Last week at one of my real estate closings, the title company was so busy servicing their fiscal year end closings that they had to bring in extra 3rd party notaries.  This presented an interesting benefit in that the notary had no affiliation with the builder or the title company (who is owned by the builder).  He could say anything innocently and not realize or care if it’s to anyone’s benefit or hindrance.

This brought to light one little bitty piece of fine print, or lack thereof.

You see, many times one of the incentives a builder will offer its buyers is a certain amount of money toward closing costs.  I’ve seen $8,000 toward closing, $7,000, 2%, and other variations.  Or sometimes the builder will offer a giant incentive, such as $60,000 that can be split and used part to cover closing costs and part to reduce the sales price.  I like to use as little of my own money as possible, so I try to get as much of the out of pocket costs covered as I can, even if that means my purchase price and amount financed is slightly higher.

Last week I had two closings and I discovered a new fast one that slipped by me.  The builder had offered $6,599 toward closing.  I had assumed, as has happened in the past, that the builder would be paying $6,599 of MY closing costs.  That’s why it’s an incentive and how it benefits me right?  Well that isn’t quite what they meant.  They meant they would pay $6,599 in closing costs, PERIOD.  This $6,599 first covers THEIR closing costs, then any leftover covers MY closing costs.

Well it’s quite convenient that the builder owns the title company and it’s a money shuffle.  The title company charges certain fees that I just can’t live with, like an email fee (they never emailed me anything).  Any fees whatsoever could be inflated, invented, etc. and put on the HUD-1 as a closing cost and I couldn’t refute it because I technically wasn’t paying for it.  In this case the seller/builder was paying for it on paper.

Here I’m thinking that the seller is going to pay all of the fees that the seller customarily pays.  I’m expecting those fees to be paid as they always are.  Then I’m expecting the HUD-1 to total up all of the fees that are customarily paid by the buyer (me).  And then I’m expecting a deduction off of my bottom line of $6,599.

The HUD-1 was not presented this way.  The HUD-1 had exactly $6,599 in fees in the column that shows what the seller is paying.  Then the balance of all the rest of the closing fees were in my column.  When I asked the notary to show me the line item with my $6,599 deduction, he matter of factly pointed out to me that if we added up all of the seller’s fees, this would be the total.  We took an adding machine out and added it up, and this was indeed the case.  I asked the notary to show me where the seller’s closing costs were.  The seller truly was not paying any closing costs of their own.  They were using my incentive to pay their closing costs.  Their closing costs were effectively shifted into my column and I was paying them.

So if there is a next time for me, at the time of contract signing, I’m going to clarify what closing costs will be paid for by the seller, and that the incentive will be used to cover my closing costs only.  Or at least I will try.  In recent days the builders are being a little more flexible at contract signing time and may be willing to do this for the one in a thousand customer who asks for it.