Illegal In-Law Units and Credits For Closing Costs Always OK If... We blogged yesterday about “Clean Contracts” and received a couple of great questions.

Illegal in-law units and/or kitchens:  Appraisers cannot attribute value to illegal units in most cases, unless they are typical for the area and there are comparable sales with similar units to support the value.

Also, stoves from non-permitted kitchen areas must be removed prior to the appraisal so the area can be deemed a “wet bar” only, eliminating the health and safety risk.

Credits for closing costs Instead of repairs:  If seller credits are required for repairs that Realtors do not want to illuminate (to avoid having to complete them prior to close), equivalent credits should be negotiated for closing costs. Addenda do not need to specify what type of closing costs.

Here is one caveat though: credits cannot exceed actual recurring and non-recurring closing costs.  Total closing costs can range from $8,000 to $30,000 (or more), depending on size of purchase, the presence of impound accounts and the amount of transfer taxes. Realtors need to check with their lender (hopefully us :) ) for maximum allowable credits if the negotiated credit will be large.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 310167

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