Real Estate Investor · Des Moines, IA · Member since 2015 · 126 posts · 24 votes
We made an offer of $95k + seller to cover $3k in closing costs for a 4 plex on May 8. Seller accepted the next day. Realtor apparently forgot to put the closing costs in the offer and no one noticed until now when the bank is drawing up the paperwork. Our realtor admitted it was his fault and sent us an addendum yesterday stating that the costs would come from his commission. I was a bit confused because I wouldn't think his commission would cover $3k but I wasn't out any money so I signed. Today I get a second addendum with a note that says the bank doesn't allow seller paid closing costs to exceed $1900 on investment properties.
I've never heard of this rule and it seems ironic that it just happens to be an amount low enough to where his commission would cover it... can anyone weigh in? Is this a real rule or is he covering his ***?
Regardless I feel pretty peeved that if this is a rule, my realtor wouldn't have been able to advise on that.
I would say this. If the real estate agent has agreed to pay the difference out of their commission make and keep friends and if later you want to buy your loan down ask your mortgage company if you can buy down by an equivalent amount. Once the money is back in your hand from the agent you can use it to buy your loan down if possible.
Honestly I would not sweat it and I would also not do anything to create bad blood between you and the agent. Things will happen. The agent also might have known full well the seller would not be allowed to pay the full $3,000.00 of the closing costs and might have thought the issue could be resolved easy enough.
Think about it clearly because if the mortgage company would not have allowed the owner to pay $3,000.00 of the closing cost anyway your offer would not have been accepted.
In either case you would have been faced with the same down payment, the same loan amount and the same closing cost because that is something dictated by the mortgage company, referring to what the effects would have been concerning the closing costs. I am saying the same as it is applies to what would be accepted.
Your concern now is that had you known about the limits of the closing cost the seller would have paid you would have adjusted your offer. Its a personal decision as to what you will do now and how you will choose to handle this. In my mind its not worth the hassle to make a big stink about it now since the agent has agree to provide the needed funds to close out of their commission or has offered to reimburse you. As things stand now you have calculated that you can afford the monthly payments and are comfortable with that.
Lenders commonly do have some limit on seller paid closing costs. What are your actual costs? When I've ran into this, the lender limited the seller paid costs to the actual costs, even though those were less than the maximum amount we agreed to pay.
@james wise, I suppose 2% aligns with our offer price. Would have come in differently with my offer if I had known that. And since its not in the original agreement, I'm probably hosed with trying to negotiate it through another means.
If it the closing costs are coming out of the realtor's commission, then it shouldn't make any difference to the bank. Something fishy is going on.
However, if this is a good deal with a lot of upside, then don't blow it over a couple of thousand dollars. Get what you can from the realtor & chalk the rest up to the cost of doing business.
(judging from Ashly's post above, that mistake may be what won you the bid)
I've never been involved in selling or buying where the seller paid a portion of the buyers closing costs.
Can you explain what the motivation would be to get the seller to pay or closing costs?
Thanks
It slightly lessens the amount out of pocket for the buyer at closing. If I offer $92 and put $25% down that's $23k + $2k in closing costs for a total of $25k out of pocket. If I offer $95k and ask the seller to contribute $3k to closing costs that's $23,750-$3,000+$2k in closing, and I come out only paying $22,750 out of pocket.
If the Realtor has agreed with the mistake, consider getting the $3K directly from the Realtor after closing and/or go to through his E&O insurance he carries. People need to be accountable for their errors or they'll never learn.
@Ashly B.thanks and that's a plus for the buyer. In your example, is the benefit the additional $$ offer to the seller even though they are contributing 3k?
@Ashly B.thanks and that's a plus for the buyer. In your example, is the benefit the additional $$ offer to the seller even though they are contributing 3k?
Exactly. So for the seller, they are getting an offer of $92 no matter how you dice it because those closing costs just come out of their proceeds from the sale - there's no downside for them. On the buyers side it just plays with the financing percentages.
Lenders commonly do have some limit on seller paid closing costs. What are your actual costs? When I've ran into this, the lender limited the seller paid costs to the actual costs, even though those were less than the maximum amount we agreed to pay.
Actual will come in at about $2100... so more than what the lender is saying we're allowed to have.
