Cashback on purchase completion - illegal?

[slyrubies]

sorry wasn't sure what was the best forum for this one.

In short I read in Ajay Ajhuga's book The Buy to Let Bible (2004 edition) that he sometimes puts offers on properties where he offers the asking prices with say a % contribution (say 5-10k) from the vendor on completion. IE cashback or vendor deposit.

Now, I've actually made this offer on a property, but the agents (who have been extremely unprofessional throughout my dealings with them, both disorganised, lazy and demonstrating lack of knowledge) are claiming that this is illegal and a type of criminal activity that they will resist at all costs and advise their client NOT to proceed with it (even though the client will be no worse off than the offer they have already accepted).

They got their legal department to check out the legality of it and were told that in fact this type of offer was legal after all, but they then came back to me and said that although they found the deal could be legal it was still against their policy and they would advise their client against it (they implied for moral reasons, ie they said that criminals did this type of deal as some kind of scam and were implying that this is what I was trying to do...).

I know for a fact that the agents have NOT passed on any of my offer letters to the vendor, they have actually admitted this to me. They have also indirectly admitted to me that they haven't even fully read my most recent offer letter (and this is what caused them to make an incorrect/incomplete offer to their client).

Any advice on this topic would be appreciated. My main concern is to get the deal sorted, ie I want to buy the darn property! But I have limited funds to do so, as it's a place for me to live more than anything else and I can only do it if they advise their client to accept my cashback offer...

Thanks again =p

[Jennifer_M]

Sorry I must be missing something here: what is the point in making a full asking price offer and then getting money back from the vendor ?

- the agent charges a %age of the sell price so the vendor will pay more to the agent than what he should
- the vendor only gets a lower amount
- the buyer will pay more stamp duty than necessary

Is there something I'm not aware of ? :confused:

[slyrubies]

think upfront cash/deposit...

in this instance the difference is between having to cough up £11.5k up front and having to cough up £2.5k...

[Yardleystar]

Its not the cash back in whatever form that is illegal but how it affects the purchase price of the property for a mortgage and the land registry

Your solicitor has to report the purchase price to the lender and then put the same figures on the land registry forms - he is duty bound to note the correct price

With some developers offering a cashback reduces the purchase price and thus the loan as mortgage lenders will only advance on "the valuation or purchase price, whichever is the lower"

Its often using the cashback to adjust the purchase price to the valuation that is false accounting and thereby obtain a pecuniary advantage (see theft act 1968) - the advantage being a mortgage or part thereof to which you are not entitled.

[Steve C]

There are certainly lenders on The Money Centre web site that accept this type of deal.

[justaboutsane]

We have done this on a number of occasions, on both sides! .. In our most recent case the reason was the price agreed was less than the threashold for the mortgage company would be prepared to loan on. So an offer of £50k was made with a cashback of £2k on completion. THis means we can mortgage the property with the rest of the portfolio making a quicker sale than having to hunt around for another mortgage company and go through all the mess of filling in forms etc!

[Paul_f]

The Portman BS has taken the lead in refusing to lend on buy-to-let new builds. Why?

Because there is a type of a quite legal scam going on with developers who can't sell their properties that easily. What they do for say an investor who wants to but 3/4 properties to let is to heavily discount them by up to 35%, not by reducing the asking price but by giving the buyer a "cash-back" incentive.

Hey presto the properties are sold at the "asking price", and the buyer who comes along and wants just a single unit is conned into thinking they are selling like hot cakes - "Shifted 5 last week sir - no problem, I should buy now before the prices go up" type of sales pitch. He buys, but then when he comes to sell in 12 months because he has a new job elsewhere is told by the local agent it's worth £20,000 less than he paid. Also the valuer won't take into account all the freebie carpets and white goods the developer installed for "free". Check out any new build for such a problem, especially if they have been hanging around for a few months!! Let's be careful out there!

[Ruth Less]

Check out any new build for such a problem, especially if they have been hanging around for a few months!! Let's be careful out there!


Yes, this business of the price at the land registry being original asking price but not the "price" actually paid is very common for new builds. The building site I'm living in has a huge sign on the way in, 10K cash back, deposit paid, and other goodies, yet the land registry shows what were the asking prices that I'd bet practically no one paid. It keeps up the illusion the properties are selling well and makes each punter think they've got a bargain. We can give YOU a special discount if you sign up this weekend sir as we just want to meet our sales targets for this month...