What does this mean?

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IrvineHouseSearching_IHB

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Hi All,



Been lurking around here for awhile (thank you all for the information, I learned a lot about house buying here!!) and now finally ready to purchase a home in Irvine. I am putting an offer in for a home (short sale) in Irvine, and after a few days, the seller's agent came back with this.



If for example, I offered the house for 600k. Instead of offering that amount to the bank, the agent told me that I could offer lower and plus paying the commission(6%) of this transaction. He thinks that this will process faster in the bank, and the bank has less paperwork/authorization to deal with. And I will end up paying whatever I offer anyway.



My agent told me that this will be a good idea because it means lower value on the book (less property tax by a couple hundred dollars).



The only problem I see is, if i am to flip the house, the gross profit will be higher (more tax). But since this will be my primary resident, this should not be a problem.



But this is making me curious, I am wondering, if this is legal? and if there is anything i should watch out for. Could it be that I offered too much and the bank would have probably accept the lower amount anyway? It just somehow smells slightly fishy to me and I am not sure if I am being paranoid.



Thanks in advance!
 
It's certainly legal, and it's often times the best way to go, assuming that you have the cash to pay the commission directly. It will potentially save you more than "a couple hundred dollars" depending on the amount of time that you own the home. Since your tax basis in California is established by the purchase price, and generally not subject to an annual assessment, it makes a lot of sense to minimize that initial basis. If you're financing, buy when interest rates are high, establish that (hopefully) lower initial basis and then refi when rates drop to get another small edge.



I am wondering if you have a buy side agent involved? Or are you dealing directly with the listing agent? In your particular situation, the thing that might be "fishy" is will the agent/agents be getting 6% commission from the bank? Or something less? If there's no buy side agent then there's a chance that the listing agent is up to something "fishy", probably less chance of that if you have an agent on your side.



We haven't purchased anything here yet, but when we do I have no intention of paying property taxes on realtor commissions for the next 20 years. But I think that since most transactions are financed, most folks either don't want the additional out of pocket expense of paying realtor commissions or simply don't have the extra cash on hand.
 
[quote author="mikal1" date=1254978266]It's certainly legal, and it's often times the best way to go, assuming that you have the cash to pay the commission directly. It will potentially save you more than "a couple hundred dollars" depending on the amount of time that you own the home. Since your tax basis in California is established by the purchase price, and generally not subject to an annual assessment, it makes a lot of sense to minimize that initial basis. If you're financing, buy when interest rates are high, establish that (hopefully) lower initial basis and then refi when rates drop to get another small edge.



I am wondering if you have a buy side agent involved? Or are you dealing directly with the listing agent? In your particular situation, the thing that might be "fishy" is will the agent/agents be getting 6% commission from the bank? Or something less? If there's no buy side agent then there's a chance that the listing agent is up to something "fishy", probably less chance of that if you have an agent on your side.



We haven't purchased anything here yet, but when we do I have no intention of paying property taxes on realtor commissions for the next 20 years. But I think that since most transactions are financed, most folks either don't want the additional out of pocket expense of paying realtor commissions or simply don't have the extra cash on hand.</blockquote>


So technically, you would need a 26% downpayment?
 
[quote author="Roo" date=1254978471][quote author="mikal1" date=1254978266]It's certainly legal, and it's often times the best way to go, assuming that you have the cash to pay the commission directly. It will potentially save you more than "a couple hundred dollars" depending on the amount of time that you own the home. Since your tax basis in California is established by the purchase price, and generally not subject to an annual assessment, it makes a lot of sense to minimize that initial basis. If you're financing, buy when interest rates are high, establish that (hopefully) lower initial basis and then refi when rates drop to get another small edge.



I am wondering if you have a buy side agent involved? Or are you dealing directly with the listing agent? In your particular situation, the thing that might be "fishy" is will the agent/agents be getting 6% commission from the bank? Or something less? If there's no buy side agent then there's a chance that the listing agent is up to something "fishy", probably less chance of that if you have an agent on your side.



We haven't purchased anything here yet, but when we do I have no intention of paying property taxes on realtor commissions for the next 20 years. But I think that since most transactions are financed, most folks either don't want the additional out of pocket expense of paying realtor commissions or simply don't have the extra cash on hand.</blockquote>


So technically, you would need a 26% downpayment?</blockquote>


Or something slightly less. ;-)



Are you going to pay 6% on the purchase price? Or the purchase price minus the commission? You've taken the commission out of the purchase price already, right? Of course, this is where the realtors involved start to revolt....
 
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