You can add incentives to sell your home, but they better be reported to the lender!

By
Real Estate Broker/Owner with Respect Realty LLC 200311024

If you are considering selling your home in Beaverton, Oregon, I'm sure you have been listening to the news that sales are down compared to the last couple years. Homes that are selling are priced right, look great, and have some great marketing behind them. (You can read how to sell your home quickly,without stress, here in my 4 part series.)

But, what if you are a seller and have mileage points on a credit card or frequent flyer card that you can gift to someone else. Well, I happen to have one of those sellers right now. He is telling buyers, that if you buy this house, I'll give you two tickets round trip to anywhere in the United States.

This is great and all, but I told him that we need to report this on the HUDwhen we close or it or it could be considered mortgage fraud. Because you are giving something of value to the buyer, the lender may see that as they are paying for it as part of the deal. He said, "But it is a gift." I said, "I understand that, but it still has value."

Now, here is the problem that I told him that could arise, and I'm hoping it doesn't. If the buyer asks for so much in closing costs, can we actually goover the limit the lender will allow as a gift from the seller?

Either way, I told him that we need to disclose to the buyer that the trip will be on the HUD, but if the lender won't allow it, it will have to be taken out of the contract and they will lose the trip. I said, "Great idea, but you have to be careful or you could end up in court if the buyer doesn't get what you promised them."

So, now we have the flyer that says, "Buy this home and get a two round trip tickets to anywhere in the United States for free*" The * at the bottom says, "Free trip is contingent upon lenders approval of the gift as not to exceed any limits set by the lender in closing costs and pre-paids by the seller."

If you are interested inselling your home fast and for top dollar in Beaverton, Oregon, give me a call. I would love to sit down with you and discuss your options so you can reach your goal as quickly as possible.

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todd clark

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Ambassador
1,983,173
Wanda Kubat-Nerdin - Wanda Can!
Prado Real Estate South - St. George, UT
So Utah Residential, Referral & Relocation REALTOR

Incentives are handled better if taken care of on the front end so you have less to take care during those last few weeks of due diligence! You are so right on with this Todd! I appreciate that!

Nov 18, 2009 07:08 AM #1
Rainer
30,706
Art Marine
Mortgage Solutions Financial - Lake Oswego, OR
Loans that Fit your Life

Todd,  This is a very good point, this incentive needs to be clearly spelled out in the purchase and sale agreement so that the lender has complete knowledge durring the underwriting process.  I don't feel it needs to be included on the HUD 1 settlement statement however.  You have met you disclosure requirement by including the incentive in the purchase agreement.  Since no money is changing hands for the tickets, they wouldn't be accounted for on the HUD 1.  I would throw this out for comment by you escrow officers out there.

Nov 18, 2009 08:29 AM #2
Rainmaker
592,757
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Todd,

North Las Vegas, Nevada has more foreclosures in one zip code than any other area. Many if not most because of outrageous incentives!

Personally as a seller I like incentives, but as a lender they can't exceed "nominal value." "Nominal value" is relative! What's acceptable with a million dollar house is absurd with a starter home! Worse yet is what's un-acceptable to one underwriter is acceptable to others.

For sure it has to be disclosed on the sales agreement and to the lender! As an agent never list the vaule of any incentive as a dollar amount, always state it is of "nominal value" and let the appraiser and underwriter decide.  Remember lenders determine loan to value based on the lesser of appraisal or sale price, even if the house appraises if the incentive exceeds that elusive nominal value the lender will subtract that value from the value of the house when determining LTV.

Caveat emperor!

Bill

Nov 18, 2009 08:51 AM #3
Rainmaker
1,331,301
Michelle Gibson
Hansen Real Estate Group Inc. - Wellington, FL
REALTOR

Todd - Good point and I'm sure a majority of people don't think about, most will see it as a gift like your seller did.

Nov 18, 2009 09:53 AM #4
Rainmaker
2,147,889
Charles Stallions
Charles Stallions Real Estate Services - Pensacola, FL
800-309-3414 - Pensacola, Pace or Gulf Breeze, Fl.

Todd, seems like no one thinks of these things until it is too late anyway. But it is something to deal with as a seller. I see it so too often.

Nov 18, 2009 11:36 AM #5
Rainer
232,295
Sara Woolford & Steve Golson, ALHS
iTexas Realty Co. - San Antonio, TX

Hi Todd-  We run into this in our areas as well and it's always hard to explain to Sellers and Buyers how something that sounds like a non-material incentive could be material to the Lender.  We always disclose: Better safe than sorry...  --Sara in San Antonio

Nov 18, 2009 12:09 PM #6
Rainmaker
550,836
Barb Szabo, CRS
RE/MAX Trinity Brecksville Ohio - Cleveland, OH
E-pro Realtor, Cleveland Ohio Homes

Not too much of that going on here but good information for all of us to have.

Nov 18, 2009 12:36 PM #7
Rainer
295,255
Stephen Kappre
KW Hometown - Mantua, NJ
Helping You Home

My wife has a listing now where the buyer's mortgage company is requesting that the seller put in writing that the regridgerator, wash, dryer, and some other stuff were being left there and are not incentives. First I've heard of that in 8 years. BTW it is already written in the contract that they were to be left. Anywho...

Nov 18, 2009 02:17 PM #8
Rainmaker
575,448
Terry & Bonnie Westbrook
Westbrook Realty Broker-Owner - Grand Rapids, MI
Westbrook Realty - Grand Rapids Forest Hills MI Re

With all the news about Mortgage fraud we need to be very careful . Great advice.

Nov 18, 2009 03:44 PM #9
Ambassador
1,694,343
Tammie White, Broker
Franklin Homes Realty LLC - Franklin, TN
Franklin TN Homes for Sale

We just had a meeting in our office today about the new RESPA changes effective 1/1.  You will be required on the new HUDs coming out on 1/1 to disclose anything that is monetarily related to the sale of the home.  It's going to make our jobs a little more complicated.

Nov 18, 2009 04:23 PM #10
Rainmaker
1,126,796
Claude Cross
Homes By Cross, Inc. - Charlotte, NC
Charlotte NC Homes For Sale

My thoughts are to always disclose. BTW I like buydowns on the interest rate. Lenders are very happy to include these.

Nov 19, 2009 01:13 AM #11
Rainer
73,981
Sarah Eubanks
Hill Valley Financial Services - Oregon City, OR
Preferred Oregon Loan Consultant & Notary Public

Todd...as others above have said, I commend you for thinking of that issue in the first place.  It makes the job for us mortgage people a lot easier when the Realtor knows their stuff.  While Art is right that an escrow officer would know how to handle it...I always figure better safe than sorry!  Thank you!

Nov 19, 2009 03:08 AM #12
Rainmaker
316,376
Liz Loadholt
Liz Loadholt- AgentOwned Realty- Covering SC - Mount Pleasant, SC
Realtor--Broker-in-charge - Trainer--Relocation Director Covering SC

Todd ----  this is very similar to the post I wrote about the seller wanting to give buyers $5,000 under the table ----

                                                                               

Nov 19, 2009 05:21 AM #13
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