Seattle Bubble Forum Archive

It's all about the "comps". When appraising properties only the sale price of comps is considered, not seller concessions. For developers looking to move multiple properties they have a lot to gain by propping up the price of the early sales through a variety of schemes such as free upgrades, kickbacks (aka "down payment assistance"), and something I stumbled across recently, secret discounts (I blogged about it a few weeks ago ). In the simplest example, If they lower the price on house 1 by $5K the appraised value of house 2 will go down by $5K, and the cost to the seller across both houses is $10K. If they instead give $5K worth of non-price consideration (e.g. free TV, better kitchen appliances, etc.) the price of house 2 stays the same, and the cost to the seller is only $5K.

Steve Martin (in the Jerk): "Ah, it's a profit deal!"

So does the common practice of hiding closing costs in the final sales price get rolled into the statistics for "ever increasing" prices that are reported? I would assume they are factored out somehow, otherwise the stat would be total BS.

It's a violation of law to inflate the price for other purposes, but something tells me there is a lot of gray area here. I think builders can get away with quite a bit, including rebates, "landscaping", appliances and furnishings, etc. I am not sure if used-house sellers can legally do the same things (though I would be willing to bet that there is a lot of stuff going on that is technically fraud.

Any stories from the trenches? And what % of house sales these days are arranged with the seller "covering" closing costs (and thereby pumping up the sales price data artificially)?