Home Buying in Portland>Question Details

Zippyland, Home Buyer in Portland, OR

Is it unethical for a seller to offer a buyer more in closing costs than could possibly be useful to a buyer?

Asked by Zippyland, Portland, OR Wed Feb 13, 2013

We had an offer accepted on house. We wrote into the offer that the seller would cover $6K in closing costs (and closing costs will be about $6.5K). We are now negotiating repairs. We found several safety issues that we would like repaired before closing. The seller countered our repair addendum by offering another $5K in credits at closing. Is the seller's agent just being creative? Is it possible for us to use $11K at closing, when our closing costs will be $6.5K?

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Janeese Jackson’s answer
it's not "un-ethical" but it may be "un-usable". As many pros have already answered, your first calls should be to your Realtor (to brainstorm how to verbalize your response) and to your mortgage broker (to determine the maximum allowable credits from seller to buyer in your situation). Also, you will need to know if any of the repairs will be "lender required repairs" and must be satisfied prior to funding. All the best...
Janeese Jackson, Principal Broker
Real Estate Resource
jj@janeesejackson.com
Web Reference: http://fabulousportland.com
1 vote Thank Flag Link Wed Feb 13, 2013
It sounds like the Seller doesn't have the cash to cover the repairs. I would suggest that you find a licensed, bonded contractor who is willing to be paid out of closing. There are quite a few who will.

So, I would counter insisting that the work be done by a contractor of the buyers' choosing, that the seller agrees to cooperate as necessary. The work can be done after closing, with the contractor's payment held in escrow until completed to your satisfaction, if the work would be too much of an inconvenience to the seller.
1 vote Thank Flag Link Wed Feb 13, 2013
Typically, this is a way for the seller to give you something, but not perform the repairs themselves and the way that many sellers prefer to go. The biggest question for you, to your agent and Mortgage broker, is does it exceed the amount you will need for your closing costs and pre-paids or does it exceed the limitations your lender may have on the amount of closing costs that can be paid by the seller (e.g. 3% of the total loan amount).

We use this all the time, but as a buyers agent, we are always cautious to ensure that the buyer can actually get the benefit of the full negotiated amount, because anything left on the table will go back to the seller. Make sure you drill down on this one.
1 vote Thank Flag Link Wed Feb 13, 2013
A lot of good answers here,not that anyone needs my approval. Yes, In general its a big question for financing. Now, I need elaboration. You found several issues---did YOU find them or did you have a full professional inspection? If its only your personal inspection you could be missing many other problems. As someone else mentioned, many times a buyer likes to do work on their own to save money or just do it 'their way'. Getting a credit from the seller is a way to take care of it. Sounds like the seller wants a quick close without having to worry about all scheduling, work, re-inspections, etc. which is fine but you can have limits by the lender on what can be given and how. It can affect the appraised value too. AGain need more info---are you being represented by a licensed agent or buying on your own?
0 votes Thank Flag Link Wed Feb 13, 2013
It used to be common place for a seller to offer additional credits rather than complete the requested repairs. It seemed like a way to put some money in your pocket to do the repairs yourself. However, both your lender and your appraiser will have full and complete copies of your purchase and sale agreement. Lenders don't usually accept a credit in lieu of repairs. And if they are truly safety issues, the appraiser will likely note that the valuation of the home is conditional on the repairs being completed. In view of some of these potential roadblocks ahead of you, talk with your agent and lender for the appropriate response to the seller's counter. They both are knowledgeable enough to help you negotiate this without any questionable ethics or lending policies.
0 votes Thank Flag Link Wed Feb 13, 2013
Seller concessions are limited by loan product. FHA and USDA allowed contributions max at 6% of the sales price, VA maxes at 4%, Conventional at 3%, and an investment property at 2%. Seller funds may not be used towards any of the down payment so it's use it or lose it.

Talk with your lender as well as your agent regarding the repairs there are some things that just aren't worth the risk. Keep in mind if they are safety issues and you are financing the home with a government loan program the appraiser will call for those repairs to be made as a condition of the value. There is no way around that.
0 votes Thank Flag Link Wed Feb 13, 2013
If you are working with an agent representing you, I'd suggest you ask them for advise.

Otherwise, the credit over your closing costs will not be useful to you, as banks will no longer allow it.

Another option would be to use the maximum amount you can for your closing costs and drop the sales price by whatever amount is left over, so in this case- use the $6500 and drop price $4500.
0 votes Thank Flag Link Wed Feb 13, 2013
Check with your lender because there is a cap on the amount that the seller can contribute. It sounds great on paper but in the end any excess goes back to the seller. A nicely worded rebate if not discovered. Good Luck to you. Tom Inglesby, Broker RE/MAX Equity Group
0 votes Thank Flag Link Wed Feb 13, 2013
most loans have a cap on what the lender will allow - I wold verify this with your lender and your agent - otherwise you could be leaving money on the table
0 votes Thank Flag Link Wed Feb 13, 2013
Check the wording and talk to your Realtor:
They usually say "non-recurring closing costs"; it makes a difference.
Also, if the money exceeds the allowance, the surplus does not go to the Buyer, usually.
Possibly, (not a tax expert), column one is tax deductible for the Seller, and column two is not.
What does your Realtor say?
0 votes Thank Flag Link Wed Feb 13, 2013
Good Morning
Sounds odd. Have your loan officer determine exactly what your closing costs will be that the seller is allowed to pay than include your request in your offer. Typically a seller will add the closing costs to their bottom line price so adding too much will raise the price further. The only thing I can think of is if the seller and your loan officer are connected in some way and the loan officer is planning to add closing costs ?? I hope thats not the case. Maybe the agent is looking for a way to raise the asking price knowing that if the money is not used the seller will net more?? Go to Your-Road-Home.com. and read the articles on financing. Will serve you well. Good Luck
0 votes Thank Flag Link Wed Feb 13, 2013
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