Update on home buying situation - purchase and sale question: is this unusual?

[daisyd]

Quick update on the home buying situation - we were able to get a price reduction on the home and the owner's agreed to some repairs/remediation in addition, after we told them we were walking away. We did a pro and con analysis (thanks Mama Molly) and thought of what it would take if we had to sell the house in this new scenario (thanks squimp) and it now looks like a better prospect. We spoke to our attorney and home inspector who concurred.

So this is my question - we're being asked to sign a purchase and sale agreement with the original price we offered (before the home inspection) and the price they agreed to reduce will be returned to us, per our realtor. I'm unclear when and we mean to talk to attorney about this. Our realtor says she does not know why the seller's want to do it this way (what's in it for them?) but it's making us uncomfortable. Does anyone have any experience with this situation? Is it unusual or not so much and what is the advantage to the seller...any disadvantages for us? FWIW, our realtor is now a little more responsive and eager to see the deal through after DH had a few heated exchanges with her and said we'd walk away, but we still don't trust her.

Thanks a bunch!

[HannaAddict]

The realtor is driving this, since their commission is based on the sale price - not on the reductions you requested. It is pretty common in our area once you have agreed to a price, then done the inspection and you call something to be repaired, that in lieu of fixing it, some amount of money to pay for the repairs is refunded to the buyers at closing. We had the buyer for our bungalow ask for all sorts of things that weren't defects in the house, like new appliances (nope, wasn't happening in that market) and tuck pointing. We only agreed to tuck point the chimney since we knew going in it was legitimate. He asked for $$$ instead, we said okay but for 1/4 of what he wanted (less than the middle tuck point estimate) and he received that money at closing but the sales price stayed the same. Same thing with house number 2, only they didn't really call anything (great house) but we had the gutters cleaned. When buying our current house, we asked for $$ for a repair and it was refunded on closing. The agents get their percentage on the sales price though. This is very typical in our area. We wanted to do our own repair and in the case of the guy we sold to, he never tuck pointed, but went to Maui, per our old neighbor and friend! Good luck with a smooth transaction.

ETA There should be an addendum or written in the agreement about items called on the inspection that $XX goes to buyer on closing. In our state, you can agree to repairs or check a different box and put in the cash they get at close. HTH. Totally normal.

[daisyd]

Thanks HannaAddict that was very helpful. It's a relief to know that this can be done and to understand why it's done. Thanks also for explaining about the addendum.

[wellyes]

Just backing up HA, it's normal.

[o_mom]

Our realtor says she does not know why the seller's want to do it this way (what's in it for them?)

Agree that this is fairly normal - purchase agreement stays at original price so realtor(s) gets the full commission, but then there are amendments for allowances to be paid at closing covering everything agreed to in the inspection negotiations.

However, I am really concerned that your agent can't explain this to you!!! You are not paying commission, so there is no reason to not tell you that this is how it works. I would just make sure that your attorney is reviewing everything at this point because your realtor clearly has no clue.

[daisyd]

Thanks o mom. Yes, I'm concerned as well that our realtor was not honest about this and other tings. We have a growing realization that things we'd shared with her confidentially have not been used in our best interests and she did the minimum possible to settle the deal. Sounds like the sellers were very motivated but she and the seller's agent have been working together as allies to drive a hard bargain :( We're consulting our attorney and home inspector who thankfully were recommendations from our friends. We wonder if she was miffed that we did not use her guys for these and our well and radon testing. But I'm so glad we didn't follow our original impulse of settling with her guys and DIY radon kit.

[Melbel]

One point to consider, both you and the seller may pay higher transaction costs and property taxes based upon the proposal. Documentary stamps, recording fees and property taxes are based upon the sales price here. I would inquire with your attorney regarding these issues (may be nominal enough not to worry about it). I think you are very wise to hire an attorney and an independent inspector. Unfortunately, there are conflicts of interest inherent in real estate commission model.

[arivecchi]

It is also possible to simply amend the contract. We just purchased a home last month and got a significant price reduction after the appraisal came in low. We amended the purchase price to reflect the new agreed-upon price. As PP said, a higher PP benefits the realtors, but may cost you and the seller more $$ in terms of closing costs which are based off the purchase price. I would ask for an amendment. Talk to your attorney about this and get his/her view on this.

[daisyd]

One point to consider, both you and the seller may pay higher transaction costs and property taxes based upon the proposal. Documentary stamps, recording fees and property taxes are based upon the sales price here. I would inquire with your attorney regarding these issues (may be nominal enough not to worry about it). I think you are very wise to hire an attorney and an independent inspector. Unfortunately, there are conflicts of interest inherent in real estate commission model.

Thanks that's a point we hadnt considered - we're checking with our attorney. So true that there's a conflict in the commission model.

[California]

As PPs have pointed out, this will result in slightly higher property taxes and closing fees for you. The only people who it benefits, (as far as I know) are the realtors.

[vonfirmath]

As PPs have pointed out, this will result in slightly higher property taxes and closing fees for you. The only people who it benefits, (as far as I know) are the realtors.

Actually it also benefits folks who are cash poor and need to do renovating. Gives us a bit more cash in pocket to do those changes with. Our current contract is for $132K with $5K paid by the seller for an out of pocket of ~$15K (10% is going into a short term second lien loan--we could do 20% down but it would leave us with NOTHING left.)

The same loan at $127K with 0 closing costs paid would be $20,800 out of pocket

Since we have to do things like replace carpet, rotten trim, a ceiling fan and some outlets that does not work, etc. we'd rather have that money in our savings account than paid out at the beginning, as well as giving us a better cushion for the stuff that breaks Right Away when you move into a new house.

[HannaAddict]

I doubt you will get anywhere with changing the purchase price in this case. A low appraisal is a totally different kettle of fish do purchase price changes. As a poster pointed out, buyers often want the cash back at closing for all sorts of reasons. Considering the entire transaction cost, the difference in taxes etc. that might be higher is minuscule. Fight the big battles but don't fight or try to renegotiate everything, just too bad realtor didn't have a clear explanation.

[daisyd]

Turns out my realtor was "mistaken", the purchase price was reduced and just as we're ready to sign the agreement, we hear from the sellers that they're not ok with the current agreement because they had not agreed to do some of the repairs in the addendum. So we have a huddle and then our realtor tells us that the seller's agent "forgot" to communicate our request for these repairs and it would not be fair to the sellers to surprise them at this point with our request for repairs. DH was inclined to let it go because he was tired of dealing with this but I was so fed up I just wanted out. I expressed my discontent to the realtor and said this was the last straw. Then surprisingly she and the other realtor offered to lower their commission to cover the cost of these repairs. It's not written in the agreement but she said we'd have to take her on trust (sigh). There's been so much drama this week, I just hope and pray the days leading up to the closing and beyond are more peaceful.