Dave Scully

The differences between Seller Contributions and Seller Concessions

Wed, 04 May 2011 18:20:26 EST

One issue that has popped up recently on several files are seller concessions. It is important to understand the difference between a seller contribution and a seller concession.

A seller contribution is financial contribution toward a purchaser’s closing costs, pre-paids, or discount points. These are very common and I am certain everyone is familiar with them. There are limits to the amount of seller contributions that can be made. The limits are based on the loan to value of a transaction. For example, 3% for >90% LTV on conventional, 6% for <90% LTV conventional, all FHA, VA, USDA; 2% for all investment property regardless of LTV etc.

A seller concession however is a very different animal. A seller concession is an item or financial incentive that is considered an inducement to purchase. The value of a seller concession will result in a dollar for dollar reduction in the lesser of the sales price or appraised value. Common examples of seller concessions are: Decorator Allowance, Carpet Allowance, Landscape Allowance etc. If you see the word allowance, it is a huge red flag.

However, seller concessions can also take the form of material goods or services that have value. Some recent examples we have seen: 2007 BMW; Tracker Bass Boat; 2 Snow Mobiles; Riding Lawn Mower; Dining Room Set; 1 Year of Lawn Service; Paid Vacation to Hawaii post close; etc. All of these items have value and would result in a dollar for dollar reduction in the lesser of the sales price or appraised value if they are not removed from the contract.

One of the more common questions regarding seller concessions are items such as the refrigerator, washer-dryer, portable dishwasher and so on. There is no easy way to answer this, however items such as major kitchen appliances are generally not considered seller concessions as long as the appraiser notes it on the appraisal and there is no indication that it is uncommon for the area. Many contracts already have verbiage along the lines of “included at no additional cost to the purchaser are…”. This phrase does not guarantee an item is not a concession, but it is a help and I highly recommend it to real estate agents.

So, when you receive purchase contracts, please take a moment to review the terms of the agreement. If you see anything being paid outside of the normal contribution toward closing costs, pre-paids, or discount points, you may have a seller concession.

Big Changes Coming to FHA Loans Effective April 4th!

Wed, 16 Feb 2011 16:35:10 EST

All FHA 30 year loans that are assigned case numbers on or after 4/4/11 will have an increase in the Monthly MIP from .90bps to 1.15BPS for loans with less than 5% down. For FHA 30 Year loans with greater than 5% down the monthly MIP will increase from .95 to 1.10BPS. (BPS=Basis Points)

On a loan sales price of $163,000 this will increase the monthly MIP by $33. The net effect will be as if the rate is .375%-to a .50% higher in payment.

As if this wasn’t enough effective on all FHA loans assigned case numbers after 4/18/2011 the Up Front MIP on ALL FHA loans will increase from 1% to 1.25%. This amount is always financed.

The best way to avoid the higher MIP rates is to get out there and buy your house now! Rates are still at near historical all time lows! There are many great deals on houses out there! Go out and take advantage of all 3; LOW RATES, LOW HOUSING PRICES, and LOWER MIP!

Are you considering buying short sale?

Fri, 14 Jan 2011 17:02:15 EST

Every buyer in the market wants to get the best deal. You may want to begin your search for a new home with properties that are on a “short sale”. First, let’s define what a short sale is. A short sale is when the sales price of the home is less than the amount the previous owners currently owe on their mortgage. In a short sale the borrowers are likely in the foreclosure process. Therefore the Bank is the considered the seller and that is who you’re Realtor will be negotiating with.

When buying a short sale you must be prepared for a longer negotiating process and closing process. As I said earlier you are dealing with the bank who owns the property. The banks have so many short sales and foreclosures on their books that they do not react as quickly to an offer on the property. Also, the bank will allow you to do a whole house inspection, however they may only sell you the house on an as is basis. I encourage every buyer to get a whole house inspection. However, on a short sale most banks will not make ANY repairs to the property.

Once your loan is approved and you are cleared to close we can typically close you within a day. However, on a short sale the bank will want to see the closing statement and review it for up to 72 hours prior to close.

They key to a successful and timely closing on a short sale is knowing what to expect and when to expect it. Personally I refer to short sales as “Long Sales” as they take a little bit longer to close due to the owner being the bank. I recommend you expect to close a short sale in 45 days instead of the 30 days that we can close a loan.