I can't answer your questions but wanted to say that you have to remember that since they have no cash the house has to appraise for what you agree on.

Thanks Roselvr. It will appraise for much more than we are asking. We went WAY low, thanks to a relocation package.

Basically I think they're trying to get you to pay the 6% RE agent's fee but have it backwards, or else they're incredibly nervy and are acting 'dumb' on purpose. Either way I'd get everything spelled out very carefully before making any commitment and be sure you know just what you're agreeing to. Your agent should really be helping you here (and if not, speak to the broker at his/her office for clarification).

Hi Lucy. They're aren't asking for us to pay their agents fee - as they seller we are already paying that fee (the commission we pay as sellers who hired an agent will be split half to our sellers agent and half to the buyers agent).

IF I understand this correctly, they are wanting UP TO 6% of the purchase price - ie, they buy it for 200k and they want us to "give" them up to $12,000 to use towards their down payment, closing costs, prepaids, etc. That effectively brings the sell price for us down to $188k.

We want them to specify exactly how much that 6% will be and/or up their offer to cover the 6% - for example, an offer of $212k instead of 200k.

I'm kind of leaning towards them acting "dumb" on purpose ;) It's getting ridiculous, but it's hard for me to understand, too. This may be a case of dumb and dumber, lol.

Our agent is trying to explain this to us, but I do want to double check that he's correct and that we don't get stuck paying over what we think we're agreeing to pay.

6% of the closing costs is not the same as 6% of the selling price. It is far, far less. It sounds like you are confused, and perhaps your agent is not on top of it all or can't communicate with you very well.

Do not agree to anything you don't fully understand, and be very, very careful of anything remotely approaching unethical behaviour with an FHA loan. That loan is government insured and there can be severe penalties for financial shenanigans involving federally insured mortages.

Your last post was done while I was composing my reply. In light of what you said, I would absolutely not do what they want without speaking to an attorney. I'm not a lawyer, but I think it is illegal. They are trying to get the house with absolutely nothing out of pocket with the taxpayers insuring the loan.

I think you understand it correctly. In essence, they're offering you $200K, but if you give them 6% back, then you're selling for $188K, but IINM, you're also paying commission on $200K.

Since your house is already rock bottom priced, I would walk. Normally I would say your first offer is best, but since they have ZERO money down and they don't understand the process, you could really be asking for trouble here.

Also, I'm not sure FHA loans are similar to VA loans, but they can get very sticky when it comes to inspections. You could be out of pocket a heckuvalot more because of the inspection requirements.

I'd walk from this one. This doesn't sound like an offer that will benefit you at all and it could seriously be alot more trouble than it's worth.

Thanks frog_hopper and sparksals. I'd hate to walk away, but if need be then we'll do it. I guess tomorrow I'll be talking with the broker and if I still don't fully understand then I'll see an attorney. If we accept then our relocation company will also be reviewing the offer - not sure how much help they'll be though.

I did take a look at the info on FHA appraisals at fha.gov and I don't think we'd have any problem there (never know though).

There is nothing illegal about the seller crediting the buyer towards closing costs, etc., so long as it is disclosed to the lender. It is done all the time.

That's not exactly what is going on here. They want the seller to artificially raise the asking price so that they can get cash out that isn't there. Anyway, that is how I read it. I have read that the practice (or something similar to it) is illegal. That's why I suggest talking to an attorney.

It is always good practice to have a real estate sales contract reviewed by a decent real estate lawyer. I just went through that. I rejected the first contract out-of-hand. When the buyer returned with a reasonable draft contract, I ran it by my attorney. It cost $50. Well worth it, in my opinion.

frog hopper, you are correct that most lenders will take a good hard look at a home with a contract price higher the list price, especially if the contract is amended to both raise the sales price and increase the seller's contribution.

ladynimue the advice to consult an attorney is very good. If the attorney is on board with their suggestion, raise your counter-offer 6% and let them walk if they don't want to finance their own 6% cash back program.

I always thought FHA was very strict about where the buyer gets their cash. I'd check to see that they can do this kind of thing with an FHA loan.

If you find out it's okay to write the FHA loan with seller cash back then I'd do what xamsx suggested. You are already at your rock bottom price - raise you selling price 6% and then they can get their cash that way.

If you do get it figured out and do this deal, make sure you get written into the deal that you will only pay commission on the original listing price or the final net amount to you so you don't end up paying commission on the contract price of which you are not seeing a certain amount.

Thanks everyone, it's been really helpful to have a dialogue about this.

deee, I spoke with our agent this morning and he says FHA allows a 3% contribution from the seller for the buyers down payment. The other 3% they want is to go towards prepaids and closing costs. It's my understanding that if those costs are less than the 3% then we wouldn't have to pay (give them) the full 3% - we'd only have to pay exactly what those costs are.

