Handling Items To Be Left by the Seller

When you're buying or selling a home, you need to know how to structure a contract when personal property is being left behind by the seller. What we're talking about today are called interested party contributions in a real estate contract, and they can come in two forms.

The first form of interested party contributions (IPCs) is cash provided by the seller to pay for closing costs, taxes, insurance, or any interest due at closing. That’s known as a seller credit. There's also an interested party contribution which is a “non-realty item”. Non-realty items are things like pool covers, lawnmowers, and patio furniture. These things can have a perceived value, and the value of those items can cause an issue when it comes to the sales contract and the value of the home.

Let's dig a little bit deeper into why this is. Generally speaking, acceptable contract items include things like built-in appliances, stoves, dishwashers, refrigerators, window treatments, and anything attached to the home like carpet. These items are usually considered fixtures, and the owner will not take those out.

As far as things the seller leaves behind, we’re really only worried about the items that would require a reduction in the purchase price or value of the home. On top of that, personal property items left for the convenience of the seller, like pool cleaning equipment, lawn mowers, picnic tables, patio sets, or pool tables, don't typically cause much trouble in real estate contracts. As a general rule, if the personal property is less than 2% of the home’s value or less than $500, it's really not going to be considered an interested party contribution.

What happens when something of significant value is mentioned in the sales contract and left for the buyer? Well, the appraiser must know about all personal property included in the sales contract, and they have to figure out the aggregate value of all those items, which is really a judgment call. This value listed by the seller could be anywhere from zero to many thousands of dollars. With regards to most of the incidental personal property I listed earlier, the appraiser will typically cite those items as personal property and often give them a value of zero. That's the goal.

However, if you find yourself looking at a sales contract and the list of personal property includes priceless art or a 67 Corvette in the garage, you have to get those items off the contract.They're only going to cause problems down the road.

To summarize, while mortgage financing guidelines don't specifically state that items need to be removed from the contract, they will cause a problem when evaluating the property and deciding what the underwriter will allow the buyer to use as a loan value.

It’s a good idea to either remove those items from the contract or include special language to affirm that those items are being left for the sole convenience of the seller and that they don't carry any value with the transaction. However, it has to make sense. You can't leave a boat in the backyard because it's too big to move and say you're leaving it for convenience—that's not going to fly. Those items do have value, and you would have to get them removed from the contract.

As always, if you come across a sales contract where these items have to be listed, talk to your trusted closing attorney. They can give you some guidance. Of course, you can also give me a call anytime. I'd be happy to help.