Selling House at Loss; Better to credit buyers or lower purchase price?

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HAMnEGGr
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Selling House at Loss; Better to credit buyers or lower purchase price?

Post by HAMnEGGr » Mon Aug 12, 2019 3:13 pm

-So we purchased a house just over 3 years ago for 820
-We lived there for 2 years, decided to move out just over a year ago, converted it to a rental, and rented it for a year
-We are now selling it at a loss (799 from our purchase of 820) and in negotiations with a buyer
-Unfortunately inspection turned about an issue and the repair is quoted at about 25K

-Is it more advantageous from a financial/tax standpoint to ask the buyers to lower the purchase price by 25K rather than giving a 25K credit?
-Also, would a 25K tax credit increase out cost basis to 245? (we initially purchased at 220)

Thank you.

z91
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Re: Selling House at Loss; Better to credit buyers or lower purchase price?

Post by z91 » Mon Aug 12, 2019 3:21 pm

This depends on many factors. I would discuss these with your agent if you have one.

Many times buyers will find things in the inspection and it's really up to the seller. A lot of cases the buyer will get all, some, or none of the money to fix a repair. If you refuse of course the buyer can walk. Buyers can use this to their advantage as they nickel and dime the seller to keep the deal on. If you walk, then you risk a black mark on future sales as people will wonder why the deal fell through. It's tough.

That said, IMO it is better to lower the sales price in return for the buyer to remove all contingencies. You and the buyer will likely pay less taxes. Agents will want to do the credit as they will claim it's cleaner (when in actuality they will get a higher commission, and the house will sell for more making them "look good").

veindoc
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Re: Selling House at Loss; Better to credit buyers or lower purchase price?

Post by veindoc » Mon Aug 12, 2019 4:45 pm

Can’t comment on whether or not it is a good idea for seller. If I was the buyer I don’t know if I would be happy with that. 25k less off purchase price means only 5k less of a down payment and a few dollars off the mortgage payment. A 25k credit would mean $25k less off the down payment, which seems to be more advantageous, unless I’m remember incorrectly the whole process.

chessknt
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Re: Selling House at Loss; Better to credit buyers or lower purchase price?

Post by chessknt » Mon Aug 12, 2019 5:00 pm

Your tax situation might be more complicated because you had personal use of the property for 2+ out of the last 5 years which changes some rental rules though that is immaterial at this point if you want to get rid of it.

I'd try to negotiate that amount down a bit since you are already taking a loss unless you are in a bad market as a credit to the buyer rather than a change in purchase price assuming it does not break their lender's rules. It makes it much easier for them to get it fixed.

Jack FFR1846
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Re: Selling House at Loss; Better to credit buyers or lower purchase price?

Post by Jack FFR1846 » Mon Aug 12, 2019 5:04 pm

My first thought is that 6% of $25k is $1500 that you'd keep in your pocket, rather than paying it to the real estate people.
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Goal33
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Re: Selling House at Loss; Better to credit buyers or lower purchase price?

Post by Goal33 » Mon Aug 12, 2019 5:07 pm

z91 wrote:
Mon Aug 12, 2019 3:21 pm
This depends on many factors. I would discuss these with your agent if you have one.

Many times buyers will find things in the inspection and it's really up to the seller. A lot of cases the buyer will get all, some, or none of the money to fix a repair. If you refuse of course the buyer can walk. Buyers can use this to their advantage as they nickel and dime the seller to keep the deal on. If you walk, then you risk a black mark on future sales as people will wonder why the deal fell through. It's tough.

That said, IMO it is better to lower the sales price in return for the buyer to remove all contingencies. You and the buyer will likely pay less taxes. Agents will want to do the credit as they will claim it's cleaner (when in actuality they will get a higher commission, and the house will sell for more making them "look good").
Buyer wants credit too often because it can be applied to closing costs.
A man with one watch always knows what time it is; a man with two watches is never sure.

EdNorton
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Re: Selling House at Loss; Better to credit buyers or lower purchase price?

Post by EdNorton » Mon Aug 12, 2019 5:19 pm

Did you take depreciation when you rented the house? Might have a gain. :oops:
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stan1
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Re: Selling House at Loss; Better to credit buyers or lower purchase price?

Post by stan1 » Mon Aug 12, 2019 5:19 pm

Has the buyer already lifted their mortgage appraisal contingency or is that still pending? My preference as a seller is to renegotiate once after all the facts are out in the open. Buyer probably benefits with multiple rounds of renegotiation. You don't want to agree to a credit only to find out the house doesn't appraise and the buyer comes back asking for a further price reduction along with the credit.

mariezzz
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Re: Selling House at Loss; Better to credit buyers or lower purchase price?

Post by mariezzz » Mon Aug 12, 2019 8:21 pm

Isn't real estate agent's commission based on sales price?
If you give a credit, you may be paying commission on that unless agents put in writing that amount is excluded from commission.

Vanguard Fan 1367
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Re: Selling House at Loss; Better to credit buyers or lower purchase price?

Post by Vanguard Fan 1367 » Tue Aug 13, 2019 12:02 am

I was in a similar situation when I was not very well off. I found it annoying to credit the buyer with 900 bucks which resulted in me having to pay a higher commission to my realtor. If you can lower the purchase price I would consider that because of the real estate commission if there is one.

rascott
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Re: Selling House at Loss; Better to credit buyers or lower purchase price?

Post by rascott » Tue Aug 13, 2019 12:27 am

A buyer is going to want the $25k closing credit (unless this is a cash offer). Otherwise it means more money out of their pocket to get to closing and get the defect fixed.

You may have a give or take on your taxes due to the deprecation deduction you took for one year. But doubt it's much.

Your main thing is you'll pay sakes commission on the extra $25k if you offer a credit over a price reduction.

Price reduction is better for you. But buyer may prefer otherwise. Can always split the difference if it's an issue.

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Watty
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Re: Selling House at Loss; Better to credit buyers or lower purchase price?

Post by Watty » Tue Aug 13, 2019 12:50 am

I am very far from being a tax guru but is there any chance that if you paid the $25K and had the problem fixed before the sale closed that you could take that expense as a business deduction since it was a rental property?

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