Profile picture for AMBALL

Our buyer wants to include their closing costs in the purchase price. Is this ethical?

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October 29 2011 - Plymouth
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Answers (51)

Yes, but you are not really paying their closing costs.  All they are doing is wrapping in their closing costs to the amount of their mortgage.  They end up offering you less money, but you aren't actually coming out and paying for it.  They are technically borrowing more money from the bank to pay them.  It is a misleading term, but that is how people use it.  If you have any more questions let me know.
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November 08 2013
Profile picture for DSD330
wow - ethics are not a strict set of rules they change over time
my family owned slaves back in the day
it was considered ethical by most
now in the US it is considered unethical
In other countries we still have slavery
so ethics are a matter of current opinion

if all parties are OK with the details then it's OK
strangely FHA puts a limit on the practice hint, hint

This is where it concerns me:
1 - it does artificially inflate the industry if the actual sale price recorded at the county includes closing costs
2 - if the added costs are used to calculate commissions well that's not OK in my book. So recently I gave a 1,000 discount for not using seller paid closing costs. (put my money where my mouth is)
3 - when all is said and done... more will be said than done

there ya go
have a nice day
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September 04 2013
You're fighting a stupid battle in a world of very serious injustices, and you're insulting good men and women in the process. For someone who is making their arguments on the foundations of ethics and honesty, you are behaving about as badly as every other self-righteous defender of ethics and honesty.
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January 18 2012
Profile picture for hpvanc
If I read Mack correctly in King County, WA, neither the deed or the Tax Affidavit has useful information so I should just give up?   Additionally the federal government through the FHA was the instigator in the perpetration of this particular practice I find objectionable?
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January 18 2012
The Ambiguously Fey Duo!
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January 18 2012
Profile picture for the_country_hick
If I understood correctly it used to be that deeds were often made as sold for $1 and other valuable considerations. Now it has to be the actual amount paid. Naturally different locations can have different rules so there is no one size fits all answer to how a deed is written regarding the amount paid for a property.
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January 18 2012
Really? That's the best you can do? 

I'm going to tell you how it's done in King County, Washington. The deed states that, "For ten dollars and other valuable consideration," regardless of the actual sales price. (Oh My Gawd!) The purchase price gets stated on an Excise Tax Affidavit, which is signed by the buyer and seller, showing the Gross Selling Price.

hpvanc, the correct response from you should be: "Oh, I see, I was wrong, and I apologize to those I have offended." But I know you're gonna keep it up, and that's just silly.
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January 18 2012
hpvanc, you were wrong then, you're wrong now. Yes, it was allowed to continue from the inception of FHA or maybe even before into the housing bubble - I get how you're trying to make the tie-in.

By definition, these buyers are qualified. A maven of ethics and honesty like yourself clearly sees how misrepresenting this is dishonest. As to whether it is healthy or unhealthy, we have fifty years of data to work with; seems like that's a "no," also.

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January 18 2012
Profile picture for hpvanc
Asking for the seller paid home warranty creates the exact same dilemma. 

Did you pay for a car with the new tires and fresh oil, or write a contract with a credit to go buy them yourself, and then try to finance the full contract amount?  If you are paying cash for a car I don't care what you do with the contract.  If you are financing a transaction or paying cash for one that gets publicly recorded, then I have a problem with intentionally creating ambiguity.

At that point it potentially becomes the same issue as the 2nd buyer in your scenario. 
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January 18 2012
Free will is unethical. We should all be "programmed" by hpvanc.
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January 18 2012
Roberto, if I may expand upon what you wrote to fit the topic at hand:

anything that two consenting adults contract to which is legal, disclosed to all parties, is not an attempt to circumvent the rules and is a generally accepted practice is perfectly fine.

Thank you.

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January 18 2012
Profile picture for hpvanc
Here is my original replys to AMBALL way back in Oct. when they made this post:

"No it is not ethical.  Unfortunately it is common practice."

"It is the game real estate sales people have devised to play with the loan sales people, to record higher than actual sales prices so more unqualified buyers can get loans.  It was never ethical, but it has been allowed to continue into the collapsed housing bubble.  You may have to go along with it to get your property sold.  It is not ethical, it is unhealthy for the economic housing market, but given the what has transpired in the past and the current environment it is a sales tactic that you may have to hold your nose on the ethics of and go along with."

I'm glad you caught the not so subtle editorial commentary.
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January 18 2012
The deception card played by the algorithm worshiper.

If he were slandering someone other than me, and Mack, that shite would be comical. It's comical even though he does think he's talking about me. Someone he doesn't know from Adam. That makes it more comical. What a fine human.
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January 18 2012
There is a bigger risk for the seller that the home does not appraise. For a hypothetical $100K home, one buyer offers $95,000 another offers $100,000 with $5000 in closing costs and prepaid help, what happens if the appraisal comes in at say $97000? The first deal will sail through, the second one will likely try to get you to drop the price to the appraisal, and STILL pay the closing cost help...

