Reader Question: Monty, is there a difference in an offer that reads: Sellers is to pay 3% closing costs for buyer’s allowable non allowable closing costs. And one that reads: Seller is to pay up to 3% of the purchase price for buyer’s allowable and non-allowable closing costs. Also, if a seller agree to pay up to 3% of closing costs allowable and non-allowable can it include the cost of buy down points? – Linda
Monty’s Answer: Hello Linda. Thank you, for asking your questions. There must be history to them. Whatever the contract reads is how it should be interpreted. The contract should read one way or the other, but not both ways. In any event, I will give you my opinions.
1. There is certainly a difference in the words “is to pay 3%” and the words “is to pay up to 3%”. The words “is to pay” states a percentage to be paid, while the words “up to” in the other sentence imply 3% is the limit, but the amount may be less. The difference would only be triggered in either sentence if the costs were less than 3%.
2. On your second question regarding buy down points, the answer is another question. What is the definition of “allowable and non allowable closing costs”? If there is no definition of those costs in the agreement it becomes opinion and the source of a potential dispute.
The article entitled “Satisfying Contract Contingencies” discusses this issue. I recommend you review the article to prepare yourself to speak with your agent (unless you are the agent) about it. I do not know the circumstances in the transaction or even what state the transaction is taking place in, but I can say that avoiding contingency language that is incomplete, confusing or open to interpretation is one of the skills agents should possess. Get ready to open your checkbook if you are the agent.
If you are the buyer or seller in the transaction, and there is no agent to speak with, and you have exhausted the conversation with the other party, consider an arbitrator or seek legal advice. I do not know enough about the transaction details to assess the value of the buy down points, but it is probably worth trying to save the transaction if both parties want that to happen.
Lastly, as a practical matter, with historically low interest rates today, I suspect lenders today will say it is exceedingly rare to have a buyer “buying down” the rate on a 3-4% mortgage loan interest rate.
I hope you find this information helpful in avoiding a conflict. If you have another question ask me.