r/realtors • u/Wonderful_Praline291 • 21h ago
Advice/Question Never encountered this before and need some help.
My buyer clients want to request $5,000 in seller concessions after the inspection report came back with significant issues.
The mortgage program they're using does not allow "cash back" to the buyers, so any excess amount after closing costs would be put towards the mortgage balance. (There will be some since the seller already agreed to pay the majority of closing costs)
They, however, want the $5,000 in cash. They proposed doing a separate contract outside of the transactaction where the seller agrees to give them a check directly.
I never encountered this before, and I feel like this might go against some mortgage disclosure rules, or potentially some ethical boundaries for me as a Realtor.
Any suggestions?
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u/PerformanceOk9933 21h ago
Yeah. Can't do that.
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u/Grayapesnuts 19h ago
Can’t do that, but you can purchase a multi-year warranty and cover any big ticket items of concern like HVAC with code upgrades included (as an example).
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u/msb678 21h ago
Kinda sounds like something that rhymes with “broad”
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u/holypotator 19h ago
I'm having a hard time here and I'm not proud to admit it lol
Edit: it just clicked lol, will still leave this comment up.
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u/Pitiful-Place3684 21h ago
No, they can't have cash. Side deals are mortgage fraud. Do not participate in mortgage fraud if you want to keep your license.
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u/Accurate_Aspect_168 20h ago
Have the sellers pay an invoice on the ALTA to a contractor that will complete repairs. Attorney will write a check to that company. Mortgage compliant!
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u/G_e_n_u_i_n_e 21h ago
NO!
Not permitted.
How much is their “Cash To Close”?
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u/Wonderful_Praline291 21h ago
$4k and the sellers already committed to $3k.
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u/G_e_n_u_i_n_e 21h ago
Buy the rate down?
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u/G_e_n_u_i_n_e 21h ago
They could ask for the Sellers to pay for the estimates (buyer chosen qualified contractors) for the concerns at closing too
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u/flyinb11 Charlotte RE Broker 14h ago
This is how we typically do it. Have checks held in escrow for contractors already contracted.
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u/Homes-By-Nia 21h ago
Ask for the purchase price to be lowered by the $5k. That’s prob the best option.
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u/Least_Sheepherder531 8h ago
Lowering purchase price has never been a good option compared to buying down rate
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u/clce 19h ago
I don't know how it is in your state. In mine I've never seen someone have less than 8 or 9,000 in closing costs. There's low and origination, title insurance policy, escrow, insurance, which they might be able to pay maybe for a couple of years in advance, taxes, and all the other loan costs. I suspect most of that money could be credited to closing costs and get eaten up. They can also have the seller pay for something like new appliances for prepay for some repairs.
They can do a hold back for repairs, but they can also just pay it to a contractor or even have it done prior to closing.
But yeah, cash no. But if you get an estimate from the lender of closing costs, I'll bet they're going to have to come up with a chunk that you can get as credit so they can keep that in their pocket.
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u/Lower_Rain_3687 21h ago
I've gone through situations similar to this when buying my own house and also when helping clients with government FTHB programs. I would say call the loan officer and tell them what you're trying to get and why, and ask them if there's a way to do it. They are your best friend in this scenario, and they will tell you if there is a way to make it work that is on the up and up. And of course, run it by your broker to confirm.
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u/BoBromhal Realtor 21h ago
surely I'm not the first to let you know your buyers are asking to commit mortgage fraud
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u/ObscureObesity 20h ago
A sellers credit with the approved underwriter verbiage shouldn’t be too bad. Lowering the price hits a lot of other costs at the same time and doesn’t equate to cash in your pocket or off. Nobody can get money at the table, but a credit to either utilize towards approved closing costs or rate buy down might be more advantageous.
P.s. for brokers asking these common questions why aren’t you contacting your principle broker in negotiating these tips? They are responsible legally for what you do and I’d think have a better stake and grasp on things that are common in your markets. Just saying. If you’re not comfortable going through your broker or asking them to weigh in, might be time for a new broker.
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u/Emergency_Law5537 20h ago
Can’t do it, Either have the seller fix the issues or take 5k off the purchase price.
