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Hokay, so I have a witch (in PFS) with the faerie dragon familiar, who 'casts spells as a 3rd level sorcerer'. Normally familiars and animal companions are treated as level 1 hence can't get negative class levels, but is this the case for the faerie dragon?
If they do affect, I assume it's still the 1k component + spell casting service to remove each level. This seems super costly for a meager familiar.
If they are not removed, how do I figure out how it changes the faerie dragon's stats when the familiar is basically given as a stat block?
The familiar got the negative levels from a demon's evil gaze effect thing, not a raise spell.

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All right. So it takes the minuses mentioned in negative levels:
"For each negative level a creature has, it takes a cumulative –1 penalty on all ability checks, attack rolls, combat maneuver checks, Combat Maneuver Defense, saving throws, and skill checks. In addition, the creature reduces its current and total hit points by 5 for each negative level it possesses."
But it doesn't seem to affect its spellcasting at all then. The only bummer of a thing is the losing of 10 hitpoints out of the maximum of 28.

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Energy Drain and Negative Levels
Some spells and a number of undead creatures have the ability to drain away life and energy; this dreadful attack results in “negative levels.” These cause a character to take a number of penalties.
For each negative level a creature has, it takes a cumulative –1 penalty on all ability checks, attack rolls, combat maneuver checks, Combat Maneuver Defense, saving throws, and skill checks. In addition, the creature reduces its current and total hit points by 5 for each negative level it possesses. The creature is also treated as one level lower for the purpose of level-dependent variables (such as spellcasting) for each negative level possessed. Spellcasters do not lose any prepared spells or slots as a result of negative levels. If a creature's negative levels equal or exceed its total Hit Dice, it dies.