I would say this. If the real estate agent has agreed to pay the difference out of their commission make and keep friends and if later you want to buy your loan down ask your mortgage company if you can buy down by an equivalent amount. Once the money is back in your hand from the agent you can use it to buy your loan down if possible.
Honestly I would not sweat it and I would also not do anything to create bad blood between you and the agent. Things will happen. The agent also might have known full well the seller would not be allowed to pay the full $3,000.00 of the closing costs and might have thought the issue could be resolved easy enough.
Think about it clearly because if the mortgage company would not have allowed the owner to pay $3,000.00 of the closing cost anyway your offer would not have been accepted.
In either case you would have been faced with the same down payment, the same loan amount and the same closing cost because that is something dictated by the mortgage company, referring to what the effects would have been concerning the closing costs. I am saying the same as it is applies to what would be accepted.
Your concern now is that had you known about the limits of the closing cost the seller would have paid you would have adjusted your offer. Its a personal decision as to what you will do now and how you will choose to handle this. In my mind its not worth the hassle to make a big stink about it now since the agent has agree to provide the needed funds to close out of their commission or has offered to reimburse you. As things stand now you have calculated that you can afford the monthly payments and are comfortable with that.
In Florida, a copy of the signed contract must be given to both the buyer and seller. Often, negotiation back and forth is a little loose but once you have a meeting of the minds copies with everybody's signature is to be given I believe within a couple of days. This obviously was not done in your situation. Maybe your state does not require it, but if so and you did not get it, go talk to the broker. It sounds like alot of negligence going on.
@james wise, I suppose 2% aligns with our offer price. Would have come in differently with my offer if I had known that. And since its not in the original agreement, I'm probably hosed with trying to negotiate it through another means.
Did the seller verbally agree to the closing cost assist? If so you can play hardball and threaten not to close if they don't reduce the purchase to a number equal to the originally agreeded upon price.
Remember sellers want to sell. You stand a good chance that they agree to it.
@james wise, I suppose 2% aligns with our offer price. Would have come in differently with my offer if I had known that. And since its not in the original agreement, I'm probably hosed with trying to negotiate it through another means.
Did the seller verbally agree to the closing cost assist? If so you can play hardball and threaten not to close if they don't reduce the purchase to a number equal to the originally agreeded upon price.
Remember sellers want to sell. You stand a good chance that they agree to it.
I'm trying to track back through email and figure out where closing costs fell out of the agreement because they were in the original offer agreement the realtor sent me - I specifically looked to be sure everything we asked for was included - but I did have a couple changes so he sent a revised, we signed through dotloop electronically and somehow the second version didn't have the closing costs and because of the method he used to send it, I can't even see the original version because its been deleted. I don't believe the sellers ever knew we asked for them so no there was no verbal agreement.
In Florida, a copy of the signed contract must be given to both the buyer and seller. Often, negotiation back and forth is a little loose but once you have a meeting of the minds copies with everybody's signature is to be given I believe within a couple of days. This obviously was not done in your situation. Maybe your state does not require it, but if so and you did not get it, go talk to the broker. It sounds like alot of negligence going on.
Interesting. To add fuel to the fire, we're also closing late because the realtor did not provide the agreement to my lender until 2 weeks after the offer was accepted. He played it off as if I should have taken the lead to send it to her but he hadn't provided me a copy either. I finally got a copy from him the day after the lender did, which was May 21 - offer made May 8 and accepted May 9.
@james wise, I suppose 2% aligns with our offer price. Would have come in differently with my offer if I had known that. And since its not in the original agreement, I'm probably hosed with trying to negotiate it through another means.
Did the seller verbally agree to the closing cost assist? If so you can play hardball and threaten not to close if they don't reduce the purchase to a number equal to the originally agreeded upon price.
Remember sellers want to sell. You stand a good chance that they agree to it.
I'm trying to track back through email and figure out where closing costs fell out of the agreement because they were in the original offer agreement the realtor sent me - I specifically looked to be sure everything we asked for was included - but I did have a couple changes so he sent a revised, we signed through dotloop electronically and somehow the second version didn't have the closing costs and because of the method he used to send it, I can't even see the original version because its been deleted. I don't believe the sellers ever knew we asked for them so no there was no verbal agreement.
In that case you are out of luck trying to get the sellers to change price now. That is unfortante.