Is it ethical? Is this a joke? I realize bashing agents is the cause celebre of a certain cast of nitwits on here, but anything that two consenting adults contract to is perfectly fine. 

Let take another example for the unethical crowd: some buyers want home warranties, others don't. There is a $500 hidden expense in some contracts.

I bought a used car, and had the seller buy new tires and change the oil, before I purchased it. I guess that made it unethical car purchasing...

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January 18 2012
Really? I get that you're in a hole now, but why not dig yourself out of it honorably, without taking weak swipes like that.

I do feel for you, because there are a couple of regulars who are standing by watching you play the fool, essentially fighting their battles against rising real estate values generally and real estate agents specifically.

But I did catch the second insult, and you might also consider why you would want to the Amball's seller, "No, don't let them include closing costs in the purchase price. Find another buyer, even if it means taking less."

Bonus points if you can convince Amball that it is their moral imperative.


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January 18 2012
Profile picture for hpvanc
Deception seems to be an important part of your community standards of practice, anywhere you think you can gain an edge to get a deal closed.  Since you no longer believe this one works to actually deceive, why not roll back the practice.

There is no shortage of unethical practices that have become common practices in any industry.
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January 18 2012
Especially when one is so wrong.
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January 18 2012
Is self righteous indignation unethical?
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January 18 2012
Well, you're wrong.

For one thing, it's completely honest, completely above board. It conforms to generally accepted community standards of practice, and by the way, this has been the generally accepted standard of practice for half a century.

And, really, nobody thinks it's wrong. Except for a few guys around the bar like you & Dan. You want to show it's unethical, swing away. But I take personal offense at being called unethical for brokering transactions in exactly this manner.
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January 18 2012
Profile picture for hpvanc
I consider it unethical for any party to participate in the game.  It may be a little less so, if you participate but make an effort to do something about it, but still unethical.  Write the contract at the net amount, be sure it gets recorded that way in all locations.  Appraisal should only need to come in at the net price that way, why play the shell game?

Why is that level of honesty such a difficult concept?
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January 18 2012
Guys, what ever happened to simply saying, "Oh, I see your point, thank you, I was wrong."

This is not an unethical practice. End of story.

Except, Amball, if you're being asked to hide this fact somehow. But if it's on the settlement statement, and the lender is aware of it, you're good to go.
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January 18 2012
The house has to appraise for enough to include the concessions in the price, hence it is part of the price. The Seller pays it from the price. Their proceeds are all that is reduced. Unethical how?
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January 18 2012
Profile picture for the_country_hick
When a transaction cost is recorded if there is more in that price recorded at the county registry of deeds is it ethical to give a different price paid for a property than was really given for that property?

If 2 identical new houses sold where the buyer paid the same $100k for the house but one paid an extra $5,000 (for a total of $105k) for their own closing costs and the other sold for an extra $5k so the seller could add the $5k to the cost (so an apparent cost of $105k) is the sale price recorded the same or different?

If different it only mangles the C.M.A. that uses the sale for comparable sales right?

P.S.  Seller concessions are not included in what is considered the real sales price. Those are extra costs normally paid by the buyer.
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January 18 2012
No, no, no - you said it was unethical, which means that you've called all agents, buyers, and sellers who engage in the practice unethical: is it, or is it not?
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January 18 2012
Profile picture for hpvanc
Why play games with it?  It reduces what a seller is receiving and it reduces what a buyer is paying or borrowing, why make it a game in the contract?
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January 18 2012
And it's unethical, how?
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January 18 2012
Appraisals include Seller concessions info.
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January 18 2012
Profile picture for hpvanc
It is a shell game on pricing, straight forward is better for all parties.  Sellers have a right to a simpler contract that doesn't have that kind of game in it indicating what they are actually selling the property for.  Yes agents may do a good job of explaining it to sellers, but everyone would benefit if they didn't have to.

Does the recorded prices both public record and MLS always get recorded at NET? Unfortunately from what I have been able to find out, that is not always the case hence the shell game with the records skewing comps. 

The scheme was devised to get buyers into higher loans than they would otherwise have qualified for, now that lenders are starting to crack down on that why not just help the process along for better transparency.
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January 18 2012
hpvanc, how is this unethical?
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January 18 2012
Yes, it's ethical and legal and a common practice.

That being said....my personal issue with this practice is in regard to the REPORTING of the sale price to the MLS, which can be misl.eading.

We (at least in my area) are supposed to report the sale price that was listed on the contract.
If that number is reported, instead of the NET after deducting the seller concession, then the comps , imo,  are skewed and do not reflect what the house actually sold for.

The same issue exists when we deduct an allowance for home repairs....I recently had a sale price reduced by $15,000 due to a foundation problem...the buyers received that amount as a credit at closing.........so I had to report the sale price as 15,000 less than the originally agreed-to price (the contract was changed to reflect the lower number). 
Had the seller addressed the issue, and paid for the repair, the sale price would have been reported as the full amount.

Skewed comps again, but in a different direction??
I think so.
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January 18 2012
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