We’re looking to buy a house and have found one we like. We don’t think the house is valued at what they are asking, 520k. We offered lower and were declined. We’ve been told she’d probably take 500k, but we, nor the Realtor think the house is worth more then 485k.
A couple of times now the Realtor has said to us, offer 500k, but ask for 15k back. I’ve tried looking on the net, but the best I can find is that asking for money back is if you need a bit of money to fix things in the house. We don’t need the money, and don’t want an extra 15k on our loan. I also see that with the normal 6% each Realtor will make an extra $450.
Something to me just doesn’t seem right. I can’t figure it out. Why would someone take such an offer? Why not just take the 485k and not have to pay the extra $900 to the Realtor. I also think there is something else I’m missing, but I can’t put my finger on it. It seems to me that someone is getting some extra money, and I don’t think it’s me, it also seems that someone is paying more when they wouldn’t have to with out all of the fancy playing with numbers.
So what’s the catch, what am I missing that probably sticks out like a sore thumb? I asked my Realtor, but he just said it works out the same, but in that case she should take the 485k offer.
It’s also illegal. It’s essentially a way to scam your lender. You have to declare the actual sale price on the Uniform Residential Loan application. Even if you’re actually buying the house for less than its appraised value, you, the seller and your real estate agent and possibly appraiser are committing a crime.
Of course, if you’re paying cash for the house, it’s perfectly legal- but since that’s your own money anyway, what would be the point?
We are putting quite a bit down, so it wouldn’t be a loan for 15k, at least not for us. I can see people who are taking a 100% loan, or one close to that.
I still don’t see the point though. They tell me it’s psychological, but the seller still has to know they are selling the house at 485 and not 500. That’s why I don’t understand why I’ve been told the seller will sell it at 500 but with 15 back, but they will not sell it at 485.
Maybe I’m missing something, but why wouldn’t it be a loan for $15k? For the sake of argument, let’s say you are putting down $400k. It is the difference between your loan amount being $85k and 100k–a $15k loan.
True, you don’t need a loan, but you would be getting one, anyway.
You might want to google “cash out at closing” or “mortgage appraisal fraud.” True, your situation doesn’t seem to involve an appraisal, but it sounds similar.
The difference is that I can afford to put the extra 15k down. We were only planning on getting a loan for 300k anyway. We would still have enough left over to put 200k down instead of 185k.
It doesn’t matter. The lender determines whether or not to finance you (and at what rate) based on the inherent risk. By deliberately “overpaying” for the house, you’re essentially fooling them into overvaluing the house.
I can’t understand why the seller wants you to do this, though. AFAICT, there’s nothing in it for him.
It’s not the seller, it’s the realtor, whom has a great deal at stake, the paltry commission bump notwithstanding. It artificially inflates values of the other homes in the neighborhood.
Well, that makes slightly more sense, but I doubt that more than a couple of other homes in the neighborhood are listed with this agent.
Anyway, it doesn’t make much difference to a real estate agent if other home prices are inflated; their commission is more or less the same either way, and it’s much easier to sell a cheaper home.
I can’t figure it out either. The best I’ve come up with is that the seller in the long run ‘sells’ the house at 500 and not 485. That’s why I had to ask because it makes no sense to me at all. It also wasn’t the seller’s Realtor but mine that suggested we do it this way. We do like the house, and we think it’s worth about 485. But when someone tells me to do something that I can’t figure out who it benefits then I automatically think somethings up. Feels like someone’s pulling a fast one.
I cannot think of a practical reason why the seller would think this is a better deal. Why don’t you ask your Realtor why they suggested it?
If I had to guess I would say it is an attempted psychological trick. I think people take their homes personally, and accepting a lower offer implies that their home sucks or that they were ripped off when they bought it. Neither of these things may be true, but it must be difficult to shake the disappointment at a lower than expected offer. An offer in the suggested format is technically the same as just offering $485k, but offers a way of saving face: they still have a wonderful home worth $500k (although there was some work that needed to be done, or some buyer circumstances, or a hundred other unrelated to the quality of the home reasons that required an additional $15k in closing costs).
The end result will be higher commisions 24,000 VS 23,100, Total increase 900 or 450 for each realtor. An increase of 3.9%.
It will also increase the property taxes by the same 3.9%.
Now why. Lets the seller say he sold his house a larger amount.
As an example I purchased a bank REO house for $250,000. I got a $5,000 credit on closing, and the seller paid $5,100 to put in a new forced air heating system. The bank would have turned down an offer of $240,000. Why? Bedcause they lost money selling the house, this way the column A looks better. The stuff in column B was just the cost of selling the home (operating costs). It will look better to the banks investors.