I'm still stewing over all this. Obviously I don't want to give the deal up over $1100 but I'm frustrated at how poorly communicated everything has been, honestly mostly from my lender but the realtor is adding to the pain. First I was told 20% down @ 3%. Then it was 25% down because its a 4plex. Then I get the papers to sign and its 25% down at 3.6%. Now its only $1900 in closing costs are allowed. I guess its all part of the learning experience but we just went from an estimated $19k out of pocket to $24k between the added 5% down and the loss of closing costs. That's not chump change and eats up the entire updating budget we had planned and then some. We're going to be scraping the bottom of the barrel to make it work and I'm having serious second thoughts. Why do they wait until 4 days before closing to reveal this?
Well what I can say now is that if you do not want to live through this depending what and if you have earnest money into the deal. Despite you having signed papers up to now simply walk away from the deal, Do not close, do not sign anything further. Let the deal fall through. Better cut your loses than to live with eternal buyers remorse. This is all unfortunate but does exemplify some of the things people can run into when making real estate deals.
Apparently, you didn't have a good understanding of what was required/allowed from your lender...the down payment % and allowable closing costs paid by others. Yes, your agent le left out the closing costs on the revised offer, but You signed it, apparently without reading it. You need to shoulder some of the responsibility for this. The fact that you seem to be a little strapped for cash means you may be over reaching a little on this one.
Apparently, you didn't have a good understanding of what was required/allowed from your lender...the down payment % and allowable closing costs paid by others. Yes, your agent le left out the closing costs on the revised offer, but You signed it, apparently without reading it. You need to shoulder some of the responsibility for this. The fact that you seem to be a little strapped for cash means you may be over reaching a little on this one.
I mean to be fair, my expectations of the lending terms were set by the lender. I asked all these questions when we first began our search for an investment property and it wasn't clear to me that the terms would change if we purchased a 4 plex as opposed to a SFH or duplex... not necessarily trying to pass blame, but having never been through this before, I had no reason to believe that would change the terms she had outlined for me. I asked what happened if we bought a multi-plex and her response was that they could only finance it if it was fewer than 5 units... I was asking the questions but they were not being answered fully.
Don't disagree with you one bit on the closing costs. I know its my fault. I read the agreement cover to cover the first time through, sent the agent 3 small changes, it came back and I checked to be sure those were incorporated and then signed but did not re-read the entire document. I 100% understand that I signed and therefore I'm responsible but its extremely frustrating. I can say with certainty that I will never sign any meaningful contract via an electronic signature program again - it was hard to read through because it just skips to the signature parts and admittedly thats why I skimmed the second time. As I said, its just been a huge eye opening learning experience. I fully expected to have $5k in unexpected costs come up as a landlord, but not before I'm even reaping the profits.
I second what Gilbert was saying. Sometimes you must walk away. Keep away from emotional attachment. I dont know all circumstances however certain signs are there. If you are not happy with the deal walk. You have many reasons to justify it.
This may be a generalization and not applicable here but a trick with lenders and mortgage brokers is to keep you in the dark until the last minute. Interest rates change just before closing. They use some excuse like a blemish on your credit that they did not see before. Homeowners have sold or are ready to move, may have stuff in storage etc. The mortgage broker or lender will slide in a higher interest rate at the last minute. They will say well you can always refinance later. So, people go through with the deal. I always say, always be willing to walk from the deal. Just some thoughts not solid advice.
I've never been involved in selling or buying where the seller paid a portion of the buyers closing costs.
Can you explain what the motivation would be to get the seller to pay or closing costs?
Thanks
It slightly lessens the amount out of pocket for the buyer at closing. If I offer $92 and put $25% down that's $23k + $2k in closing costs for a total of $25k out of pocket. If I offer $95k and ask the seller to contribute $3k to closing costs that's $23,750-$3,000+$2k in closing, and I come out only paying $22,750 out of pocket.
Ashly, the same thing happened when my wife and I bought our primary residence. Our agent acknowledged his mistake and promised to get the money to me. Because of personal reasons, he wasn't able to make good on the money at the closing of our house, but after two other sales closed for him a couple of weeks later, he gave me a check for the amount and a still-in-the-box television for our trouble.
$3000 in closing costs sounds pretty high, unless there were points on the loan or what not. Prorated rents, deposits and taxes, while on the HUD, aren't really closing costs, so I"m surprised they would be that high. And if it's the commission, the seller always pays that and that shouldn't be considered a "closing cost" either.