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:
- Make the seller do the repairs prior to closing
- 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
- 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