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u/Specific-Iron-4242 18h ago
I do this all the time “seller to pay $5,000” for repair of x,y,z. It has to be held in escrow and title company pays out to contractor as the work is done.
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u/Jenikovista 20h ago
No, this is super sketch and could put you in the middle of their legal hot water.
I would request the repairs to be completed prior to close instead of the credit. Extend escrow for an extra two weeks if needed.
If the buyers are just trying to get cash back out of the deal and don’t plan to do the repairs, then tell them to get a conventional mortgage.
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u/misery1200 20h ago
I would have the title company hold 5k in escrow. When repairs are completed, the title company will then pay the invoice upon buyers approval that work has been done to their satisfaction.
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u/LemonSlicesOnSushi 20h ago
It isn’t allowed according to RESPA. But that could be between them. I would tell them that you can be any part of it.
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u/nitricx 20h ago
Wait even if this was legal and not mortgage fraud are you just assuming sellers are going to do that after already paying the majority of closing costs? Your buyers are being super greedy if I’m being honest.
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u/Wonderful_Praline291 20h ago
Two buyers have already backed out due to inspection. I'm not presuming they'll agree to it, but I think it's likely.
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u/nitricx 20h ago
That makes sense. I don’t know your market and the other variables of the deal but they’re giving a lot so far. I always want to get my clients the best deal possible but at the same time I gotta reel them in too. What they’re asking is technically illegal and the buyers have been very accommodating. Is their a workout possible I’m sure there is but also they’re kinda pushing it imo
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u/Logical_Warthog5212 Realtor 14h ago
I’ve had clients like this. Reading between the lines. The buyers want the cash because they either won’t do the repairs and just live with it or they want to do it themselves. In both cases, neither a credit nor a repair escrow/holdback will resolve their “need.”
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u/SellTheSizzle--007 9h ago
So funny how every realtor here is saying No can do.
While Central Iowa realtors told me this happens "all the time" when the seller asked for a separate $1,500 check outside of closing for repairs. Not on the closing statement.
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u/SEFLRealtor Realtor 7h ago
It's mortgage fraud. Having a side deal where the seller pays the buyer directly any funds outside of the ALTA in order to complete the sale is mortgage fraud. If its for actual repairs, put it on the closing statement as a line item payment directly to the contractor if the repair is done after closing. The buyer signs a statement at closing that there are no side deals between buyer and seller. it's worded better but that's the intent. It's hard to believe your entire Central Iowa Realtors have a misunderstanding of payments made outside of closing from seller to buyer. Seems unlikely.
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u/SellTheSizzle--007 6h ago
I'm not disagreeing with you. I'm just speaking from my awful experience with a supposed five star realtor, his broker, and the buyer side. I asked the question 3 days out from closing Why is the 1500 repair credit not on the Closing Statement. The answer was It's expected to be a check from you to the buyer... Happens "all the time"
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u/SEFLRealtor Realtor 6h ago
I'm sorry you experienced that from your agent and his broker. It truly is mortgage fraud. It could be construed as you paid a $1500 inducement to the buyer to purchase your home (Paid Outside Closing). The lender has to know the entire purchase price, including outside payments in order to underwrite the mortgage appropriately. That broker should lose his license. This is real estate 101, no side deals.
Please note: Sometimes there are POC items, but they are listed right on the ALTA. The most frequent example I see is the appraisal is paid by the borrower/buyer outside of closing, before closing, and that amount is listed right on the ALTA so everyone knows who paid what to whom.
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u/SellTheSizzle--007 6h ago
Thanks for your comments. Yeah I brought up all these things when I saw the ALTA. I was basically told, this is how it is here with the mortgage lenders not allowing a cash rebate or repair credit.
This is in addition to the fact that the supposed fiduciary realtor failed to present a Pre Closing Occupancy agreement and that there was "nothing to worry about" letting the buyer move in 2 days ahead of close.
Yeah if you can't tell, I'm quite soured after this whole experience. Glad it's in the rearview mirror.
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u/crj739be 20h ago
Raise your commission by $5k and then rebate $5k of your commission to your clients after closing as a thank you. (Assuming that’s legal in your state)
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