Is it ok for seller to hire buyer to do repairs and upgrades

[Robert Kenny]

ultimately I would like to get cash from the seller to take care of upgrades. But I understand this is not allowed. Is it legitimate for the seller to hire me and pay me for repairs and upgrades before closing? I am a licensed general contractor. This would allow me to know the work is being done to my satisfaction, as well as being paid for doing the repairs so that I would not have to pull money out of my own pocket. If this is ok... Does it need to be put on the hud? 

[Bill Gulley]

You didn't mention the repair or the value, generally 3% or less can be made from credits, if the lender is aware of the matter where it is mentioned on the appraisal, repairs may be escrowed at one and a half times the estimated cost of repairs. When a buyer is skilled by profession and meets license requirements the buyer may do work prior to or post closing, the appraiser will then give a final inspection of the work for closing or clearance of funds escrowed. The matter is really up to the lender, the nature of the repair, the value the effect on marketability will be factors for them to allow repairs after settlement.

Prior to closing, a seller may have repairs made, these repairs are not a HUD disclosure unless the repair is part of the contract, then it becomes a closing requirement.

If the repair is noted by the appraiser, repairs can be made outside of settlement and a final inspection by the appraiser will be necessary to set the final value assessment.

These are general secondary market (including USDA) guidelines, but the funding will be up to underwriting as to what they will allow.

If the matter isn't in the contract or on the appraisal, I'd suggest you work it out with the seller outside of settlement. As a GC, simply have a contract for repairs as you normally would, if your seller backs out or the deal fails to close you have the option of filing a workman's/material lien.

If you do work, you will need to provide a lien release at settlement, the seller will need to disclose any work that was done within the time frame allowed for filing liens for title work/insurance and they will need your release.

When I say, work it out outside of settlement, I mean as to amount paid out of closing or POC, not that you do anything without disclosure to your lender. If the contract is reasonable and work isn't more than 3% and you're a GC, work outside closing should not be an issue.

If the job is significant, say 10% of the price and you're getting 100% financing, in essence, you're borrowing your construction fee, that can be an issue as loans don't fund a borrower to increase the market value or sale price. In a period of falling market prices, this becomes more of an issue as you are borrowing sweat equity in a purchase.

If your work is significant, you can have the seller pay for it, do the work,  then contract to buy, apply for the loan, have the appraiser assess the value. then close. You'll still need to provide lien waivers. The only way to avoid the lien waiver is to complete work prior to contracting which is after the time allowed to file such liens.

While it is USDA, all RE is local, it's not just the lender having concerns but also the title insurance and settlement requirements. I suggest you ask your loan officer! :)