Question - Cash Back at Settlement for Buyers

By
Real Estate Services with Auction Brokers & Investors United

Question: Cash Back at Closing

My buyer wants cash back at closing to renovate the property, which is fine by me because he's willing to pay me the difference in my tax liability. My question is how do I correctly and LEGALLY write it up into the purchase agreement so that I'm not committing fraud? Thanks.

How much does he want and how much are you willing to give back?

There are several ways to satisfy your buyer:

•1.      Give the buyer a check that will be due at a future date after the formal settlement. This could be consideration for completing needed work or reimbursement for closing cost.

•2.      The buyer can write a clause in the offer that states that the seller agrees to give the buyer $10,000 at time of settlement to complete the following deferred maintenances.....

•3.      Buyer can offer to paint the front porch (Called a "front porch clause") for $10,000, seller writes a check for $10,000 payable to buyer, and buyer endorses the check back to seller as a downpayment on the property. You should retain a photo copy of the check as proof of consideration.

You never want to do anything that is gray, marginal or could be interpreted as  illegal. 

There are many formulas that can be used to structure transactions legally and creatively; never do anything that is contrary to the law.  Always make full disclosures early in your negotiations and keep your word.

Charles Parrish

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Tags:
front porch clause
cash back
reimburstment
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Rainer
45,813
Charles Parrish
Auction Brokers & Investors United

I agree with most of the responses here.  It is important to make all DISCLOSURES.  it is not worth going to jail  for.

As we all know, sellers have always contributed to buyer's settlement cost.  It is done all the time with full disclosures.

My post was not intented to give bad information, only to inform and to stimulate.

Charlie

August 19, 2007 01:16 PM
Anonymous #6
Anonymous
Anonymous

Give the buyer some of your commission for the repairs. This does not have to be on the HUD unless used for settlement costs. Where did I get such an assertion?

http://www.gcaar.com/legalcorner/docs/rebates_closing_costs.pdf

 

August 30, 2007 11:36 AM
Rainer
143,765
Gary J. Rocks
Werner Realty

Charles

That sound like it is illegal in New Jersey, Realtors cannot get involved in this transaction.

August 30, 2007 02:56 PM
Anonymous #8
Anonymous
Anonymous
Commission rebates are legal in most states; however, they are illegal in NJ -- but that might change. There is legislation pending in NJ that will allow cash back rebates. Read the verbiage.

(2) a real estate licensee may provide a seller or purchaser a

16 rebate of a portion of the commission paid to the licensee in a

17 transaction, so long as: the licensee and the seller or purchaser

18 contract for such a rebate in advance; and the licensee complies

19 with any State or federal requirements with respect to the disclosure

20 of the payment of the rebate. The rebate paid to the seller or

21 purchaser may be in the form of cash or other thing of value,

22 including, but not limited to, a gift certificate, and may be made at

23 or after the closing;
August 30, 2007 05:43 PM
Rainer
51,727
Diane Velikis
Luzerne County Real Estate
Coldwell & Banker Busch Real Estate
A very good read with extremely good comments. I have never encountered this type of closing, but have heard about them. Now if I have a buyer who asks me about this I have an answer. Thanks for the info!
September 03, 2007 07:37 AM
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Charles Parrish

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