quote:
Its very simple. House gets under contract at 500k. Appraises at 500k. Buyer now wants lender to back a loan on a house for 515k to cover agent fees?

Never going to happen, nor should it.

Right now, a house goes under contract for 500K. The seller gets (assuming only deduction is for commission) $470,000. House appraises for 500K, all is well.

Under new system, house goes under contract for 485K. To get the selling agent the same 15K, we would switch to a slightly higher commission rate. So now you have a sales price of 485K, seller pays 15K commission so he clears 470K, and buyer also pays a commission of 15K, which he finances into the house.

The total lent is still 500K. The appraisal price is still 500K. Nothing changes.

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Posted by MikeBRLA

Baton Rouge

Member since Jun 2005

16474 posts

Posted on 10/11/16 at 7:19 pm to LSUFanHouston

quote:
Under new system, house goes under contract for 485K. To get the selling agent the same 15K, we would switch to a slightly higher commission rate. So now you have a sales price of 485K, seller pays 15K commission so he clears 470K, and buyer also pays a commission of 15K, which he finances into the house. The total lent is still 500K. The appraisal price is still 500K. Nothing changes.

Except lenders base the value of the property on the lesser of the appraised value and the contracted price and that number is what the loan to value is based off of. In your scenario they would only lend $485K even at 100% LTV.

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Posted by LSUFanHouston

NOLA

Member since Jul 2009

37116 posts

Posted on 10/11/16 at 8:18 pm to MikeBRLA

quote:
Except lenders base the value of the property on the lesser of the appraised value and the contracted price and that number is what the loan to value is based off of. In your scenario they would only lend $485K even at 100% LTV.

Correct.

As I said earlier, it would take a change in lending practices to make such a situation work.

What I was trying to prove is that mathematically, it makes no difference.

But it would take a change in how we do lending. It would be a huge change to the entire buying process, to be honest.

It could certainly be done. Will it? No way.

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Posted by ramaexciting

Member since Oct 2016

3 posts

Posted on 10/21/16 at 6:27 am to lsu711

Its a good things