QUESTION
How can I offer an allowance for buyers of my home?
Asked on Apr 29th, 2011 on Real Estate - Alabama
More details to this question:
My older home is for sale and I would like to offer an allowance to upgrade the kitchen with granite counter tops, new flooring, etc. totaling about $15k. My agent says that its illegal to offer to give the buyer cash at closing, that the lender must be informed off all such deals, but if we do, they will not like it and will reduce their loan accordingly.
I could lower the price, but 90% buyers have no imagination. They see the old Formica, etc. and walk away. I could make the upgrades now, but I don't want to put more money into it without a buyer and besides, it is better if they pick out colors and designs. There has to be a way to offer such incentive. What if I went ahead and pre-paid a contractor to do up to $15k of work? The buyer would not get any money, but would benefit from the work to be done.
1 ANSWER
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You did not say whether the property has been appraised, and it is doubtful that a $15,000 upgrade on the kitchen will enhance the appraisal by that much. Even so, such an upgrade will certainly make the home look better and will help to sell it.
Any "side deal" such as your proposed allowance will have to be disclosed to the buyer's lender -- and such side deals will usually be disallowed by the lenders.
Have you asked your realtor about the feasibility of entering into a sales contract with a buyer that recites, as a condition to the buyer's purchase, that certain work be performed? That way, the prospective buyer would be able to pick colors, etc, but you would have to spend the money to get the work done in order to get to the closing table. The appraisal could probably be done in anticipation of the upgrades being done.
Keep in mind that Fha and VA loans will ordinarily require that the property pass an inspection. In order to qualify the property for financing under those regulations, the inspector may require that specified repairs/upgrades be made. Conventional lenders may allow "as is" purchases.
If a conditional contract (such as suggested above) cannot be worked out, it is a judgment call as to whether you would be better off funding the work up front or reducing the sale price.
Answered on Nov 28th, 2011 at 7:57 PM