Concessions, Kickbacks, and the Appraiser’s Nightmare by Richard Hagar, SRA
A s we all know, the market has
Learn how to provide an accurate value conclusion that protects the appraiser from the potential ramifications of their bad acts.
changed—homes are taking longer to sell. On top of that, many of the current real estate agents have not been through a downturn like we experienced in 2007–2012, nor the criminal indictments that followed. Agents today become panicked when their listings haven’t sold in the first two hours of being listed. When I tell them “Back in the day it took 90–120 days to sell a home” they get a glazed look in their eyes. Instead of simply inputting information into the MLS and collecting a check, they are now faced with interacting with an owner for a couple of months and might have to figure out how to properly market and price a property (Oh the horror). So, it begins, the panic and scramble to figure out how to sell a house without reducing the sales price…and their commission. A listing agent first suggests that their seller offer to pay for a buyer’s closing costs. The agent then inserts the offer into the MLS listing comments or an online ad. Then on the other side of town, a different agent sees the concessions offer and decides that they will do the same for their listing. The snowball is starting to roll downhill. One listing in town is followed by two, then three, and so on. When a house hasn’t sold in 30 days the agent panics further and convinces the seller that they should offer more
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incentives: “Buy this home and the seller will pay for the buyer’s closing costs and furniture or toss in a new car, or down payment assistance!” Or whatever you can imagine. First off cars, furniture, and monetary gifts are personal property, not real estate. The marketing snowball is getting larger, rolling faster and is about to roll over the appraiser. A seller paying for the buyer’s closing costs, providing a new car, money for the down payment, etc. are called concessions. The term concessions is used because it sounds pretty and less nefarious, but it is simply another term indicating an appraisal problem. These concessions are actually considered kickbacks in criminal law (and by HUD!) and they create all sorts of nightmares for appraisers.
Kickback ~ noun: • a return of a part of a sum received often because of a confidential agreement. • a rebate, by a seller to a buyer or to one who influenced the buyer • a bribe or payment given to someone as a reward for an action Think of it this way: if an agent can convince a buyer to overpay for a house, the seller will give a kickback to the buyer. In other words, the agent and seller are bribing the buyer to pay more than market value for the house. Now, maybe the kickback is beneficial to the buyer—it likely changes the price of “the deal” but does it really change the value of the real estate? No, and no matter the reason or page 32 8
30 Working RE Summer 2023