Is This Even Legal?
I’m looking at a condo purchase (I know, I know. I do a lot of looking.) and trying to wrap my head around the legality and limits of developer offers like “No maintenance for a year and a half.” Which basically amounts to sale price inflation, since if the maintenance is $500/mo that is $6000…
I’m looking at a condo purchase (I know, I know. I do a lot of looking.) and trying to wrap my head around the legality and limits of developer offers like “No maintenance for a year and a half.”
Which basically amounts to sale price inflation, since if the maintenance is $500/mo that is $6000 more I’m willing to pay for the place.
At what point does the mortgage lender or the city agency where you file the sale documents step in and say that it is dishonest. Is there a number value to that? Like any concession over $10k the bank wants to know about?
Very much legal. The sellers are not waiving maintenance. They are paying it on your behalf for the alotted time period. On new construction condos the listing prices are recorded on the offering plan which is filed with the attorney general’s office. If they were to reduce below those prices they would have to file an amendment to the intial offering plan.
Obviously I am not giving legal advice here, but I would think a seller can do almost anything with proper disclosure. A seller presumably could give back $100,000 at signing __as long as everything is being disclosed__ to any and all interested parties (but I think that would certainly mean reporting the sale price as 100K less and telling the bank that the buyer put down $100,000 less than they actually did).
Her’s one article I found that talked about an FBI investigation into incentives out west: http://www.builderonline.com/marketing/dangerous-incentives.aspx
If you really have a concern, why not ask the lending officer if they want to know about a concession on common charges for the first year? If they think it is important, they will tell you.
There were also some articles re ethical issue a few years ago re developers delivering extra commissions or bonuses to real estate agents (especially for delivering buyers who bought at the ask). I would think all such extras to agents would be disclosed on the HUD1 at closing, but by then it’s a little late for the buyer to wonder if em is being taken for a ride.
For financing yes there are rules but that dependent on the institutions involved.
I believe the ship has sailed on the first time buyer’s credit, so you needn’t worry there — you need to have CLOSED on the sale (not just be in contract) by November 30 — unless you’re an all-cash condo or house buyer there is simply no way that is going to happen now. And if you are an all-cash buyer you probably wou;dn’t qualify for the credit anyway (maximum income as a single person is $95K; joint return is $170K).
Thanks, all.
Yeah, my question was about whether there are rules about how far a developer can go to protect comps.
I mean, legally, can they give me $100,000 cash back on signing? (And does that mean my first time home buyers tax credit comes out $100 richer?)
It sounds like they could legally cover closing costs and/or buy down a point on our mortgage:
http://online.wsj.com/article/SB125470256909163111.html
Boerumresident, I tried to find more coverage in the WSJ but all my search turned up was the article above. I’m genuinely interested in knowing a lot more about this.
There is nothing new or illegal about it. Incentives have been around. The difference is the stake are much higher NOW, thus the incentives. You can buy a house in middle America for $200k with $10k of incentives. That is about $30K+ in NYC scale. So $6k is chump change.
There are several reasons by the devs just don’t lower the price. One of them is that it affects ALL other unsold units. Meaning a price hit here will be a price hit over there. They are basically making a comp for the next unit.
Then their bank will start putting the heat on them since pricing of units, to a certain extent, has been agreed upon when the construction loan was given.
Pricing incentive basically comes out of the devs pocket while lowering price affects everyone including the devs, banks, current tennants, etc. The ripple affect is much wider. Incentives don’t have to be in the books. They can give Jane Doe $10k while you only $6k.
And $6k in incentive IS NOT the same as $6k in price reduction. You have to do a lot of math to figure out what $6k will actually save you considering the interest rate you have to pay, the tax breaks you will receive, reduced financing rate, etc.
There is nothing new or illegal about it. Incentives have been around. The difference is the stake are much higher, thus the incentives.
There are several reasons by the devs just don’t lower the price. One of them is that it affects ALL other unsold units. Meaning a price hit here will be a price hit over there. They are basically making a comp for the next unit.
Then their bank will start putting the heat on them since pricing of units, to a certain extent, has been agreed upon when the construction loan was given.
Pricing incentive basically comes out of the devs pocket while lowering price affects everyone including the devs, banks, current tennants, etc. The ripple affect is much wider. Incentives don’t have to be in the books. They can give Jane Doe $10k while you only $6k.
And $6k in incentive IS NOT the same as $6k in price reduction. You have to do a lot of math to figure out what $6k will actually save you considering the interest rate you have to pay, the tax breaks you will receive, reduced financing rate, etc.
I think the question about legality is whether the purchase price being given to the bank overstates the “value” of the property. I think there have been some articles in the WSJ on whetehr certain “incentives” over the past 3 or 4 years trigger any problems for the bank loans.
There is a lso a subsumed issue regarding the value of the original basis for the property for calculating capital gains down the road.
Presumably the city agency would also be misled, but because a higher price is being reported they are not harmed in terms of calculation of transfer taxes or property taxes.
ha ha – so are you saying if a company offers “free shipping” I should call the better business bureau?
A developer offering such a thing is no different, it’s up the the consumer to do the math and decide if it’s worth it in the long run.