. How much help are you REALLY getting? Let’s see an example.

Although negotiable, historically, Sellers pays 1.7% (doc and title). Seller is offering you $10,000 in concessions. Contract price is $300,000.

So $300,000 x 1.7% = $5,100. This is the amount that Seller pays anyway. In reality, the Seller is contributing $4,900. Still great but at first glance, it seems much more doesn’t it?

Let’s say your contract price is $200,000. Seller says s/he will pay up to $3,500 towards closing or concessions. So $200,000 x 1.7% = $3,400. Seller is contributing $100. Not much huh?

What are concessions? Concessions typically fall into two categories: Sales & Financing. Sales are personal property, settlement assistance, seller contribution and cash (incentives). Financing concessions include creative/special and seller discount points or buy-down.

As an appraiser, I have to define market reaction. Then define what is concessionary and what is not. In the first example above, the $5,100 is not considered concessionary. Here’s why: Because costs or fees that are generally paid by a Seller as a result of tradition or law, and are found on most transactions, are not considered to be Seller concessions. The $4,900 balance is considered concessionary.

BBQ:

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