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Hello all.
I work in a place where a number of people plan on retiring and moving out of the area within the next few years. I also plan on doing this.
Well, one of the guys is selling his house and told us today he has found a buyer. He is not working with a Realtor, he plans on selling his house by himself. Well, he says he has a buyer who is thrilled with his house, and they have agreed on a price. His house is assessed below current market value he says, and the price they agreed to sounds about right for the house, in my opinion.
Here's the rub. He says the buyer wants to buy some other things with the house, like some furniture, garden equipment, etc. The buyer says he wants to "hide" the true agreed to price by buying these items for much more then they are probably worth, or just pay the seller a large amount in cash privately, so the assessment does not go up to the actual selling price. He says that by doing this everyone wins. He gets what he wants for the house, the buyer gets the house with the assessment not increased, because publicly it will look like he bought the house for much less. He says closing costs will also be cheaper, and that if the buyer needs a mortgage the appraisal would be in line with the assessment or something, thus making the process "smoother".
It just does not sound ethical to me, and I told him that it sounded fishy. He says it is not much different then a "sellers buyback", and that nothing is wrong with it. To me it sounds like if it WAS legal, you would hear about it all the time. He says it is just "creative financing", and I'm being naive.
Whatever he does is his business....I just can't believe it can be done, especially with perhaps banks involved, etc. It seems like this is undermining the tax and assessment process. It just seems wrong to me, but I could not really prove to him why. Even if he does this, it seems to benefit only the buyer, and I think that as a seller he could get in trouble for it. For me anyway, when it comes to selling my house, I think it is stressful enough to do it the normal way without being "creative" like he says.....
I know many of you, especially the Real Estate pros here can shed some light on this for me....
Sounds like a buyer/seller agreement to include extra stuff in the sale. I doubt there's anything illegal about it-but there's a difference between an appraisal and an assessment. I don't think either one will be affected by the extras.
Right. I understand the difference between an appraisal and the assessment.
From what he told us, basically the buyer would just give him like $50k under the table, then it would publicly look like the buyer bought the house for like $199k instead of the true selling price of $249k. Whether he just does this, or has a receipt for $20k for a $4k lawn mower is a moot point to me.....
It's really not my business what he does, but he brought it up, and it bothers me that it seemed fishy, but I could not really tell him why.....
Sounds like a buyer/seller agreement to include extra stuff in the sale. I doubt there's anything illegal about it-but there's a difference between an appraisal and an assessment. I don't think either one will be affected by the extras.
To me it sounds like a tax dodge. Whether or not the seller can be held as complicit is something I don't know.
You want to buy a house for $500k. You pay $500k. In my area, that means it gets assessed at $500k and you are taxed accordingly.
In the scenario the OP lays out, the guy wants a house for $500k. He "pays" $450k for the house and $50k for "a living room set and lawn mower," thus hiding $50k in the transaction and knocking his assessment down to $450k. In other words, knocks 10% off his property tax bill.
Unethical? Obviously not to the buyer. Most people would find it questionable. Illegal? I think everyone knows the answer to that one. See whether the buyer is willing to call the assessment board to inquire about the legality of the arrangement. Don't hold your breath. The word "hide" speaks volumes.
If the buyer is getting a loan, this probably falls into the "double contract" category. That is, having one contract between buyer and seller and a different contract provided to the lender. That is loan fraud.
My question is, if the buyer thinks the house is going to appraise at $200k (if I understand correctly, this is around the assessed price, and in my area, homes are still appraised higher than market value, maybe not in your area), why are they agreeing to pay $250k?
Bottom line, your friend and his buyer are trying to pull the wool over the assessor's eyes. Probably done all the time in some form or other but I have not previously heard about it in home selling. I do hear about it in auto sales though. I guess you just need to decide wether or not this will effect how you feel about this guy. My opinion, don't lose any sleep.
His poor neighbors! Will definitely screw up the sold comps!
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Unethical maybe, illegal not likely.
