Portland Area Real Estate Appraisal Discussion

When appraising most residential property for lending purposes, appraisers are asked in the 1004MC Market Conditions Addendum to, “Explain in detail the seller concessions trends for the past 12 months (e.g., seller contributions increased from 3% to 5%, increasing use of buydowns, closing costs, condo fees, options, etc.)” The problem is that in Portland, OR, data on seller concessions is not available publically, nor is it available through the local multiple listing service (MLS). In my experience, most appraisers in Portland merely make an educated guess at the answer to this question.

The only way to obtain data on concessions in Portland is to conduct interviews with agents. When A Quality Appraisal (AQA) does an appraisal, we call or email at least one agent involved in each comparable transaction to find out if there were concessions involved in the sale. Contrary to popular belief among Portland residential appraisers, most Portland agents will answer this question and other pertinent questions about the sale.

AQA finds that almost all of the concessions seen in the Portland area are payment of the buyer’s closing costs. In the agent interview, we also ask if the concessions were reimbursement for some type of necessary repair to the property that the buyer would need to make soon after closing. From an appraisal standpoint, reimbursement for a necessary repair is not an adjustable concession. This is because the repair cost becomes part of the total price the buyer pays for the house.

Since June of 2011, AQA has tracked concessions on nearly 5,000 home sales in the Portland region to identify local trends in concessions. Our hope was to use the data to discover how much the concession actually affects the sale price. This question turned out to be more difficult to answer than expected, but we have learned the following general information about concession trends in Portland home sales:

1. Concessions are most common (occurring as much as 78% of the time) and tend to be larger on sales with FHA, USDA, or VA financing. Price ranges where these types of financing are active seem to generate the most concessions. Cash sales rarely have concessions.

2. The following table shows that Portland concessions are most frequent (occurring on about 48% of all sales) when the sale price is between $100k and $300k:

3. The chart below shows that most concessions tend to be evenly disbursed at under 3% of sale price, with only a few sales having more than 3% in concessions.

4. The last chart illustrates that despite the Portland real estate market improving significantly since 2011, the proportion of sales with concessions have remained quite stable over time.

If you are a Portland area home appraiser and you need to answer the concession trend question on your next appraisal 1004MC, feel free to site this blog as your source for the data. It would be nice if Portland appraisers, as a group, could maintain a database with concession information about particular sales from the local RMLS, but I’m afraid it is a violation of confidentiality to the agents who provided the information. The RMLS could make a concession field for reporting the information, but I’m told that they are against it for confidentiality reasons. There was a legislative push to in Oregon to place concessions in the public record, but it failed. For now, individual appraiser tracking of concession data in Portland is the best that the profession can do to keep an eye on this important, yet hidden, part of the transaction.

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Thanks for reading,

Gary

Great blog, once again. Thank you A Quality Appraisal, I found this very helpful information.

I'd be interested in your take on the net effect of these concessions. If only there was a way to calculate that? Sometimes it seems the sale would not have occurred without the concessions and other times they just seem to be icing on the cake. Jim

Hey Gary, I love the way you understand data and use it to add more credibility and support to your appraisal reports. The borrowers and other users of your valuations are very fortunate. Keep it up! Jeff Hamric

Thanks for the comments Jim and Jeff. As for your question Jim, it is very difficult to answer the question if buyer's closing costs concessions actually contribute at a rate of the cost of the concession. This is because the properties with concessions tend to be statistically different than the properties without concessions. After studying this, my feeling is that most of the time, a cash concession contributes at its face value. The best evidence of this can be found when reviewing contracts of sale. I've found that when the buyer and seller need to go back a renegotiate a sales price to add or remove concessions, the net price stays the same with or without the concession. This tells me that both buyers and sellers are focused on the net sales price rather than only the contract price. With that said, you're correct. Some buyers cannot qualify for a particular loan to value if the seller does not contribute to the closing costs. However, even then, it seems that the contract price is adjusted to reflect the net price with concessions. I would love to hear input from Portland real estate agents on this.

What a job it must have been to track and then analyze nearly 5,000 sales. We are impressed! Thanks for the valuable information Gary and AQA.

Very interesting

very interesting article on concessions in Portland, OR

Nice information. Clearly your company has the best real estate appraiser in Portland Oregon