Which of the following is listed by Fannie Mae as an example of a sales or financing concession?
Correct Answer
B) An interest rate buydown paid by the seller
Interest rate buydowns and other below-market financing are listed concessions, along with discount points, closing costs customarily paid by the buyer and similar items. A seller paying its own costs or a buyer paying its own fees is not a concession to the buyer, and lot size is a property difference.
Why This Is the Correct Answer
Option B is correct because Fannie Mae lists interest rate buydowns or other below-market rate financing as examples of sales or financing concessions. A seller paying to lower the buyer's interest rate is a benefit to the buyer that can affect the price. Other listed examples include loan discount points and loan origination fees.
Why the Other Options Are Wrong
Option A: A buyer’s payment of its own home inspection fee
Option A is wrong because a buyer paying its own home inspection fee is not a concession. Nothing is being provided to the buyer by the seller or another party.
Option C: A higher price paid for a larger lot
Option C is wrong because a higher price paid for a larger lot reflects a property difference, not a concession. Lot size is handled as a physical characteristic in the comparison.
Option D: A seller’s payment of its own listing commission
Option D is wrong because a seller paying its own listing commission is a normal seller cost, not a concession to the buyer. It does not provide the buyer with any special benefit.
Concession helps the buyer
A concession is a gift toward the buyer's side of the deal. If a party is paying its own normal costs, it is not a concession.
How to use: Use this test to sort answer choices into concessions and ordinary costs or property differences.
Exam Tip
Ask who pays and who benefits. A seller paying the buyer's financing or closing costs is a concession; a party paying its own costs is not.
Common Mistakes to Avoid
- -Treating a seller's own commission as a concession
- -Confusing property differences with concessions
- -Overlooking seller-paid rate buydowns when verifying a sale
Concept Deep Dive
Analysis
This question tests recognition of what Fannie Mae lists as a sales or financing concession. A concession is something a seller or other interested party provides that benefits the buyer, such as a seller-paid interest rate buydown. Parties paying their own normal costs and differences in property features are not concessions.
Background Knowledge
Sales and financing concessions include items such as interest rate buydowns, below-market financing, loan discount points, loan origination fees and closing costs customarily paid by the buyer. Because they can raise the nominal sale price, comparables with concessions must be adjusted for their impact, if any, on price.
Real-World Application
A builder offers to pay for a rate buydown on a new home. When the sale is later used as a comparable, the appraiser identifies the buydown as a financing concession and analyzes its effect on the price.
More Sales Comparison Questions
Supported adjustments are: non-market financing $10,000, GLA $36/sf, garage $3,500 per car, pool/spa $12,500. A comparable identical to the 2,800 sf subject sold for $267,000 with non-market financing. What is its adjusted price?
Using GLA $36/sf and non-market financing $10,000: a 3,100 sf comparable sold for $277,000 with non-market financing; the subject has 2,800 sf. Bath count differences are not adjusted. What is the adjusted price?
Using garage $3,500 per car and pool/spa $12,500: a comparable with a 2-car garage and a pool/spa sold for $268,000. The subject has a 3-car garage and no pool. What is the adjusted price?
Using GLA $36/sf, garage $3,500 per car and pool/spa $12,500: a 2,600 sf comparable with a 2-car garage and a pool/spa sold for $264,000. The subject is 2,800 sf with a 3-car garage and no pool. What is the adjusted price?
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