Cashback from the seller to the buyer on house normal practice/legal?

jonboy101

As a newcomer in the property markert, I have received an offer on the house I am selling but the potential buyer wants cashback.

I have done a search on the web on cashback from the seller and only found American websites which suggest that this practice is illegal in that country.

Could anyone please tell me what's the position in this country?

If it is legal, what would be the pros and cons to me, the seller, of agreeing to give cashback in order to get nearer my asking price? If, for whatever reason, the buyer benefits from a higher "official" sale price, is there not scope for us both to benefit if the official price is much higher but I give the buyer even more cashback?

Many thanks in advance to anyone who can shed some light on this practice.

lynzpower

why do they want cashback

how much is it on the market for? How much cash do they want back and why?

wnb

Thats any easy one, lets say he wants £5000 cash back just add £5000 to the agreed offer and then give him his cash back:)

maninthestreet

Tell the buyer that you are selling a house, not a mobile phone contact. He pays you money, not the other way around.

firesidemaid

it is sometimes done to reduce/negate the need for stamp duty - but it has to be in lieu of included furnishings/fittings etc. it also has to be reasonable.

it cannot be seen to be an evasion of stamp duty. but a couple of grand or so (depending on contents) is probably allowable.

bkclive

I would suggest that this is a case of where your solicitor earns their fee by asking this question to him/her. If nothing else it gives you some reassurance about the legality of it, and gives you an iadea of whether the Old Bill would come kncoking at your door.

Martian_Gentleman

There are many considerations here such as:

The impact upon increasing stamp duty which means that the buyer will want even more cash back to mitigate the falsely inflated value of duty. (Silly merry-go-round).

Why the buyer prefers to have cash back rather than a reduction in purchase price as this arrangement will cost much more in the long term if he is using a mortgage.

Most importantly for you, the buyer is suggesting a deal that leaves you with a criminal liability (conspiracy to defraud) by virtue of falsely inflating the value of the property in the event that a lender is involved. The lender makes his contract to lend against the market value of the house, if the buyer has a larger cash back than the size of his deposit then he could default at the first payment and still make a profit. In that scenario, the lender is faced with trying to recoup by selling a house that they own by default at an unrealistic value. It’s an interesting theory.

Moreover, you may not whish to be involved in providing the buyer with a discrete source of income, the funds for which could be used for illegal purposes.

Cash back is illegal in the U.S.A. when a lender is involved. Here is the most concise rationale for why: (It is well worth reading).
http://realtytimes.com/rtapages/20060502_cashbackscam.htm

Finally, the buyer is not meeting your price expectation anyway (even with his dubious request), so if it was me I would tell him that the only people to share in the equity of the property are the owners that have invested in it – so no deal. Would I risk loosing the buyer? Yes, I would rather loose him.

Best regards,

M.G.

Please be aware that is only a lay opinion.

lynzpower

Great response Martian Gentleman, hope to see more of you round here

Nicki

Cons (for you)

becoming implicated in a mortgage fraud potentially
CGT implications if this is not your principle residence
higher estate agent's commission if selling through an agent
not much help with achieving asking price unless the cash back is less than the increased offer
potentially more likely to be gazundered
more likelihood of sale falling through either because mortage company discovers the fraud, or valuation doesn't measure up
possibly a money laundering scheme, leaving you open to criminal prosecution

Pros
May get a small amount more
May be your only offer

I wouldn't countenance it, but how desparate are you?

silvercar

Builders offer cashbacks all the time.

I would guess that the the buyer is trying to get a decent mortgage rate eg a mortgage of 180k on a 200k property is 90% opening more deals than a 180k mortgage on a 195k property; so 200k purchase price with 5k cashback is preferable to a 195k purchase price.

Being you will not be filling in your buyer's mortgage application, you will not be committing fraud. As long as you tell your solicitor the deal is 200k plus 5k cashback on completion, I don't see a problem.

Builders do this constantly - presumably without problems.

Martian_Gentleman

I am concerned that this arrangement could leave you with a liability. Cash back offers are regularly made by builders but I bellieve this is a uniquely different business arrangement. I am of the understanding (rightly or wrongly) that, the cash back facility for new build is an arrangement made between a builder and a lender; it is the lender that provides the cash back for the transacation through the instrument of a Cash Back Mortgage despsite the offer being marketed by the builder. The lender makes this arrangement with the builder in return for the probably of getting new clients for the whole a development site. Cash back mortgages are a legitimate financial instrument, approved and controlled by the Financial Services Authority (FSA) such as:

http://www.abbey.com/csgs/Satellite?c=GSInformacion&cid=1157695438385&pagename=Abbey%2FGSInformacion%2FGS_ResumenHipotecas#cashbackmortgage

In your situation, despite the fact that the buyer completes his own mortgage application, I believe that a financial services supplier could be entitled to argue that you had conspired with the buyer to agree an artificial price. That is why I used the term ‘conspiracy to defraud’ in my earlier mail.

I may be wrong, but I would not enter into such an arrangement.

If your buyer wants cash back he should seek a cash back mortgage.

Best regards,

M.G.

(Please be aware that is only an unqualified opinion)