Looking back over the years, I have had some very interesting transactions, but today I would like to share an experience with a young newlywed couple, who was purchasing their first home. It also happened to be my very first foreclosure, and REO sale too.
This happened back in 2002, my first year in the real estate business. It was a very small purchase for this young couple, who was looking for a fixer upper home for less than $50,000. Yes, it was a small purchase, but it was a Big Deal for them. The husband had a very level head, and convinced his wife that they needed to start out with something small, like this 2 bedroom home that needed cosmetic repairs, and some TLC(Tender Loving Care).
First, finding financing in that price range was not very easy, but I was able to find a lender, who was willing to finance a loan in their price range. We had looked at several homes before they finally decided on this particular foreclosed home. The price was right, and repairs were very doable, since he was a handyman. Like most first time home buyers, they didn’t have any money for their own closing costs. They barely had enough saved for the down-payment.
Once the negotiations started, I was able to get the bank to agree to give them at least 6 percent of the loan for their closing costs. We got them a good price, closing costs, new survey, title policy, and residential home warranty, all of which were to be paid by the seller. We even added the Non-Allowables for an FHA loan, which at the time were around $1200. Next, we moved forward with our inspections, and proceeded to close.
My big surprise came when I saw the HUD-1 Settlement statement a day before closing. The amount that I had negotiated for closing costs had been significantly reduced, and my commission was changed from 3 percent to 2.5 percent. The seller had decided to reduce both agents commission, since they had given the buyer more closing costs than they normally would have given. The commission was truly not a Big Deal, since I was excited to be able to help them obtain their very first home. But, I immediately contacted the lender about that reduction in the closing costs. The lender’s response was that they needed the buyer to bring more money to the table, and they would not allow the seller to give that much of a contribution.
Lesson Learned in my Rookie Year: Always check with the lender to see what is the allowable amount of closing costs the buyer can obtain from the seller before you do all that negotiating for nothing.
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