It sounds like the cash back at closing was probabably substantial since that house can’t be worth anywhere near that much – unless it’s a custom home on acreage.

As far as I know, there are legit ways for a buyer to borrow more than the purchase price of a house at closing but it’s pretty rare. If the buyer wants to put in a pool, he can build that extra $$ into the purchase price as long as the escrow documents clearly spell that out in writing. The bank will hold that $$ in escrow and release it to the pool contractor in a few payments – as the work is completed and invoices are submitted. I’ve heard of this being done but it’s pretty rare I think. The key to making it legal is that the lender has to be informed of it in writing as part of the escrow papers. In no case that I can think of would it be legit for cash to go back to the buyer at closing.

Whether legal or not, these types of transactions skew the comps and mislead homeowners into thinking their homes are worth more than they really are. Prices are actually dropping but it doesn’t look that way because of all the cash back that’s built in to a lot of the sales. The sellers received substantially less than what the comps are showing.