seller concession in 1031
Greetings,
I am in discussion with a potential buyer on a condo I want to sell. The buyer wants to borrow more than the sale price, and would therefore be doing “seller concessions” at the closing table.
eg, if house is 100k, they agree to 120 on paper, then at closing say it will only be 100, and the 20 is returned to the buyer, minus seller additional incurred transfer taxes.
Would the 1031 then be required on 100–the actual amount the seller received, or in 120, the amount in the initial contract?
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Don't forget that there are limits to the amount of the seller concession depending on the loan product (for conforming loans anyway), anywhere between 3% to 6% as I vaguely recall. Yes, the way you put it in your OP does sound kinda shady, but seller concessions happen all the time and can be put into the sales contract a little "more correctly." As usual, the only hiccup might be if the property doesn't appraise since would be a lender issue.
But, back to your question, you can't use a seller's concession as a way to "cash out" refi... It can only be used for legitamate closing costs. Yes, as a matter of "cash avoidance" I would agree its effectively like getting "cash back" when youuse a debit card at a grocery store (or something). For example, if for some reason the concession exceeds the allowable closing costs, you don't get the "extra money." its and "up to amount" type clause.
For the 1031, I thought the one of two conditions was you needed to reinvest the proceeds from the sale. So, whatever you walk away with from closing (via the QI) is what you have to reinvest. @Dave Foster can please help me clarify / confirm this for me. So, as the seller since you are only getting 100k, as in your example, that amount (less fees/costs etc.) is what I would think you would have to concern yourself with for the 1031.
Good luck.