The Building of an Appraisal-Contract with Concessions

This is Diana, with ABC-The Appraiser’s Business Companion.  In the building of an appraisal, what happens when you have an assignment that is for mortgage lending, there is a contract pending where there are concessions and personal property being given by the seller to the buyer?  Aren’t they both concessions?

That’s a broad question; there needs to be more details.  What is the Price pending on the subject of the appraisal?  What dollar amount is being dedicated from the seller on behalf of the borrower?  What type of personal property is associated with the contract?  Is the value of the personal property something the appraiser is even comfortable in identifying?  What type of financing is being sought?

Many appraisers have never considered what a contract analysis is and/or how it works.  It begins by choosing more than three sales to be used as comparables for the Sales Approach.  When the research began what was the criteria for the sales?  Generally speaking there is a boundary for the neighborhood then a micro-boundary of the district within the neighborhood where alternative properties can be considered as comparable transactions.  Begin with the description of the subject and then consider a reasonable spread on either side in terms of bracketing the relevant characteristics.  Notice I didn’t say anything about the price?  There’s a reason; that is the last factor that will pop up with the initial criteria of the search.  From there you will then be able to study the transactions for their sales concessions.  In the example below the hypothetical case study is a sale pending with 5% financing concessions; it was listed by the builder who had just completed the construction.  Its been on the market since ground was broken 5 months ago.  The pending sale was a 95% Sale pending to List Price.

Consider the subject’s description:

Site Data                                                                 Improvement Data

Area       8583 Sq. Ft.                  Shape Polygon One Unit with Accessory Unit
View: Beneficial, Golf View # of Stories: 1, Detached, Proposed Construction
Zoning R-1 Single Family Detached Residential Design: Neo-eclectic
Utilities: Electricity Public; Gas Public;

Water Public; Sanitary Sewer Public

Year: 2018; Concrete Slab, Exterior: Stucco, Roof: Composition Shingle, Widow: SH, DP, Vinyl

Floors: Ceramic Tile, Wood, Capet

FEMA Special Flood Hazard: NO; Street Paved, Public Appliances: Range/Oven, Dishwasher, Disposal, Microwave; Bath has Ceramic Tile Floor, Ceramic Tile Wainscot
Heating and Air: Central;  Fuel Electric/Natural Gas
Patio Slab, Porches Front and Rear Covered

Driveway # Cars 3; Garage #Cars 3 Attached

Rooms: 7, Bedrooms 3, Baths 2.1; 3045 Sq. Ft. GLA


Now that you have the facts and the location begin the search for the physical features.  Because its proposed construction the search needs to include both proposed and existing up to a reasonable year of comparison.  Consider first a proximity that would be considered analogous to the area where alternative houses are being built or have sold.

Don’t pre-determine the financing type, let your research unveil those factors. Consider the following list of similar property types in a similar location bracketing when possible below and above the subject’s characteristics:

Item Comp #1 Comp #2 Comp #3 Comp #4
Site 6300 sq. ft. 6930 sq. ft. 6280 sq. ft. 7,960
View B;GlfC N;Res N;Res N;Res
Actual Age 0 0 0 1
GLA 2496 2510 1951 3,050
Room Count 7R 2B 2.1 Bath 7R 3B 2.1 Bath 6R 2B 2.1 Bath 7R 3B 2.1 Bath
Garage/Carport 3ga3dw 2ga2dw 2ga2dw 2ga3dw
Financing Cash Conventional Conventional Conventional
Finance Conc.  0% 3% 4% 3%
Days on Market 120 150 170 110
Sale to List 96% 97% 96% 99%


Item Comp #5 Comp #6 Comp #7 Comp #8
Site 8,800 sq. ft. 8653 sq. ft. 7490 sq. ft. 7,125
View N;Woods B;River N;Woods N;Res
Actual Age 1 0 2 3
GLA 3,125 2,950 2,345 2,670
Room Count 8R 4B 3.1 Bath 7R 3B 3.0 Bath 7R 3B 2.1 Bath 7R 3B 2.1 Bath
Garage/Carport 3ga3dw 2ga2dw 2ga2dw 2ga2dw
Financing FHA VA Conventional Conventional
Finance Conc. 4% 5% 2% 2%
Days on Market 125 138 147 162
Sale to List 95% 98% 97% 96%


Item Comp #9 Comp #10 Comp #11 Comp #12
Site 8,120 sq. ft. 7655 sq. ft. 6490 sq. ft. 7,535
View B;Glfc B;River B;BlfC N;Res
Actual Age 0 4 3 2
GLA 2,980 3,147 2,869 3,325
Room Count 8R 4B 3.1 Bath 7R 4B 2.1 Bath 7R 3B 2.1 Bath 7R 3B 2.1 Bath
Garage/Carport 2ga2dw 3ga3dw 2ga2dw 3ga3dw
Financing Conventional Conventional Conventional FHA
Finance Conc. 0% 3% 3% 3%
Days on Market 158 175 147 120
Sale to List 98% 97% 99% 97%


If there was no personal property that passed then the price paid did include in the majority some type of financing concession.  The range was from 0%-5%; the reoccurring seller contribution was 3% (5 out of 12 or 33%) with the next reoccurring shown at 2% and 4%.  The high was 5%, the low being 0% on the cash sale.  With a range of 2%-4% being the dominant range and 3% being the “mode” of the observations one can conclude that seller concessions do dominate this market.  The Sale to List price dominant was 97%, all of the sales closed at a price under the list price.  Consider now the subject’s contract, the seller concessions were within the market observation but not the predominant, the Sale to List Price was higher than the market observed, therefore the price pending of the subject does indicate a potentially inflated price with the builder offering more in the sale than is observed in the market.  Although there were numerous types of financing it would be clear in your communication to state, “Conventional Financing dominates the majority of transactions in the subject’s market.”

Make sense?  This is what is expected to be written, the grid is the type of information with notes about your reasoning and conclusions that would be in the workfile.  Your conclusions can be summarized to show this reasoning such as discussed in the previous paragraph.  This is an example of a contract analysis assignment result to be communicated in your Appraisal Report.

This is Diana Jacob and you’ve just had a tip from ABC-The Appraiser’s Business Companion.