Accounting for seller concessions

[Danae Meurer]

How does one account for seller concessions from the HUD-1? Is that amount subtracted from the basis, or is that money allocated proportionally to each item in the closing costs it covered?

Also, if there is a Lender Tolerance Cure listed, does that follow the same treatment?

[Bill Gulley]

Seller's concessions are credited to the sale price or settlement fees to a buyer, depends on the concession and debited to the seller's side due the seller. Tax wise it is a cost to dispose of the property or a reduction in the sale price, to the buyer it reduces the cost of acquisition that forms the buyer's basis in the property. Lenders allow up to 3% for concessions before it effects the loan to value and loan amount. Pre-paids must be paid by the buyer, per diem interest, insurance, tax escrows and PMI/MIP, other closing costs may be paid by the seller or others, depending on the type of loan. Borrower's cash reserves must be on hand and not from seller concessions.

Not sure what you mean tolerance cure list, if you mean property deficiencies, the property must be in marketable condition, repairs less than 1% may be overlooked without escrow requirements for repairs. Again, type of loan and nature of the deficiency plays on what might be allowed. :)