By Rebecca A. Sabel, Auditor/Investigator
In a real estate sales transaction, it is certainly a buyer's "dream come true" to receive a concession or compensation from either the seller, the seller's agent or the buyer's agent. But while such concession/ compensation may be lawful, it is not always a pleasant dream for the real estate agents involved in the deal.
There are requirements that must be met in order for a licensee to compensate any party whom the licensee is not representing in the transaction. (Typically, that party is the buyer.) Prior to compensating a party who is not the licensee's principal, the licensee must:
assure that the compensation or consideration paid appears on the settlement statement.
The consent of the principal and the disclosure to the lender may be easily accomplished; however, agents sometimes encounter resistance to showing the compensation or concession to the buyer on the settlement statement. Why? Because compensation to a buyer can affect a buyer's loan to value ratio (LTV). Such a payment effectively reduces the purchase price - requiring a lender to recalculate the buyer's loan amounts to determine whether or not the buyer's LTV complies with the requirements of the loan.
When this occurs, or when the buyer's LTV exceeds the parameters of the loan, a loan processor may sometimes attempt to cut corners by requesting that the compensation to the buyer not appear on the closing statement. However, according to Fannie Mae guidelines and federal laws, even payments which are made outside of closing shall be noted on the settlement statement. Therefore, failure to disclose the payment to the buyer on the settlement statement can constitute a "false statement to a lender" (a federal crime), and also a violation of the License Law and Commission rules.
Caveat
In any real estate transaction, when you discover that a settlement statement does not reflect compensation which may have been paid to the buyer, you should advise the parties to seek legal advice. If you find the statement to be incorrect, arrange to have it corrected and/or send a corrected statement to the lender explaining the discrepancy. Do not sign or acknowledge a settlement statement that does not accurately reflect all charges and compensation.