Which is exactly why we don't understand why the buyers won't provide an estimated amount for those costs, because if they are less than 3% then we could accept a lower offer and they'd save money. They don't seem to get that point. Or else their lender is unwilling to give them the figures.

FHA allows the sellers to make a contribution to a charitable organization that "Gifts" the down payment monies to the buyer. They don't allow the seller to just pay the buyer's down payment. (These come in several programs; the Nehemiah Program, the Genesis Program, etc.) The seller basically "gifts" that 3% to the Down Payment Assistance (DPA) program, and in turn, that DPA can "gift" that down payment assistance to the buyers.

It's 100% financing, without being called 100% financing, and is completely legal, though it can be unsettling to get an offer that asks for so much.

If it makes you feel any better, the last 2 FHA contracts I wrote used DPA programs and worked out okay for the seller.

If you are going to do the DPA as stated above, you'd better hurry since HUD is trying to eliminate that program.

Here is the info from our FHA policy guide about seller's contributions:
· Seller Concessions - Contributions up to 6% of the sales price are allowed towards the borrowers actual closing costs, prepaids and discount points. Contributions exceeding 6% must be subtracted from the sales price (or value, if less) before calculating the loan-to-value. Only the portion of closing costs actually being paid by the borrower(s) is to be used to calculate the maximum mortgage amount.

Thanks for the explanations regarding what "gifts" FHA allows and how. Very interesting.

This morning the buyers finally upped their offer to cover the 6%. Just got done submitting everything to the relo company and it's up to them to accept the offer or not.

I am more than ready for this part of the journey to be over!

This morning the buyers finally upped their offer to cover the 6%

The problem you might encounter with this is if the new sales price is higher than your list price. Many lenders will look askance at such a deal.

I hear you on that Terricks, and imho they should be taking a hard look at it. But I also think they're well aware of what these buyers are attempting and probably even helped them figure out how to do it.

My rear is covered because the relo company will make sure that the buyers are qualified before accepting their offer. But the buyers themselves might have trouble down the road (like so many are right now).

I forgot that you are working with a relo company. In that case, so long as the relo company approves you are set. They will pay you off and anything that happens down the line will be their problem. Years ago we sold our first home just 6 months after we bought it because my husband was transferred. Luckily for us, our market was appreciating quickly and we accepted an offer for $7000 more than we paid for the house. (about 8% appreciation in 6 months!) The relo company accepted it and cut us a check. We didn't learn until months later that there was a problem with the buyer and the sale didn't close. In fact I remember talking to one of my old neighbors, and she said that the house sat vacant for quite a while. But it didn't matter to us, because the relo company had paid us and taken the house over.

Oh wow, you got lucky with that one. But can you imagine the reverse? What a bummer it would be to find out that they latter got an even bigger offer but you didn't get a piece of that pie! :)

Oh well, I guess they're in the business for a reason, and the perks for us sellers are certainly nice (and for the buyers, too, since it makes it very easy for us to make good offers). These relo companies must make money more often than they lose it or these packages wouldn't be such a popular thing.

This is our first time with this type of moving package and I sure like it!

This question has come up several times on this forum. Alot of people give advice to "walk away" from something that they dont understand. What your buyers are proposing is totally legal and quite common. Its called a sellers concession and it does not affect the commission you pay to your realtor at all. (The realtor gets paid on the actual sales price, not the total with concession, at least in my area).

The reason for it is your buyer is probaby cash poor but qualifies for the loan based on income and credit.

If your house is $200,000, and they offered 188k but want a sellers concession of 6%. The 188k gets bumped up to cover that 6%. The buyer uses that 6% at closing to cover their costs. (they don't actually get handed the money, its all on paper). You still walk away with your 188k. They just need your "ok" to do it since the deal would be contingent on the house appraising for the sales price plus the 6%. (Since you said you are already below the comps, you sound like you should be ok).

And the "bump up" to cover the seller's concession is OK, as long as the property appraises for the new higher value. That could be a problem in some areas these days.

We finally wrapped this up with the relo company on Friday. Relo required that the 6% be written as a dollar amount, not a precentage, otherwise they had no problem with it.

For those wondering how this relo stuff works, the relo co is agreeing to buy the house from us for the price the buyers and us agreed to. Relo company then is responsible for everything here on out, including closing. The only thing we would have to do is participate in any negotiations coming from inspection repairs and be out of the house one day before closing.

If the deal falls through, it's up to the relo company to find new buyers - we would still get the same sell price as we have now, but relo company would get the new sales price (whether the same, lower or higher).

There was a TON of paperwork involved, for us, for buyers and for our agent. It was frustrating for all, but it did enable the buyers to get a very good price and is allowing us to quickly move forward with moving and buying our new home.

My house hunting trip to Denver starts next week. Wish us luck!