Concessions, Financing and Sale Type
A recorded sale price is the amount on the deed. It is not always the amount the market paid for the property, because part of the recorded price may have paid for something else: a credit back to the buyer, a below-market loan, or the seller’s need to close by a date. These are adjusted before the property comparisons begin, because a comparable’s price has to be the price of the property before it can be compared to the subject.
Seller concessions. A sale at $450,000 in which the seller credited $15,000 toward the buyer’s closing costs is a sale in which part of the recorded price may have paid for the credit rather than the house. The comparable is adjusted downward before anything else, by the concession’s effect on the price: what the market shows the buyer paid because of the credit. Often that is close to the face amount, but it is measured, not assumed. Where matched sales in the segment without concessions are available, the difference between them and the concession sale shows the effect; where they are not, the face amount is the starting point and the analysis says so. The MLS closed listing generally carries a seller-concessions field, and where the field is blank, the agent on the sale can confirm. In a market where concessions are common, an analysis that ignores them overstates each comparable that carried one, by the concession’s effect on price.
Two sales show why the credit, and not the recorded price, is what matters. One house closed at $460,000 with a $10,000 credit to the buyer; a nearly identical house on the next street closed at $450,000 with no credit. Read at their recorded prices, the two sales suggest a $10,000 difference between the houses. Once the credit’s measured effect is removed (here, with no matched sales, its face amount as the starting point), the two indicate about the same price.
Where concessions are found. The closed listing is the first source: the MLS closed listing generally carries a field for seller concessions, and the listing remarks or the agent on the sale can confirm an amount that was not entered. The deed and the conveyance tax return filed with the town clerk show the consideration paid, which is the recorded price; neither shows a credit. A credit given in place of a repair after inspection is read the same way as any other credit: it is adjusted for its measured effect on price, with the face amount as the starting point where no matched sales show the effect. A price reduced during negotiation is not a concession; the reduced price is simply the price.
Financing. Seller financing at a below-market rate, an assumable loan carrying a rate well under the current market, or a sale in which the seller paid points to buy down the buyer’s rate, each puts something in the price that is not the property. The adjustment is the value of the financing benefit to the buyer, which is often estimated as the difference in payment over the expected holding period, and which in practice is frequently approximated from paired sales where one sale carried the financing and another did not. Where the amount cannot be measured, the sale is used with the circumstance stated, and it is weaker evidence than a sale without that circumstance, because part of its price is unexplained.
A seller-paid buydown is the simplest case, because the amount is recorded: a seller who paid $8,000 at closing to reduce the buyer’s rate has given the buyer $8,000 that is not the price of the house, and the buydown is treated exactly as a closing-cost credit: adjusted for its measured effect on price, with the $8,000 face amount as the starting point where no matched sales show that effect. An assumable loan is harder, because nothing changes hands at closing that shows its worth. In one condominium complex, two units of the same model and floor, in similar condition, went under contract a month apart; the unit sold with an assumable loan at a rate well under the market closed $9,500 higher, and a second pair in the complex showed a difference of about $8,500. Those pairs support an adjustment of about $9,000 for a comparable carrying that kind of financing in that complex, and the figure is stated with its two pairs.
New construction. Builders often compete on incentives as well as on price: closing-cost credits, rate buydowns, and upgrades included at no charge. The first two are concessions and are adjusted as concessions. Included upgrades are different, because the buyer received them as part of the house; they are not deducted, and they are compared with the subject as features. A builder sale is read with the contract or the builder’s incentive sheet where it is available, because the MLS record of a new-construction sale often shows only the base price and the final price.
Sale type. A bank-owned sale, a short sale, a relocation-company sale, and an estate sale that needed to close by a date can each reflect a seller who accepted less than the market with normal exposure would have paid. Where such sales are a small part of the market they are set aside in favor of typical sales. Where they are a large part of the market, they are part of what buyers pay, and the analysis uses them with the sale type stated and, where the market shows a measurable difference between distressed and typical sales, an adjustment for it derived from pairs.
In Connecticut, a foreclosure proceeds through the court. In a strict foreclosure, title passes to the lender, which later sells the property as a bank-owned sale; in a foreclosure by sale, a committee appointed by the court sells the property, usually as is and subject to the court’s approval. An estate sale is made by an executor or administrator; depending on the will and the fiduciary’s powers, it may require authorization from the Probate Court, and the estate’s attorney confirms which applies. Each of these sales records a seller whose circumstances differ from a typical owner’s, and the record of how the property was marketed, how long it was exposed, and what condition it sold in is read before the sale is used.
Two markets show the two treatments. In a market area with 48 closed sales in the period, three were bank-owned; they are set aside, because 45 typical sales describe the market and the three do not. In another market area, 14 of 40 sales were bank-owned or short sales. There, distressed sales are part of the market buyers shop. Pairs of distressed and typical sales are first adjusted for condition, since bank-owned property often sells in poorer condition, and the difference that remains after condition is the measure of sale type. If two such pairs show $17,000 and $19,000 after condition, a typical-sale subject compared with a bank-owned comparable carries an upward adjustment of about $18,000, stated with its pairs.
Related parties and exposure. A sale between family members (where the relationship is confirmed by the transfer documents or the agent on the sale, not assumed from a shared surname), to a tenant in the property, or between neighbors without the property being offered to the market did not test what a typical buyer would pay, and it is set aside unless nothing better exists, with the reason stated. A relocation-company sale that was listed and exposed in the ordinary way is often a typical sale; the record of its marketing decides, not the identity of the seller.
Personal property and unusual terms. A sale that included furnishings, a vehicle, or a boat slip; a sale with a leaseback at below-market rent; a sale in which the seller kept a right of first refusal: each is adjusted or set aside according to whether the amount can be measured. A lake cottage that closed at $395,000 with its furnishings and a pontoon boat valued in the purchase contract at $12,000 sold the real property for $383,000, and the comparable enters the grid at that figure. Where the contract assigns no amount and the items are minor, the inclusion is noted and not adjusted.
How it applies. Every comparable in a grid carries an answer to the question “was the recorded price the price of the property?” Where the answer is no, the adjustment appears first in that comparable’s column, before size or condition. A grid in which the highest comparable turns out to have carried a $20,000 concession has a range that is too high at the top by the concession’s effect on price, as much as $20,000, and the question that finds it is the one asked about concessions on every sale.
A single column shows the order. A comparable closed at $472,000. The MLS record shows a $9,000 seller credit, and the purchase contract assigned $3,500 to furniture that conveyed. No matched sales in the segment are available to measure the credit’s effect, so its face amount is the starting point. Its column begins: concession, −$9,000; personal property, −$3,500; price of the property, $459,500. The market-conditions adjustment is then calculated on $459,500, not on $472,000, and every property comparison follows from that figure.