Legal FAQs for REALTORS®
— Contracts and Forms
Sellers Assuming Expenses
I submitted an offer on a home for my client and included the Third Party Financing Addendum for Credit Approval for a conventional loan. In Paragraph 12A (1)(b) of the TREC One to Four Family Residential Contract (Resale), we wrote that the seller would contribute to the buyer’s expenses not to exceed $1,500. The listing agent told me I cannot put a seller contribution amount in this paragraph because the buyer isn’t seeking an FHA or VA loan. Can the seller contribution apply to a buyer’s expense in a conventional loan? (updated Nov. 21, 2014)
Yes. The language in Paragraph 12A(1)(b) does not restrict the contribution based on loan type, but does provide an order in which a seller’s contribution will be applied. If there are not any expenses that the buyer is prohibited from paying by a governmental loan program, then the seller’s contribution would next be applied to the other buyer’s expenses as allowed by the lender. Paragraph 12A(2) defines “Buyer’s Expenses.”
I represent buyers who are interested in purchasing a home and want to ask the seller to pay for part of their closing costs. They intend to use conventional financing instead of FHA financing, so there will be no FHA-prohibited fees. How do I handle this in the buyers’ offer? (Updated Aug. 20, 2014)
An amount for a seller’s contribution to the buyers’ closing costs should be in Paragraph 12A(1)(b) of the contract. If the buyers were using a government loan program for the purchase, this contribution would first cover expenses related to the program, but this does not apply in this situation. Instead, the seller's contribution would first cover the buyers’ prepaid items and then the buyers’ other expenses up to the amount listed for the seller's contribution. These expenses are defined in Paragraph 12A(2).
A buyer and a seller agree that the seller will pay for the survey under Paragraph 6C(1) of the TREC contract. They also agree that the seller will pay up to $2,000 of the buyer's expenses under Paragraph 12A(1)(b). Does the cost of the survey fall within that $2,000, or will the seller pay the cost of the survey in addition to the $2,000? (updated Aug. 22, 2014)
Checking Paragraph 6C(1) makes the survey a seller’s expense—not a buyer’s expense—so the seller will pay for the survey in addition to up to $2,000 in buyer’s expenses.
If the seller wants to limit his contribution to the buyer’s survey costs, the most direct approach is to check Paragraph 6C(2) and include the amount the seller wants to contribute in Paragraph 12A(1)(b).
My buyer client wants to include in her initial offer a requirement that the seller repair a specific item listed in the seller’s disclosure notice as in need of repair. She also wants to request that the seller contribute to closing costs. What is the best way to prepare the offer with these terms? (updated April 21, 2014)
Paragraph 7D(2) of the TREC contracts is the appropriate section to cover a seller's agreement to repair a specific item of the property. General phrases that do not identify specific repairs, such as "subject to inspections," are not appropriate.
Paragraph 12A(1)(b) should be used to show the seller's contribution to the buyer's closing costs. This paragraph already provides for language to limit the seller's obligation to the amount shown in the blank space. Note that the paragraph also controls the order in which the seller's contribution shall be applied to various buyer's expenses.
My buyer client checked Paragraph 6C(1) in the One to Four Family Residential Contract, agreeing to pay for a new survey if the existing survey isn’t approved by the title company or the buyer’s lender. The seller’s agent told me the seller can’t find his existing survey, so my client will have to pay for a new one. Does my client have to pay for a new survey in this instance? (updated July 9, 2015)
No. A seller who cannot find the existing survey isn’t exempt from furnishing it. If the seller agreed to deliver the existing survey to the buyer, he is required to deliver the survey and the affidavit within the specified time.
Paragraph 6C(1) says, in bold, "If Seller fails to furnish the existing survey or affidavit within the time prescribed, Buyer shall obtain a new survey at Seller's expense no later than 3 days prior to Closing Date." This means the seller will be responsible for the cost of a new survey if he can’t find the existing survey. Any party to the contract who doesn’t perform a "shall" obligation under the contract would probably be found in default by a court unless otherwise excused from performance by the terms of the contract.
The seller could try to obtain another copy from the surveyor or title company he used when purchasing the property so that he can fulfill his contractual obligations. To avoid this situation, sellers should only agree to provide an existing survey if they have it readily available.
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