Conditions of Sale & Concessions
~11 min read · Handle non-arm’s-length sales and seller concessions before any other adjustment.
Two transactional adjustments precede everything: conditions of sale (was the motivation typical?) and financing terms (did the money arrangements inflate the nominal price?). Both correct the comp's PRICE to what a normal cash-equivalent deal would have struck.
Conditions of sale
Arm's-length assumes typical motivation. Atypical conditions distort price: related-party deals, forced or duress sales (relocation deadlines, foreclosure-avoidance), purchases by an adjoining owner paying an assemblage premium, tax-driven year-end trades, and sales between business affiliates. If the atypicality can be QUANTIFIED, adjust; if it saturates the price (family gift-sales), discard. Document the motivation through verification — this adjustment runs first in the sequence.
- Typical motivation is the baseline
- Adjoining-owner premiums and duress discounts distort
- Quantify and adjust — or discard when distortion dominates
Financing terms and cash equivalency
Cash-equivalency analysis strips financing benefits baked into price: seller-paid points and concessions (the buyer 'paid' $310,000 but got $10,000 of closing costs — effective price lower), below-market seller financing (a 4% loan in a 7% world is worth real money — the price premium equals the financing benefit's present value), loan assumptions at favorable rates, and builder buydowns. The adjustment equals the effect on price, not the face amount of the concession — extracted from market behavior where possible; the dollar-for-dollar convention applies to straight cost-credits.
- Concessions: adjust by their effect on price
- Below-market financing: premium ≈ PV of the interest savings
- Nominal price ≠ cash-equivalent price
Expenditures immediately after purchase
The buyer who priced in a known $25,000 roof replacement effectively paid price-plus-roof for the property in repaired state — the third transactional adjustment adds anticipated immediate expenditures (demolition, repairs, remediation known at purchase) to interpret the comp's true economics. These three transactional corrections, plus time, produce the normalized price that physical adjustments then refine.
Worked example
Comp closed at $520,000. Verification reveals: the seller carried a $400,000 note at 4.5% when banks quoted 7% (the below-market note's benefit computes to roughly $28,000 present value), and the buyer — the adjoining landowner — admitted paying 'a little extra to get the lot next door,' with two similar arm's-length sales suggesting about $15,000 of assemblage premium. Normalize the comp.
Two distortions, both inflating the nominal price. Financing: the cheap seller note delivered ~$28,000 of present-value benefit — the buyer paid for it in price; cash-equivalent price = 520,000 − 28,000 = $492,000. Conditions of sale: the adjoining owner's motive added ~$15,000 the open market wouldn't pay → 492,000 − 15,000 = $477,000 normalized. Only now is this sale evidence of market value — and both corrections trace to verification calls, not the closing statement alone. Skipping them would have imported $43,000 of financing-and-motivation noise into every later physical adjustment.
Common exam pitfalls
Adjusting concessions at face value automatically.
The adjustment is the EFFECT ON PRICE — dollar-for-dollar for straight cost credits, market-extracted for financing benefits.
Missing the adjoining-owner premium.
Assemblage buyers pay above market by design — a conditions-of-sale adjustment or exclusion is required.
Treating the closing statement as full verification.
Motivation and financing structure surface in conversations with the parties — the documents alone hide both.
Normalize the deal before you compare the house: strip the sweet financing, the special motive, and the day-one repair bill.
Recap
- Conditions of sale: typical motivation or adjust/discard
- Cash equivalency: concessions and below-market financing by price effect
- Assemblage premiums are classic conditions distortions
- Immediate expenditures reprice the comp's true economics
- Transactional corrections precede time and physical adjustments
- Verification with parties uncovers what statements conceal
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