In an effort to attract buyers, some homeowners offer incentives that seem like a really good deal. When you investigate the offer further, sometimes you'll find ethical and legal issues that may cause more trouble than the incentive is worth. Here are two home-buying offers that sound wonderful, but you should really reconsider accepting.
Cash Back at Closing
Few people would pass up the opportunity to get cash in their pockets, which is why some sellers offer cash incentives for closing on their homes. At first, this offer seems like a win-win situation. The homeowner unloads the house quickly, and the buyer gets cash they can use to improve the house without having to take out a home equity loan. Unfortunately, this transaction can lead to a variety of negative outcomes.
What commonly happens in these cash back situations is the home's sale price is artificially inflated, and the buyer gets the bank to finance a higher amount than they're actually paying. The home may be appraised at $300,000 but, if the seller is giving you $25,000 in cash back, the true market value of the home is $275,000—the amount the seller is willing to accept for the house and the real amount the bank should've financed.
Putting aside the ethical and legal issues associated with getting a bank to approve a loan for more than home's true market value, there are some consequences you may suffer. Your mortgage payment will be higher and you'll pay more interest than if you'd just taken a discount on the price upfront. Additionally, the surrounding property values will be inflated which, in turn, will cause property taxes to go up since they're based on the property's value.
Lastly, cash back offers typically require some fudging on the paperwork to cover up or justify the money the seller gives you, which may lead to charges of fraud if the lender finds out.
Although a cash back offer may seem attractive, the only ones you should consider are those from mortgage lenders. Otherwise, it's best just to ask for a discount.
Free Car, Vacation, Etc.
Sometimes home builders will offer outrageous incentives to get people to invest in the development they're constructing, such as a free car or all-expenses-paid vacation. Even individual sellers may get in on this type of action by offering to purchase new appliances for the home.
However, what these sellers leave out is that you may have to pay taxes on these items and possibly insure them (in the case of the vehicle). Additionally, you may be required to work with the seller's venders of choice to qualify for the free item. For instance, the seller may choose the make and model of the dishwasher they buy, which may be something you don't want. It's essential you read the fine print and consider all aspects to avoid unpleasant surprises.
For more information about this issue, contact a real estate agent, such as one from RE/MAX Regency.