Williams Realty Atlanta-Brookhaven Legal Tip

Try To Avoid Credits & Allowances!

In some contracts, the seller agrees to give a credit or allowance for repairs/upgrades/replacements to the buyer at closing, instead of fixing or replacing the item before closing or reducing the sales price. 

-         saves seller out-of-pocket expenses prior to closing

-         preserves sales price used for loan calculations and commissions

-         gives buyer the option and freedom to choose the contractors or suppliers

However, lenders generally view these credits and allowances as “rebates” that in effect reduce the sales price.  Sometimes a lender will approve these items under the following conditions:

-         written estimate from contractor or supplier

-         buyer is not borrowing 95-100%

-         no other appraisal conditions for the area or the property that would be affected

-         only if allowed by particular loan program

Most lenders require that this issue be handled in another way:

1. Make the seller do the repairs prior to closing
2. Allow the closing attorney to pay a vendor (of the buyer’s choice) on the closing statement – buyer retains check until work is done – still need a written estimate
3. Remove from the contract and handle outside of closing without involving the lender or closing attorney

ALWAYS CHECK WITH THE BUYER’S LENDER BEFORE YOU USE ANY CREDIT OR ALLOWANCE LANGUAGE IN YOUR CONTRACT.

Presented by Leigh Clack, Attorney   404-705-3690

Neel & Robinson, Attorneys at Law, LLC

22 Lenox Pointe, Atlanta, GA 30324  lenox@neelandrobinson.com

More Legal Tips From KW Atlanta:

Special Issues with Buying/Selling Condominiums

 First-Time Home Buyer’s Tax Credit – Don’t Wait Till The Last Minute!

 Buying Property From The Bank: Tips For Buyers

Waiting Periods Required Under New Truth in Lending Law

  Termite Letters – Still a Good Idea

Keller Williams Realty Voted ‘”Highest Satisfaction For Home Buyers Among National Full Service Real Estate Firms, Two Years in a Row!” By J.D. Power & Associates

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This entry was posted on Monday, November 2nd, 2009 at 3:12 pm and is filed under Legal Tips By Neel & Robinson. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.