Cashback at closing

[JWM in SD]

sure they do…they get to unload their overpriced house.

[JWM in SD]

sure they do…they get to unload their overpriced house.

[novice1027]

Of course, what was I thinking?
Seriously though, would they get anything, or could they be liable for something fraudulent? Or does no one really care?

[novice1027]

Of course, what was I thinking?
Seriously though, would they get anything, or could they be liable for something fraudulent? Or does no one really care?

[patientrenter]

Novice, I think JWM has it right.

Buyers who don’t have enough money saved in the bank to qualify for the loan they need, or to pay other costs, are able to buy, and will often pay lots more than more cautious and solvent buyers, because of cash back. The price increase will exceed the amount of cash back in a lax lending environment. So it’s a net gain for the seller.

Think about it. Let’s suppose the best price you can sell for without cashback is $800,000. The buyers are all Piggingtonians who have a spare 20%, or $160,000, ready in their bank account, and will borrow only $640,000.

Now instead you offer it at $1,000,000 with $100,000 cash back. Buyers who have only $100,000 in their bank account can (and this is the fraudulent/misleading part) get someone (a relative or friend if they’re going the ‘legal’ route, or an agent of the buyer otherwise) to deposit another $100,000 in their bank account, anticipating repayment from the cashback transaction at closing. They qualify for an 80% loan of $800,000 (with cooperation from an appraiser who needs a paycheck). The net result is that the buyer pays $100K, the lender pays $800,00, and you (the seller) net $900K instead of $800K.

Patient renter in OC

[patientrenter]

Novice, I think JWM has it right.

Buyers who don’t have enough money saved in the bank to qualify for the loan they need, or to pay other costs, are able to buy, and will often pay lots more than more cautious and solvent buyers, because of cash back. The price increase will exceed the amount of cash back in a lax lending environment. So it’s a net gain for the seller.

Think about it. Let’s suppose the best price you can sell for without cashback is $800,000. The buyers are all Piggingtonians who have a spare 20%, or $160,000, ready in their bank account, and will borrow only $640,000.

Now instead you offer it at $1,000,000 with $100,000 cash back. Buyers who have only $100,000 in their bank account can (and this is the fraudulent/misleading part) get someone (a relative or friend if they’re going the ‘legal’ route, or an agent of the buyer otherwise) to deposit another $100,000 in their bank account, anticipating repayment from the cashback transaction at closing. They qualify for an 80% loan of $800,000 (with cooperation from an appraiser who needs a paycheck). The net result is that the buyer pays $100K, the lender pays $800,00, and you (the seller) net $900K instead of $800K.

Patient renter in OC

[novice1027]

Thanks Renter,
Now it makes sense. Does seem a bit naughty!

[novice1027]

Thanks Renter,
Now it makes sense. Does seem a bit naughty!

[Author]

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