mistake cost me $1,000; 2% concession

7 Replies

After just searching the forums  I know that the 2% concession has been discussed and I now wish I had read those posts but I wanted to give a heads up again so someone doesnt go through what I just went through.

This is my second investment property but first one with HUD. When my realtor submitted my bid to HUD, she put down $3,000 closing cost assistance which is 3% of the purchase price. I now know that the max seller concession on an investor loan is 2% of the purchase price. My Lender caught this and my realtors just told me that we would address it later.

So its coming up on my close and my realtor tells me that if I would like we can add an addendum to change it to 2% and reduce the sale price by $1,000. Either way HUD nets 91K. Well, yes of course I want to do this but, I am now being told that my realtors office manager contacted the asset manager who told her no way and that the only way to do it was to release the contract and put in another offer.

I feel as though this could have been avoided if I had been aware that the max seller concession on an investor loan is 2% of the purchase price.   I'm moving forward anyway but i'm just a little ticked that my realtor didnt know this and that she still gets her $3,000. 

Here is what my bid bummary looked like if you are curious. 

Bid Summary:

3. Agreed purchase price of the property is:$100,000

5. Seller will pay reasonable and customary costs, but not more than actual costs, nor more than paid by a typical Seller in the area, of obtaining financing and/or closing (excluding broker’s commission) in an amount not to exceed.$3,000

6a. Upon sales closing, Seller agrees to pay to the broker a commission (including selling bonus, if offered by seller) of:$3,000

6b. Upon sales closing, Seller agrees to pay to the broad listing broker (if broker identified is not the broad listing broker):$3,000

7.Net amount due to seller: $91,000

8. Purchaser is :Investor

Lesson learned on my part.

Hud will allow for a home warranty to be paid for out of the concession so order the most expensive warranty with all the bells and whistles.  You can always cancel the warranty after closing and receive a pro-rated refund.  A survey might be allowed outside the 2% as well

@Elizabeth O.   have you addressed this with the realtor? I would at least bring it up and see if they take the high road and do the right thing by you. If not I would change realtors for my next deal.

I would like we can add an addendum to change it to 2% and reduce the sale price by $1,000. Either way HUD nets 91K.

That's not the case. From your perspective the change from 3%/$3000 with a $100K price to 2%/$2000 with a $99K price is the same as what you were expecting. But that change costs HUD $1000. They know, even if you don't, that you're going to be limited to $2000 in concessions when it comes to closing. So, even though the contract says $3000, you're only getting $2000. So their net is $92,000. With the change, their net is reduced to $91,000. So, yeah, I'm not surprised they wouldn't just make that change.

Reducing the buyer's agent's commissions wouldn't help by itself.  That would simply increase the net to seller by $1000 because the seller is paying that.  It would only help if you got the agent to reduce their commission and give you the $1000 difference.  Not sure the lender would allow that.

@Jon Holdman  

Actually she is correct(not factoring in the commission difference between 100 and 99) that the net to HUD would be the same. HUD has no idea at the time of the bid submission what type of financing the buyer is getting but only that she is an investor. The 2% contribution is only for standard FNMA guideline investor loans. Many portfolio investor loan would allow the full 3%.

Saying that, HUD is not going to reduce the sales price even though the net to them is the same. The only option is to "spend" the money within the HUD allowable costs. The example I gave above is a home warranty. She could add appliance coverage and all other options to get as close as possible.

@Greg H.  

Yes I did address this with my realtor.  She did not offer up anything.  She just kinda told me that "at least we now know and  things will go smoothly on the next deal."   I wasnt really expecting her to give me 1,000 but I was expecing a simple "I screwed up" and i didnt get that. 

I do not think your agent is at fault.  Maybe a way better than average agent would know someting like this, but agents are not responsible for your financing and the limitations your financing put on a deal.  There are a million ways to finance a house and you chose to use a product that limits concessions.  Just my opinion... and another reason I don't use agents.

@Elizabeth O.   I am guessing there will not be a "next" deal with this realtor? Or you could mention that you are not really happy with the way things worked out on this one and see if she can take a haircut on the "next" deal. 

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