Seller insists on higher price with credit
Hi guys. We are trying to buy a warehouse and the seller is insisting on showing a higher price (as listed) but giving us a credit against a purchase price in the amount of a difference between our offer and their listing price. Is this normal and what are the consequences of this?
[{"id": "g1s71kn", "text": "They can be a lot of horse trading going on behind the scenes so it's impossible to know without more detail. Are there brokers involved? It could because the broker wants to say he sold at \"list price\", a silly badge of honor imho. The broker maybe compensated more (~~illegal~~ frowned upon in some states but still happens) if he gets it sold at list price (eg. 3% if below list, 5% if at list) and is in fact giving you the credit from his commission but he still ends up winning. Is the seller a group of people? there may be an angle there. Ultimately you lose due to closing expenses that are based on sales price like transfer taxes and title insurance (if you are paying those at closing) and the property taxes in the future will be slightly higher.\n\nEdit: tiered commissions are sometimes not allowed in Florida.", "replies": [{"id": "g1sbynm", "text": "It\u2019s not illegal to compensate a broker more if they get a higher sale price - no idea where you get that from? I\u2019ve sold probably 100+ investments and I can\u2019t think of a single one where I haven\u2019t structured the commission as a reduced upfront percentage (say 45 BPs) to the mid point strike then 5% over to a max of like 60BPs. That\u2019s just like... standard incentive structure for investment sales brokers selling institutional real estate", "replies": [{"id": "g1sfmri", "text": "In Florida it's not allowed, it still happens though. I'll try to dig up the DBPR ruling stating that.", "replies": [{"id": "g1sgrj9", "text": "Would love to see it have sold a ton of stuff in Florida through structured commission arrangements.", "replies": [{"id": "g1sj0s2", "text": "If memory serves me right it was a FREC ruling in a specific case, not a statute. It was a situation like the one I described above where the change in percentage was substantial so much so that the broker made a lot more (and cost the seller a lot more) by nudging the price across the threshold. Broker gave the buyer money back and didn't disclose it as required by Rule 61J2-10.028(2). They may not have said they are always illegal but in this case it was.", "replies": [{"id": "g1sjjk9", "text": "Yea but I guess what I don\u2019t get is that if I\u2019m a seller I\u2019m not compelled to sell the deal, and my goal is to maximize pricing - how is that not a good thing for me to incentivize my broker to hit a grand slam? Also not sure why the buyer would get any money back, seller always pays brokerage costs (unless you have a buy side broker which candidly I\u2019ve never dealt with an outside broker on a sale)?", "replies": [{"id": "g1sl2y2", "text": "Well let's put some numbers to illustrate where the potential for abuse comes in. Let's say I have a listing price of 10mil, seller will pay me 3%, if it's below list 2.5%. it's priced amazingly and I get a buyer up to 9.975, I tell the buyer I need the 10mil on the contract and I'll rebate him the 25k. Well who wins? The broker, he makes a net 275k rather than 249k, buyer is right where they want to be so they're not complaining but the seller is paid out 300k in commission where they really shouldn't have.  \n\nHow likely is this? I'd say not very, but it's not impossible especially in circumstances where the difference in tiers is so large.", "replies": [{"id": "g1tfg83", "text": "I guess but that\u2019s bad contracting, you wouldn\u2019t do a straight split adjustment you\u2019d hire a broker under a progressive commission ie 2.5% to $10mm then 3% of proceeds above )10mm so that you can\u2019t get gamed like this.", "replies": [{"id": "g1tt45k", "text": "I agree, the break points really matter and it can be avoided with some foresight.", "replies": [], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "g1sftm4", "text": "It\u2019s impossible to know in your particular situation, but in residential real estate, especially new construction, the sale price of one home influences the sal price of the rest of the neighborhood. As a result, they may not disclose all concessions (purchase credits, closing costs, or upgrades) because they want to negotiate each home individually.", "replies": [], "depth": 1}, {"id": "g1slv3z", "text": "It's common. It's the same difference for you. I just did this on a building i'm currently closing on: I offered 10k more but than the seller is providing a 10k closing credit.\n\nBasically it's just less cash up front for me, and seller nets the exact same amount. So win win for everyone.", "replies": [{"id": "g1u5173", "text": "Except your property taxes are going to be a little higher and there may be higher closing costs depending on jurisdiction and who is responsible for which closing costs.", "replies": [], "depth": 2}], "depth": 1}, {"id": "g1sstnd", "text": "Thank you for your comments, everyone. Very helpful.", "replies": [], "depth": 1}, {"id": "g1t1gqr", "text": "Classic side letter situation.", "replies": [], "depth": 1}, {"id": "g1vzoja", "text": "County may come behind you for higher property tax with sale price numbers. Of course it depends on the location, it may happen. It may also help you with higher  depreciation., suggest talking to your accountant. Also talk to property tax attorneys.", "replies": [], "depth": 1}]